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Oil, Gas Industry Projected to Improve, Focus Remains
on Deepwater Projects

Oil and Gas Companies Work to Develop New Technologies to Maintain Profitability in Deep Water

By Susanne Pagano
Houston, Texas

Though many are still feeling the pinch from the global recession, most oil and gas companies said they expect the industry to improve over the next 12 months. Deepwater drilling and production remain at the forefront of activity in the Gulf of Mexico, Brazil and West Africa.

Energy operators have streamlined operations, paid down debt and taken other belt-tightening measures as they focus on their core business of finding new oil and gas reserves. Oil prices climbed to $75 to $80 per barrel in the first quarter of 2010, enabling plans to move forward on key exploratory and appraisals wells and development projects utilizing leading edge technology. U.S. energy companies set capital spending budgets totaling an estimated $80 million for the year. Some industry consolidation continues, such as the blockbuster $11.34 billion Schlumberger (Houston, Texas) and Smith International Inc. (Houston) merger announced in late February. That deal is contingent on Smith's shareholder approval and customary regulatory clearances.

Service contractors and engineering companies remain committed to developing new equipment, products and tools to enhance offshore operations, particularly in deep water and ultradeep water, industry representatives said.

Market Highlights
One major subsea project moving forward is Chevron Corp.'s (San Ramon, California) development of the Jack/St. Malo field in the Gulf of Mexico. Cameron (Houston) will supply more than $230 million in subsea production systems, including a dozen subsea trees, four manifolds and ancillary equipment. Chevron also is developing the nearby Big Foot field with a dry tree floating drilling and production facility.

Oil and gas companies are using advanced technologies in their search for solutions to tap oil and other resources. To illustrate, ATP Oil & Gas Corp. (Houston) and Blue Ocean Technologies LLC of The Woodlands, Texas, set multiple new industry records in subsea well intervention this year by working over two production gas wells in 2,950 feet of water and approximately 9,000 feet downhole without a riser. Blue Ocean's interchangeable riserless intervention system successfully completed numerous riserless wireline runs, deploying a variety of intervention tools, including a wireline tractor, gauges, milling tools and a logging tool, multiple times. Each run represents a new industry record for riserless intervention, ATP officials reported.

Another case in point is production enhancement specialist BJ Services Co.'s (Houston) recent world record for cementing the longest solid expandable tubular liner for an operator in the Gulf of Mexico. The 6,935-foot (pre-expansion length) seven-and-five-eighths-inch liner was set and successfully cemented at a depth below 20,000 feet. BJ said it used a specially formulated XtremeSet cement slurry system to overcome challenges with isolating the deep wellbore section, including bottomhole static temperatures of 368° F.

Furthermore, another milestone is expected to be reached in the Gulf of Mexico later in the year with the long-awaited start-up of the first ship-shaped floating production, storage and offloading vessel (FPSO) in domestic waters. The unit will produce reserves in the Cascade-Chinook oil and natural gas field offshore Louisiana. The project, operated by Rio de Janeiro, Brazil's Petroleos Brasileiro SA (Petrobras), will operate in 8,200 feet of water in the Walker Ridge area.

In Brazil, one major vendor in the subsea market, Houston-based FMC Technologies Inc., will supply Petrobras up to 107 subsea trees and related tools designed for water depths of 6,500 feet. If all subsea frames are purchased, this four-year frame agreement is expected to result in approximately $400 million in revenue, according to FMC officials. All systems and equipment will be engineered and manufactured at FMC's facility in Rio de Janeiro, the company said.

Discoveries Keep Pace
New deepwater oil and gas discoveries continue to make headlines. One notable drilling success is Anadarko Petroleum Corp.'s (The Woodlands) Lucius-1 ST-1 exploration well in some 7,100 feet of water in the Gulf of Mexico's Keathley Canyon. The well logged nearly 600 feet of high-quality oil pay with additional gas-condensate pay, the operator reported. Development concepts are under evaluation, and commercial potential will hinge on the results of appraisal drilling.

In another project, Cobalt International Energy Inc. (Houston) encountered oil pay in its Criollo exploratory well drilled in 4,200-foot waters in the gulf's Green Canyon area.

While deepwater activity drives today's offshore market, many operators have not overlooked the shallow-water sector. Independent McMoRan Exploration Co. of New Orleans, Louisiana, and several partners recently confirmed a potential major gas strike called Davy Jones in about 20 feet of water. This is an ultradeep Wilcox sands discovery in the South Marsh Island area. The well has possible productive net sands totaling some 200 feet.

Rig Fleet
During 2010, an estimated 60 new mobile offshore drilling units will enter the worldwide rig fleet, including 19 semisubmersibles and 15 drillships, according to offshore data specialist ODS-Petrodata of Houston. Roughly one-half of the rigs scheduled for delivery this year do not have firm drilling contracts. Charter rates for deepwater rigs operating in the Gulf of Mexico have remained fairly steady for the first few months of 2010, ranging from about $410,000 to $497,000 a day for deepwater semisubmersibles.

Furthermore, charter rates for semisubmersibles rated to drill in water depths from 3,000 feet to 7,500 feet range from $205,000 to about $375,000, ODS-Petrodata reports. On the other hand, most of these day rates were negotiated at the peak market. Sources today report rates on certain new charters have softened. Charter rates for certain types of jackup rigs have declined significantly in the past six months. For example, rates for a 250-foot independent leg cantilever jackup were in the low $40s per day in early 2010 compared to the high $40s in the latter months of 2009.

In March, drillship activity in the U.S. gulf was on the rise, boosting the region's rig utilization to around 62 percent. Worldwide utilization for all types of offshore rigs hovered around 78 percent, roughly seven percent lower than utilization a year ago.

Other New Equipment
Oceaneering International Inc. of Houston will take delivery of a purpose-built $17 million diving support vessel from a Gulf Coast shipyard this year. The 200-foot vessel will be outfitted to perform subsea inspection, repair and maintenance services and support construction operations in the domestic market.

International Activities
Brazil ranks as one of the busiest markets around the world as the country moved ahead with multiple drilling and field development projects, including many in deep water. One recent Brazilian project was reported by the international engineering and project management group AMEC (London, England). The company will begin a contract for QUIP (Rio Grande, Brazil) to perform basic engineering services for the topsides of the P-63 FPSO vessel to be operated on behalf of Petrobras. The FPSO will develop the Papa Terra heavy-oil field in some 3,900 feet of water in Brazil's Campos Basin.

In another Brazilian project, Anadarko Petroleum is proceeding with a sidetrack well near its recent Itaipu well, a presalt discovery drilled to a total depth of roughly 16,300 feet in 4,400 feet of water. Here again, Oslo, Norway-headquartered Aker Solutions ASA inked a contract with Petrobras to supply eight subsea boosting systems and an emergency valve for the Jubarte field, a deal valued around $37 million.

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