Following a disappointing 2020, when the pandemic caused sanctioning of offshore projects to dip to $44 billion from $99 billion the year before, offshore sanctioning is expected to rebound to at least $56 billion in 2021 and keep rising to as high as $131 billion in 2023, according to Norwegian intelligence firm Rystad Energy.
Operators are now even more focused on costs and profit margins, and majors are expected to concentrate their individual activity to fewer countries than before. This means the world’s resource-rich countries will have to compete more than ever to attract investments.
Rystad Energy has concluded to a top five list of countries for profitable large-scale field developments, seen from the operators’ perspective.
According to this analysis, the UK scores the highest post-tax valuation and offers the best profitability conditions for operators, with a net present value (NPV) of $11.1 per barrel of oil equivalent (boe) in the country at a flat oil price of $70 per barrel. The next in line are Kuwait ($11 per boe), Canada ($8.9 per boe), the US ($8 per boe) and Colombia ($8 per boe).
In Norway, a non-NOC company would only enjoy an NPV of $3.9 per boe from the Johan Castberg project. That said, other parameters factor in for operators, as Norway is a country where the risk of exploration is lower as the country shoulders some of the cost for unsuccessful wells.
The world’s average government take has declined in recent years and we expect that it will further drop going forward as oil and gas producing countries strive to attract foreign investors in a very competitive environment. Fiscal regimes that have higher government take will struggle to compete,
…says Espen Erlingsen, Head of Upstream Research at Rystad Energy.
For each of this analysis’ simulations, gross resources, production, prices, investments and operational costs were kept constant. The differences were in the fiscal parameters of the different fiscal regimes. The calculation of the key metrics was carried out from the approval year, which is 2018.
For Johan Castberg, the breakeven price ranges from around $25 per barrel (bbl) to around $65 per bbl under the different regimes. Some of the key mechanisms that drive up breakeven prices are high gross taxes (like royalty or export tax) or tough cost recovery methods (such as cost ceilings and deprecation spread over many years).
When it comes to breakeven prices of the project, the lowest ones are in the United Kingdom and Norway. Both countries benefit from only having net taxes (tax on profit) and an easy cost recovery system. Countries such as Indonesia, Malaysia, Egypt, Russia and Algeria are all countries with a high gross tax or tough cost recovery methods.
