DW: Rising Offshore Opex Puts Pressure on Suppliers

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By MarEx 2016-07-11 21:16:12

In its latest weekly view into the economics of oil production, consultants Douglas Westwood highlighted the growing cost of production at established deepwater projects. While in the past, cutting back on high exploration and development costs may have been the primary focus for oil companies with offshore assets, DW suggests that they are now turning to address rising operational expenditures for existing wells, especially in the Gulf of Mexico, where the maintenance, modification and operational costs for offshore facilities are twice the global average.

"The current rate of growth combined with the overall operational cost in the Gulf of Mexico is not sustainable," writes Andrew Meyers of DW's Houston office. "Operators are deferring and cancelling many historically routine operational objectives as long as they stay within safety and regulatory guidelines. Budgets for maintenance and modification projects are now being revisited and contractors will feel the impact." 

DW says that this may hurt offshore support firms, which have relied on oil majors' continued operational expenditures to tide them over while waiting for the exploration and production market to rebound - putting new pressure on many and adding to the incentives for consolidation. 

Douglas Westwood has warned of rising operational costs since at least late 2014, when the firm estimated that $238 billion would be spent on MMO worldwide over a four-year period – with costs going up at six percent annually. While the prediction was made before the downturn, DW expected to see costs rising for the forseeable future, with maturing fields requiring ever more investment to maintain production.