January 2013 Issue
Deepwater Exploration, Development Drive Optimism in Oil and Gas Market
By Susanne Pagano
Sea Technology Contributor
Without a doubt, today’s robust oil and gas market is driven by deepwater and ultradeepwater activities and operations. As 2012 came to a close, oil prices held around $85 per barrel, down slightly from price levels early in the year. Many analysts suggest crude prices likely will hold in the $80-to-$100-per-barrel range or slightly higher in the near term. An escalation of political unrest in the Middle East could prompt a price spike, while economic issues impacting oil demand, such as a financial downturn, could temporarily soften prices, experts say.
As in recent years, challenging energy projects in ocean depths greater than 1 mile remain attractive investments and hold long-term promise. Drilling contractors continue to expand their order books with advanced rigs; oil and gas companies are moving forward with technically challenging exploration and field development projects in traditional deepwater markets in the Gulf of Mexico, Brazil and West Africa, as well as other emerging regions.
Oil and gas companies continued to expand offshore acreage portfolios. Governments awarded major and independent energy companies concessions in dozens of countries, including Norway, the United Kingdom, Uruguay, Papua New Guinea, the Philippines and Sierra Leone. For instance, BP plc (London, England) was the successful bidder on four deepwater exploration blocks offshore Nova Scotia, Canada. The company must submit an exploration plan to the Nova Scotia Petroleum Board by mid-2013.
Gulf of Mexico
In the Gulf of Mexico, oil and gas companies maintained interest in acquiring new acreage for future exploration and development in two offshore lease sales. In late November, energy companies offered $133.8 million in high bids for 116 tracts offshore Texas. Earlier in the year, oil companies submitted a record $1.7 billion for rights to explore 454 tracts in the Central Gulf offshore Louisiana, Mississippi and Alabama. In that lease auction, Statoil Gulf of Mexico LLC (Houston, Texas) submitted a record $157 million for rights to drill a single deepwater block in Mississippi Canyon.
New U.S. drilling safety rules are now finalized, strengthening requirements for safety equipment, well control systems and blowout prevention practices on offshore oil and gas operations. The rules, including enhanced well-casing and cementing standards and third-party verification requirements, initially were issued under an emergency rule making immediately following the Deepwater Horizon accident and oil spill offshore Louisiana in April 2010.
Gulf of Mexico oil and gas operators successfully completed in July the first-ever, full-scale deployment drill of critical well control equipment to test the industry’s response to a potential subsea blowout in deepwater. During the exercise, a capping stack was deployed to a simulated wellhead in nearly 7,000 feet of water, connected to the wellhead, then pressurized to 10,000 pounds per square inch.
New Production. One area to watch in the new year is the resource-rich transboundary between the United States and Mexico in the gulf. U.S. energy companies and the oil monopoly Mexico City, Mexico-based Petróleos Mexicanos (PEMEX) are monitoring future opportunities to jointly explore and develop oil and gas reservoirs that cross the international maritime boundary under a transboundary hydrocarbons agreement reached in February 2012.
Nearly 1.5 million acres of the U.S. Outer Continental Shelf, holding as much as 172 million barrels of oil and 304 billion cubic feet of natural gas, are now more accessible to oil and gas companies. U.S. officials ensured the agreement provides oversight to meet safety compliance.
Petróleo Brasileiro S.A. (Rio de Janeiro, Brazil) and partner Total E&P USA Inc. (Houston) started production at the ultradeepwater Chinook/Cascade field in the gulf, the first FPSO facility moored in U.S. waters, after a delay of more than a year. The BW Pioneer has the capacity to process 80,000 barrels of oil and 500,000 cubic meters of natural gas per day.
Rig Fleets. The global fleet of offshore drilling rigs totals around 833 units, with about 83 percent under contract worldwide. The U.S. gulf includes about 115 rigs, the same fleet size as a year ago. One of the newest additions to the domestic fleet, Ensco plc’s (London) semisubmersible ENSCO 8500, began a contract for Anadarko Petroleum Corp. (The Woodlands, Texas) in December.
In the latter months of 2012, deepwater semisubmersible rigs working in more than 7,500 feet of water in the Gulf of Mexico were fixed at daily charter rates ranging from the low $400,000s to around $580,000, energy information and intelligence provider IHS Petrodata (Houston) reported. Charter rates for drillships suited for the same water depths averaged around $595,000 a day. Deepwater floaters working in West Africa and Brazil commanded slightly higher charter rates.
Premium jack-up rigs in the U.S. gulf worked at rates from around $115,000 to $165,000 a day. Operators chartered high-specification, harsh-environment jack-ups in the North Sea at daily rates from around $215,000 to $425,000, depending on individual charters.
In late summer, the Interior Department’s Bureau of Safety and Environmental Enforcement (BSEE) gave Royal Dutch Shell plc (The Hague, Netherlands) the green light to move forward with limited activities in preparation for potential development in the Beaufort and Chukchi seas offshore Alaska.
