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January 2012 Issue

Deepwater Drives Oil, Gas Activities; Optimism for Continued Improvement

By Susanne Pagano
Sea Technology contributor
Houston, Texas

Deepwater activities have been the focus of oil and gas operations over the past 12 months, with optimism that this technology-driven market segment will continue to improve, particularly as crude oil climbed close to $100 per barrel in the closing weeks of 2011.

Well permit delays plagued exploration in the Gulf of Mexico as the Obama administration closely scrutinized deepwater permits following the Deepwater Horizon explosion and oil spill in April 2010. New safeguards, techniques, inspections, equipment and containment solutions are now in place in the U.S. gulf and certain international areas to address risks associated with deepwater drilling.

At the Department of the Interior last year, a major piece of news was the reorganization of BOEMRE, which finalized its split into the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) in October.

A Look Back
In the wake of Deepwater Horizon, the number of shallow- and deepwater drilling permits issued by BOEM was well below the historical average in the Gulf of Mexico, as post-Macondo regulatory reforms and policies took shape.

Only 3.7 deepwater permits have been issued per month since August, a 47 percent drop from the three-year average of seven permits per month, according to data from regional economic alliance Greater New Orleans Inc. The group said permits from shallow-water wells averaged 4.7 per month since August, a 68 percent decrease from the three-year average of 14.7 permits per month.

Toward the end of 2011, approximately 29 deepwater and 16 shallow-water drilling permits were pending before BSEE, and in October the government extended nearly 1,400 deepwater leases to offset delays caused by the drilling moratorium following BP's Macondo well blowout. Additionally, BP won approval of its supplemental exploration plan for four deepwater wells in Keathley Canyon. The company committed to additional voluntary safety enhancements and performance standards.

The government has taken a few steps to bolster long-term activity. BOEM held a mid-December lease auction for the Western Gulf offshore Texas. The agency in November unveiled its 2012 to 2017 Five-Year Outer Continental Shelf Leasing Program, which proposes 12 lease sales in the Gulf of Mexico and three lease sales off Alaska.

Significant oil and gas discoveries were logged in the Gulf of Mexico in 2011, including Chevron Corp.'s oil discovery on the Moccasin prospect in September and Exxon Mobil Corp. striking oil in Keathley Canyon in June. Other new resources were discovered in the North Sea, Brazil and offshore West Africa throughout 2011.

Rig Update
The pace of new rig orders gained momentum. Last year's order book includes Atwood Oceanics' $600 million ultradeepwater drillship being built at Daewoo Shipbuilding & Marine Engineering Co. Ltd. Rowan Companies, traditionally a jack-up player, ordered three ultradeepwater drillships from Hyundai Heavy Industries Co. Ltd. at an approximate cost of $605 million each. Noble Corp. committed to its fourth ultradeepwater drillship, a $630 million unit, at Hyundai.

To support the growing deepwater fleet, numerous new-generation offshore supply vessels were ordered worldwide, including 16 U.S.-flag 300 Class DP-2 units ordered by Hornbeck Offshore Services, with deliveries expected in 2013 and 2014.

The Gulf of Mexico's first FPSO, Petrobras America's BW Pioneer, was on tap to begin production on the Cascade-Chinook field late in 2011 after a few delays. Separately, Shell Oil began producing oil from the world's deepest subsea well at its Perdido development using advanced subsea technology solutions. The well, at 9,627 feet below the water's surface, is in the Tobago field offshore Texas.

In the final months of 2011, deepwater semisubmersible rigs working in the Gulf of Mexico commanded daily charter rates ranging from around $295,000 to $360,000, according to ODS-Petrodata Inc. Drillships worked at daily rates of about $492,000. Deepwater drilling units in regions such as Brazil and West Africa were fixed at similar rates.

Premium jack-ups in the U.S. gulf worked at daily rates from about $80,000 to $105,000; high-end, harsh-environment jack-ups in the North Sea worked at daily rates from about $90,000 to $345,000, depending on specific charters.

Internationally, licensing rounds were held for rights to explore promising acreage off eastern Canada, Brazil, Indonesia, Australia and Ireland's Atlantic margin, generating millions of dollars for governments. Oil and gas companies' strong interest in building lease portfolios is a key indicator of future activity, including seismic data programs, exploration and production.

What to Expect in 2012
With higher oil prices, demand is expected to be strong for deepwater equipment and services, including subsea trees. Analysts expect oil and gas companies to be bullish in setting worldwide exploration and production capital spending budgets, provided there are no major economic or political upheavals around the globe.

Tom Marsh, marine vice president of ODS-Petrodata, said there was no question that the deepwater rig market would be strong in 2012. He added that it is already a tight market for deepwater support vessels. A total of about 115 rigs are in the Gulf of Mexico, with 67 units under contract. Some 15 rigs, nearly all floaters, are slated to move into the gulf by year-end. The forecast for jack-up rigs is relatively flat, but some drillers have reported larger contract backlogs for their active rigs, Marsh said.

As the new year begins, the worldwide mobile rig fleet totals about 820 units, with approximately 656 under contract. About 40 new high-specification ultradeepwater floaters and jack-ups are slated to be delivered in 2012. Two of those units will be Seadrill Ltd.'s semisubmersibles West Capricorn and West Leo. The rigs, designed for water depths of up to 10,000 feet, will drill in the Gulf of Mexico and West Africa, respectively.

The industry will be closely monitoring the first phase of the trial to determine liability for the Deepwater Horizon explosion and spill. The trial, scheduled for February in New Orleans, Louisiana, will examine the role of BP, Transocean Ltd. and other parties in loss of well control, the explosion of the rig, the spill and related issues.

Several oil companies are expected to begin in 2012 ambitious exploration programs in deep waters offshore Cuba's northwestern coast. Spain's Repsol is scheduled to drill the first well and has committed to follow new stringent U.S. drilling standards. Additional deepwater wells are anticipated by Russia's Gazprom and Malaysia's Petronas.

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