Even though Brent Crude prices hit $75 a barrel on Monday, Shell continues to stick to disciplined spending and wants deepwater projects to break even at $40 a barrel or lower—a sign that Big Oil is committed to not repeating past mistakes with lavish expenditure on complex projects, as the case was when oil prices were above $100 a barrel.
Deepwater projects now need their breakevens at $40 or preferably below, Harry Brekelmans, Shell Projects and Technology Director, told Bloomberg in an interview on the sidelines of the Offshore Technology Conference (OTC) in Houston on Monday.
That targeted breakeven is nearly half the deepwater costs for some projects that were commissioned before the oil price crash in 2014, Brekelmans said.
“You’ve got to think about that 35-40 range,” Brekelmans told Bloomberg. “It’s something we want to be very disciplined around because it gives you reassurance that going forward, your portfolio is resilient,” the manager noted.
Last week, Shell announced the final investment decision for a deepwater development in the U.S. Gulf of Mexico—Vito—with a forward-looking, breakeven price estimated at less than $35 per barrel. Shell and Statoil are partners in the development, with Shell acting as operator with 63.11-percent ownership. Without specifying the initial costs of the project, Shell said that it had redesigned the project, bringing costs down by 70 percent by simplifying the design and collaborating with the supply chain vendors.
Reducing project costs is achievable and sustainable across deepwater developments globally, because three-quarters of the cost cuts are “structural,” Brekelmans told Bloomberg.
In a speech at the OTC on Monday, Brekelmans said: “It is fair to say that the industry is moving away from big, bespoke projects and towards a future that is all about detail. A future that is about being more scrupulous with the scoping and execution of projects.”