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* Deepwater seen working in Brazil, Gulf of Mexico
* Long-cycle projects require $60-$80/bbl oil price
* World will require deepwater to meet demand
By Ron Bousso and Karolin Schaps
LONDON, Oct 18 (Reuters) - The deepwater oil industry is notdead, even after the brutal drop in oil prices in recent years,but activity will focus on regions such as Brazil and the Gulfof Mexico where resources are large and costs low, executivessaid on Tuesday.
Sanctioning of multi-billion dollar projects, that takeyears to develop and which drove oil supply growth earlier thisdecade, ground to a near halt since the oil price collapse inmid-2014 as companies dealt with a sharp drop in revenue.
U.S. shale oil production has been able to sharply reduceits development costs in recent years to stay profitable at $50a barrel in some cases, John Hess, Chief Executive Officer ofU.S. independent Hess Corp told the Oil & Moneyconference.
"You will need prices in excess of $60-$80 a barrel to getthe long-cycle projects running," Hess said. "We are notinvesting enough today to provide the projects for long-cyclethat the world is going to need."
"Not all deepwater is equal," Andrew Gould, board member ofSaudi Arabia's state-run oil company, said.
"There are really only three areas that have the criticalmass to allow economies of scale. These are the U.S. Gulf ofMexico, the North Sea, particularly the Norwegian area, andBrazil," he added.
"These areas have the engineering and supply supportingproximity that can mobilize resources in a way that isimpossible in remote areas," Gould, former chairman of BG Group,which Royal Dutch Shell acquired earlier this year,said.
Gould gave the example of Statoil's Johan Castbergfield development in the Norwegian North Sea where costs havebeen reduced from an original estimate of $16 billion to around$6 billion due to cost deflation and simplification ofconstruction plans.
Similarly, BP's Mad Dog project in the Gulf of Mexico isexpected to be developed at nearly half of its original costs of$20 billion.
BP Chief Executive Officer Bob Dudley told reporters at theconference that a final investment decision (FID) on the Mad Dogproject might be made over the next six months.
Dudley said Mad Dog II will "probably" be sanctioned thisquarter or in the first quarter of next year, depending onagreement with its partners.
"There will be FIDs. Investments are back but only the bestones," Dudley told reporters on the sidelines of the conference.
Dudley expected oil prices to remain within a range of $50to $60 a barrel next year and not exceed $70 a barrel by the endof the decade.
"Good deepwater in areas of critical mass will be developedand it is encouraging to see operators already reacting toreduce developing costs," Gould said.
The world will require around 40 million barrels per day ofnew oil production over the next 10 years to meet annual demandgrowth of around 1 million bpd and a natural field decline ofsome 30 million bpd, Hess said.
Oil majors such as Chevron are increasingly focusingtheir smaller budgets production growth on short-cycle planssuch as shale and shallow water projects in order to benefitfrom faster income.
Ali Moshiri, President of Chevron's Africa and Latin AmericaExploration and Production said that mega projects such as heavyoil and extra heavy oil developments in Canada and Venezuela, aswell as some deepwater production, will be "very difficult" todevelop unless prices reach $60 to $80 a barrel.
"From a practical point of view, certain projects will bepushed into the future," Moshiri said.
(Editing by William Hardy)
