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January 2014 Issue

Deepwater Projects Drive Marketplace, Industry Set for E&P Challenges

By Susanne Pagano
Sea Technology Contributor

In a year that has seen deepwater oil and gas projects drive the global marketplace, energy companies pushed ahead with exploration and field development plans that will shape the industry for years to come. During most of 2013, crude prices hovered around $100 a barrel, enabling many energy companies to step up their expenditures and exploration pace.

New Prospects
Innovative, high-specification rigs designed to search for new reserves in record water depths are being built in shipyards in Southeast Asia and other regions. Many of these mobile drilling units will make their debut over the next 36 months.

Exploration and production (E&P) companies allocated billions of dollars for programs to tap new oil and gas reserves in promising deepwater hot spots and harsh environments, as well as traditional shallow water areas of the world. In the Gulf of Mexico, well permitting and exploration and production activity mostly returned to pre-Macondo levels.

Ancillary businesses in the offshore sector—from subsea engineering companies to marine transportation and service specialists—provided required expertise in burgeoning deepwater areas.

The long list of offshore accomplishments over the past 12 months includes Transocean Ltd.'s (Zug, Switzerland) setting a new world record for drilling in the deepest water depth. The ultradeepwater drillship Dhirubhai Deepwater KG1 spud a well in 10,411 feet of water while working for ONGC (Dehradun, India) off India's east coast.

At least 50 new discoveries were reported worldwide, including prospects in ultradeepwater. Shell (The Hague, Netherlands) successfully drilled the new Vicksburg discovery well in nearly 7,450 feet of water in the Gulf of Mexico. Located in Mississippi Canyon Block 362, the well encountered more than 500 feet of net oil pay. Potential reserves could be more than 100 million barrels of oil equivalent, Shell U.S. (Houston, Texas) reported. Additionally, Anadarko Petroleum (The Woodlands, Texas) announced the new Phobos-1 discovery in 8,500 feet of water in the Gulf of Mexico's Sigsbee Escarpment.

Other discoveries highlighted the year. BP Egypt (Maadi Cairo, Egypt) reported a significant gas find in the East Nile Delta with its deepwater exploration well named Salamat—the deepest well ever drilled in the Nile Delta and the first well in the North Damietta offshore concession. Drilled in 2,100-foot waters, the well encountered a 590-foot hydrocarbon column. Further appraisal is needed to better define the field resources and to evaluate field development options.

Elsewhere in Africa, Anadarko discovered a deepwater natural gas accumulation off Kenya. Appraisal of the Orca-1 discovery is planned. Petrobras (Rio de Janeiro, Brazil) reported several oil discoveries, including a find in the Santos Basin 3-SPS-101 well in roughly 7,000-foot waters.

Offshore Newfoundland and Labrador, Canada, Statoil (Stavanger, Norway) and partner Husky Energy (Calgary, Canada) reported successful drilling results in the first Bay du Nord exploratory well in the Flemish Pass basin. The well, located in 3,600-foot waters, reportedly contains between 300 million and 600 million barrels of recoverable crude. Delineation drilling is planned.

Energy companies acquired new acreage in two U.S. lease sales over the past 12 months, ensuring exploration opportunities in upcoming years. A March Central Gulf sale attracted $1.2 billion in high bonus bids on 307 leases; a smaller Western Gulf planning area lease sale netted $102.4 million in high bids for 53 parcels.

Internationally, new exploration concessions were offered, or governments invited bidders for acreage offshore Australia, Russia, Denmark, Gabon and Greenland, to name a few. BP plc (London, England) and CNOOC (Beijing, China) signed a production-sharing agreement for a block in the deepwater Pearl River Mouth Basin, South China Sea.

In late fall, Petrobras and partners including Royal Dutch Shell (The Hague) and Total S.A. (Paris, France) were named winners in Brazil's first presalt bidding round, acquiring rights and obligations to the Libra block. This is the largest oil reserve off the country's southeastern coast and considered a prospect of high potential, holding as much as 12 billion barrels of oil.

Offshore Brazil, Shell and its partners began production from the second development phase of the Parque das Conchas (BC-10) project comprised of several subsea field tie-backs to an FPSO, the Espirito Santo. Located in 6,000 feet of water, this project uses an advanced 4D life of field seismic monitoring system featuring a network of seismic sensors installed on the seafloor throughout the field, allowing more effective reservoir monitoring. This is the deepest installation of its kind on a full-scale in the world, Shell reported. A third development phase is in progress with FMC Technologies Inc. (Houston) supplying subsea systems.

Oil and gas companies authorized significant field development projects, including Shell's Stones ultradeepwater project in the Gulf of Mexico, requiring a FPSO and subsea infrastructure in 9,000 feet of water.

Exxon Mobil Corp. (Irving, Texas) will develop the Gulf of Mexico's new Julia oil field, an ultradeepwater project carrying an estimated $4 billion-plus price tag. Field production will be tied-back to the Jack & St. Malo production facility operated by Chevron (San Ramon, California). Julia holds an estimated 6 billion barrels of resource in place, according to Exxon Mobil.

Energy companies also are earmarking funds for research and technology. One example is the Rosneft and ExxonMobil accord establishing a joint Arctic Research Center in Russia and a technology-sharing agreement to support the companies' joint ventures worldwide. Separately, BP opened a new computing facility in Houston that serves as a hub for processing and managing huge amounts of geophysical data to help scientists to 'see' more clearly what lies beneath the Earth's surface and more safely and efficiently appraise new discoveries and producing reservoirs.

