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Lloyds List: Oil majors jump in at the deep end to reap financial rewards

Oil companies are becoming more focused on developing hydrocarbon resources in ever deeper waters, which is also good news for shipyards, writes Martyn Wingrove, Lloyds List
Published: Oct 12, 2006

MORE oil industry capital investment is heading to the ultra-deepwater provinces and basins as energy companies are searching ever deeper for resources.

Major oil groups, plus some national institutions, are pushing into new exploration frontier regions in the search for more reserves, resulting in some large discoveries in areas that have recently been virgin territory to the drill bit.

Over the summer, substantial oil discoveries in the ultra-deepwaters of the US Gulf of Mexico and in the Santos basin off Brazil have revitalised interest in exploring in these high-cost, high-risk areas.

The discovery of deepwater hydrocarbons in the more traditional deepwater basins is driving the recent surge in floating production and subsea construction orders.

As more of the shallow water and onshore concessions are locked in by national oil companies, there are fewer opportunities for the international players and their share holders.

So these companies are forced to look in ever deeper waters in new frontier regions as well as more established basins for oil and gas projects. At least the latest exploration drilling has given these companies something back for their faith.

This summer, BP found oil on its Kaskida well and Chevron was successful on the Jack field, both in 2,000 m of Gulf of Mexico water, while Petrobras found its first big oil field in the Santos basin off Brazil.

As new fields are found, development opportunities will continue to arise with large awards for subsea and floating production systems landing on contractor desks.

According to London analysts Infield Systems, capital expenditure on deepwater and ultra-deepwater projects will continue its growth trend at least until 2011.

Infield forecasts total global capital expenditure for the period 2007 to 2011 will be around $80bn, including investments on platforms, subsea equipment, pipelines and control lines.

‘No oil company player in the 21st century that wants to be successful can ignore deepwater,’ says Roger Knight, Infield’s data manager.

‘The past 10 years has seen the deepwater offshore arena evolve from a frontier area to an intrinsic and strategically important element for most global offshore operators asset portfolio.

‘Compared to shallow water areas, deep and ultra-deepwater regions are still under-explored and hold considerable potential.’

Many of the deepwater projects require a fleet of ships to provide a variety of survey, drilling, subsea installation and logistics services in some of the remotest coastal areas.

The increasing number of projects being approved by board rooms across the globe has led to higher demand for these vessels and specialised drilling rigs.

As investment continues to climb, shipowners and shipyards can expect an avalanche of orders over the next few years for vessel conversions and new rigs.

Contractors are seeing a major move by oil companies to lease floating production storage and offloading vessels (FPSOs) for deepwater projects as often the costs of newbuilds are just too big to stomach.

Growing demand for deepwater and ultra-deepwater drilling services has led to the largest batch of rig building seen for more than 30 years.

Even with the newbuild ultra- deepwater rigs arriving from 2008, the market will remain tight as oil companies battle to secure rig capacity for their deepwater drilling ambitions.

Market analysts think half of the ultra-deepwater rig fleet will be needed to probe the growing portfolio of exploration assets in the Gulf of Mexico alone, leaving few available for drilling elsewhere.

Tight shipyard capacity means there is limited space for building new rigs or converting tankers into FPSOs for short-term delivery, so oil companies need to actively look some three years ahead of their current requirements.

A huge portion of the deepwater investments will be heading for the margins of the Atlantic Ocean, where some of the most costly projects are making good progress.

Around 44%, or almost $40bn, of deepwater investment will be on West African projects in the Gulf of Guinea, offshore Angola and in the new plays recently opened up, says analysts Infield Systems.

For the past eight years, Angola and Nigeria have been the focus of deep- water activity, but more discoveries in the Congo basin, off Equatorial Guinea and Mauritania have led to a greater variety of opportunities.

Two examples of projects in new areas include Murphy Oil’s move to begin developing the Azurite oil field off Congo Brazzaville and Woodside Petroleum taking its time to develop the Tiof field off Mauritania.

Murphy is thought to be negotiating with Oslo-listed Prosafe to install the industry’s first drilling and production vessel, while Woodside is thinking of using a tension-leg platform and FPSO in combination.

Even considering the new projects in these regions, Angola and Nigeria are the hubs of deepwater investment for the future.

British oil major BP has potentially four projects due to be developed off Angola after it begins production next year on the Greater Plutonio project.

US major ExxonMobil has two production ships on order from SBM Offshore for Kizomba C, and French group Total could have another two vessels for its Block 17 projects after it starts the giant-sized Dalia FPSO this year.

In Nigeria, Total has ordered two newbuild FPSOs for deepwater projects Usan and Akpo. Chevron has one on the way for Agbami while ExxonMobil and Shell have plans to order at least one more FPSO each.

With a continued stream of oil and gas fields being developed off Brazil some $20bn will be spent from 2007 to 2011, says Infield Systems.

Brazilian state firm Petrobras has a portfolio of deepwater oil and gas projects, mostly in the Campos and Espirito Santo basins, which will involve leased FPSOs and production semi- submersibles.

The development of the huge Roncador and Marlim Sul fields in Campos, plus Golfinho in Espirito Santo, will keep the Rio de Janeiro group busy for the next five years.

Its latest discovery in the Santos basin with the Tupi exploration well has shown that this area south of Rio de Janeiro could become a new hub for oil production within another five years.

A large slice of the rest of the forecasted deepwater expenditure will be heading to the Gulf of Mexico, where there is a growing portfolio of projects progressing to first oil.

Infield Systems put forward the Tahiti, Blind Faith, Shenzi and Knotty Head projects as examples of the next generation of deepwater oil developments in the region.

Added to this could be the Chinook and Cascade developments that are being explored by Petrobras. These developments could lead to the first deployment of an FPSO in US waters for decades and Murphy’s Thunder Hawk project.

But BP’s delays on the Thunder Horse and Atlantis floating production platforms have highlighted the risks involved in developing ultra-deepwater fields, while Anadarko’s Independence Hub project should break new water depth records when it comes online next year.

Chevron’s Jack and BP’s Kaskida oil discoveries in the ultra-deepwater have opened up a new exploration play in the region to add to the Perdido sub-basin as potential for more development projects.

This is oil major territory that requires huge investment levels and involves high risks just to drill one well.

Beyond the Atlantic Margin there are pockets of new deepwater plays, mostly in Asia and Australasia, and greater emphasis on developing gas fields that can be linked to liquefied natural gas plants.

‘In Asia there are developments forecast off the eastern coast of India, offshore Sabah Malaysia and off the east coast of Kalimantan,’ says Infield Systems.

‘Off Australia there are tie-back-to-shore projects such as ExxonMobil’s Jansz field becoming an integrated part of the Greater Gorgon area project.’

Development of ultra-deepwater oil and gas fields in regions of the world will need billions on dollars in investment but should lead to good growth in offshore industries. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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