Years of Fossil Investments Deliver ‘No Value’ to Investors

Years of lavish funding for new offshore fossil developments are on track to deliver little or no return to their investors due to low oil prices, although a more recent generation of projects may fare better, industry analysts Rystad Energy reported last week.

“Rystad evaluated all offshore oil fields sanctioned since 2010 and ranked them by estimated value per barrel of oil under various oil price scenarios,” industry newsletter Rigzone reports. “According to the company, entire vestiges of offshore field development projects will fail to offer a return on investment in today’s oil price environment.”

The study concludes that offshore drilling projects approved between 2010 and 2012 have “barely been able to generate any value”, while those that got their start between 2013 and 2014 are “expected to have no value creation”.

Rigzone says world oil prices would have to reach about US$70 per barrel for those 2013-14 projects to avoid “massive losses”. On Sunday afternoon, the two main price listings stood at $61.69 for Europe (Brent Crude) and $56.20 for North America (West Texas Intermediate).

“Looking back at the offshore projects sanctioned between 2010 and 2014 with the knowledge we have today, we see that the last offshore investment cycle is struggling to create value,” said Rystad’s head of upstream research, Espen Erlingsen. “High development costs combined with low oil prices have severely undermined the profitability of these assets.”

He added that projects approved between 2015 and 2018 were positioned to succeed at prices as low as $40 per barrel. “With the pivot in development costs from 2015 onwards, the projects sanctioned over the last four years are in a much better position.” Rigzone says the industry’s investment in offshore projects has been rising this year at the expense of “tight oil” development in the shale fields where oil and gas fracking takes place.