New orders were finalized for advanced offshore mobile drilling units. Drilling contractor Atwood Oceanics (Houston) ordered a fourth ultradeepwater drillship at Daewoo Shipbuilding & Marine Engineering Co. Ltd. in Seoul, South Korea. The $635 million rig, to be named Atwood Archer, will enter the company's fleet by late 2015.

Ensco plc (London, England) sanctioned an advanced drillship, the Ensco DS-10, at Samsung Heavy Industries Co. Ltd. In Seoul. Delivery is projected for 2015. Ocean Rig UDW Inc. (Nicosia, Cypress) is building a seventh-generation ultradeepwater drillship at Samsung. The $600 million rig should be delivered in late 2015.

Transocean added its name to the list of drilling contractors ordering new rigs. The driller disclosed a five-year contract with Chevron for a sixth ultradeepwater drillship built at Daewoo Shipbuilding and Marine Engineering in Okpo, South Korea.

Vantage Drilling Co. (Houston) took delivery of the newbuild Tungsten Explorer for its international fleet. The ultradeepwater drillship initially will work in Southeast Asia. Additionally, Ocean Rig took delivery of the drillship Ocean Rig Mylos, deploying the rig to Brazil for a three-year contract. Maersk Drilling (Copenhagen, Denmark) was scheduled to take delivery of the first of four ultradeepwater drillships from Samsung. The rig will head to the U.S. Gulf of Mexico for an ExxonMobil drilling program, a three-year, $610 million deal.

Ensco also added the newbuild Ensco DS-7 to its fleet, another ultradeepwater drillship from Samsung. The rig is working for the French oil giant Total offshore Angola at an initial day rate in the mid $610,000s, the company reported.

In the homestretch of the year, semisubmersibles rated to drill in more than 7,500 feet of water in the Gulf of Mexico commanded daily charter rates between $550,000 and $555,000, energy information specialist IHS Petrodata (Houston) reported. Day rates for semis designed to drill in water depths between 3,000 and 7,500 feet ranged from $430,000 to $475,000. The gulf's deepwater drillships secured daily charters averaging around $588,000. Off West Africa, semisubmersibles had daily charter rates of $300,000 to $600,000, depending on rig specifications.

The global fleet of jackup rigs was under contract at rates varying from around $95,000 to more than $200,000, depending on the individual rig, location and negotiated charter.

Utilization of the marketed worldwide fleet of 757 rigs, including jackups, semisubmersibles and drillships, was 95 percent, according to IHS Petrodata.

South America and Northwest Europe reported close to full rig utilization. Ninety-five percent of the 80 rigs drilling in the U.S. Gulf of Mexico were working.

A Look Ahead—2014's Agenda
Offshore oil and gas operators and service providers will focus on the challenging deepwater frontier offshore Brazil, the Gulf of Mexico and West Africa, as well as other promising areas, and allocate significant capital investment. A few new deepwater regions likely will gain momentum—such as prospects off East Africa—to help meet growing global energy demand.

With more than 100 rigs under construction at shipyards worldwide, orders likely will be placed for additional advanced deepwater floating drilling rigs over the next 12 months. Many of these units will replace aging rigs. Rig availability should remain tight in most markets, many analysts agree. If oil prices hold at current levels or increase a notch, the market should remain competitive and robust, experts project. With new U.S. offshore regulatory reforms in place following the Deepwater Horizon rig accident in 2010, coupled with the forthcoming blowout preventer rule and proposed production systems safety rule, safety in deepwater, as well as shallow water operations, will be foremost to protect human life and the environment, and reduce the number of offshore incidents.

Furthermore, an ever-growing list of field development projects will gain momentum.

In the Gulf of Mexico, Anadarko Petroleum's high-profile multimillion dollar Lucius trussed spar is scheduled for first oil production in the second half of 2014, the operator reports. Built in Finland and transported some 7,700 nautical miles to Texas for final outfitting, the 23,000-ton, 605-foot-tall Lucius spar will produce oil in Keathley Canyon offshore Louisiana in 7,100 feet of water. Technip (Paris, France) provided engineering, fabrication and transport of the spar's hull. The structure is projected to produce up to 80,000 barrels of oil per day.

Going forward, another major undertaking will involve Shell's initial production using the largest tension-leg platform—the Olympus—moored in some 3,000 feet of water in Mississippi Canyon's Mars B field off Louisiana. Production capacity will be up to 100,000 barrels of oil equivalent.

Newbuild rigs slated to enter the worldwide fleet include Rowan Companies' (Houston) ultradeepwater semisubmersible, the Rowan Reliance, from Hyundai Heavy Industries Co. Ltd.'s (Ulsan, South Korea) yard.

Furthermore, the market is poised to add miles of pipeline and initiate new field development and subsea projects.

Allseas' (Châtel-Saint-Denis, Switzerland) $2 billion-plus megaplatform installation/decommissioning/pipelay vessel, Pieter Schelte, is due for delivery from Daewoo Shipbuilding in late 2014. The vessel initially may work in the North Sea.

Oil and gas companies will have opportunities to add new acreage to global lease and concession portfolios, including leases in the Gulf of Mexico's Eastern Planning Area.

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