BSEE granted Shell the permit to create a mudline cellar, a safety feature that ensures a blowout preventer is adequately below the seafloor. Shell delayed its Arctic exploration program until 2013 and drilled top holes. The top portions of the wells drilled were safely capped and temporarily abandoned, in accordance with regulatory requirements. Two drillships, more than 20 support vessels, an approved capping stack and other redundant oil spill response equipment were assembled in the region.
Drilling contractors took steps to expand their rig fleets over the next several years to meet higher demand for ultradeepwater equipment. Atwood Oceanics (Houston) confirmed a $635 million order for an ultradeepwater drillship with Daewoo Shipbuilding & Marine Engineering Co. Ltd. (Seoul, South Korea). Transocean Ltd. (Zug, Switzerland) disclosed a $3 billion contract with Daewoo to build four ultradeepwater drillships. Separately, Ensco exercised an option to build an advanced DP3 ultradeepwater drillship based on the GF (Green Future) 12000 hull design at Samsung Heavy Industries Co. Ltd. (Seoul) shipyard.
Around 150 rigs are under construction at shipyards from Singapore to Texas to meet the anticipated uptick in demand over the next several years. About 15 rigs were added to the worldwide fleet over the past 12 months.
In November, BP awarded the first contracts for Project 20K, a multiyear initiative to develop next-generation systems and tools to help unlock the next frontier of deepwater oil and gas resources beyond the reach of today’s technology. Initial contracts, placed with KBR Inc. (Houston) and FMC Technologies Inc. (Houston), relate to key systems associated with technologies needed to explore, develop, and produce oil and gas from high-temperature and high-pressure reservoirs.
Over the next decade, BP intends to develop technologies for well design and completions, drilling rigs, riser and blowout prevention equipment, subsea production systems, and well intervention and containment.
Cameron (Houston) and Schlumberger Ltd. (Paris, France) have teamed to establish a joint venture, OneSubsea, to manufacture and develop products, systems and services for the subsea oil and gas market. The partners intend to combine their reservoir knowledge and wellbore technologies to enhance the potential of customers’ subsea developments.
Additionally, a new five-year alliance teams European marine construction and engineering specialists Technip (Paris) and Heerema Marine Contractors Nederland B.V. (Leiden, Netherlands) to help clients best address the growing worldwide subsea ultradeepwater market.
PEMEX reported a notable discovery in 8,300 feet of water near the U.S. boundary in the Gulf of Mexico that may hold as much as 27 billion barrels of petroleum. Other significant hydrocarbon strikes were logged in the U.S. gulf and offshore Brazil, Bangladesh, China, Equatorial Guinea, Ghana, Malaysia and Mozambique.
The Road Ahead: The Next 12 Months
Global exploration and production spending is expected to reach a new record of $644 billion in 2013, an increase of 7 percent from exploration and production expenditures in 2012, reported Barclays Capital Inc. in an annual survey of some 300 oil and gas companies worldwide. However, oil field spending in North America is projected to be flat over the next 12 months. Factors constraining U.S. and Canadian capital expenditures include lower natural gas prices, modestly reduced West Texas Intermediate oil prices, a desire of energy companies to spend within cash flow and logistical challenges in many newer oil plays, the survey found. Companies based 2013 spending plans on average oil prices of $98 Brent crude and $85 West Texas Intermediate oil, and U.S. natural gas prices of $3.47 per million British thermal units.
Daily charter rates for several fifth-generation semisubmersible drilling rigs increased for upcoming contracts in 2013, three major drillers reported recently. One notable rig charter is Transocean’s 20-month contract with Eni S.p.A. (Rome, Italy) for the deepwater rig Sedco Express to work offshore Nigeria at a daily rate of $600,000. The rig just completed a $500,000-a-day charter with Noble Energy Inc. (Houston) in waters off Israel.
The market is poised to add an estimated 21 ultradeepwater rigs capable of drilling in water depths greater than 7,500 feet. Most of these rigs are reported to have firm contract commitments upon delivery.
Construction is in progress at Jurong Shipyard Pte Ltd. (Singapore) on a $370 million moored semisubmersible rig for Diamond Offshore Drilling (Houston). Slated for delivery in the second quarter of 2014, the rig will be capable of drilling in water depths up to 6,000 feet.
The rig will utilize an existing hull from a Diamond Offshore Drilling Inc. (Houston) cold stacked rig. Another new project under way is Fred.Olsen Energy ASA’s (Oslo, Norway) harsh-environment ultradeepwater semisubmersible, on tap for delivery in March 2015 from Hyundai Heavy Industries Co. Ltd. (Ulsan, South Korea).
Additional major undertakings for 2013 will include new subsea trees, control modules and other innovations in oil and gas fields worldwide. The Interior Department’s Bureau of Ocean Energy Management (BOEM) will conduct Lease Sale 227 in March, offering all unleased areas in the Central Gulf of Mexico planning area.
This could lead to production of up to nearly 1 billion barrels of oil and 3.9 trillion cubic feet of natural gas, according to agency officials. Some of the tracts are in water depths as great as 11,115 feet. A lease auction offering acreage in the Western Gulf of Mexico is on track later in the year.
BOEM is expected to continue issuing permits for new wells in the Gulf of Mexico in the new year, further adding to the momentum in the U.S. marketplace.