- Oil schemes not economically viable when oil price is under $75 a barrel
- Doha could decide mature fields with low yields not worth the investment
- Projects could be scaled down with a view to maintaining current levels for as long as possible
Qatar Petroleums (QPs) planned expansion and rehabilitation of two of its existing oil fields are under serious threat of being cancelled due to lower oil prices offering a much diminished return on investment (ROI) on both schemes.
The combined value of both projects is in excess of $14bn and this means that unless there is a significant hike in oil prices, the economic viability of both schemes is in jeopardy.
The most likely to be cancelled is the $11bn redevelopment of the Bul Hanine offshore oil field. The field is owned and operated by QP and currently has a production of about 40,000 barrels a day (b/d). The company plans to ramp this up to 95,000 b/d and put enhanced oil recovery (EOR) technology in place that will prolong the life of the field by 25 years.
However, investing $11bn for 50,000 b/d does not have the same ROI as it did a year ago, when oil prices were hovering around the $110 a barrel level. This means it is not likely to move forward from the study phase.
Nobody in Qatar seriously believes [Bul Hanine] is going to have $11bn spent on it, says a Doha-based oil and gas executive. There may be some maintenance work and some essential rehabilitation, but that will be it.
The official also believes there would be some opportunities for EOR for the field as the current 45,000-b/d capacity starts to deplete.
The Idd al-Shargi offshore field, the second scheme facing the threat of cancellation, is less cut and dry due to the fact that many of the packages have already been tendered and bids have been submitted. However, the $3bn project is not economically viable under the prevailing market conditions.
The US Occidental Petroleum (Oxy), has been operating Idd al-Shargi since 1994, and is planning an expansion that will sustain current production of 100,000 b/d for at least another six years. Tenders are due to be awarded by mid-2015 and work is expected to be completed by 2018.
There is a cloud over this project because while it is close to being awarded, even the contractors can see that the time is not right, says a contracting source based in Qatar that is familiar with the scheme. We will just have to wait and see if Oxy thinks it is worth the money.
Oxy has already said it is cutting back on major investments in 2015, although there was no mention of Idd al-Shargi in these plans. However, the company has been trying to sell off its Middle East assets and sources believe that could be a contributory factor to whether it has the appetite to spend $3bn on maintaining a depleting field.
QPs oil fields have been depleting for some time and while Doha has said it is committed to a strategy that would maintain production for as long as possible, there is a real chance that the assets could become economically unviable in the near future.
There is a serious threat that if unconventional oil in North America becomes cheaper to produce, many of the regions mature oil fields with a low yield will become too expensive to justify.
With both oil and liquefied natural gas (LNG) prices falling by almost 50 per cent over the past 10 months, it is clear QP is looking to cut costs where possible and is not planning to make any significant investments in the short term.
The firm has already cancelled two world-scale petrochemicals projects worth a combined $14bn because it did not believe the schemes offered a high enough ROI. It is also looking to trim the number of expatriate senior managers, and as many as 22 vice-presidents at the company could lose their jobs.
QP was not available for comment and Oxy declined to comment when contacted by MEED.