OTC Analysis
  from: Offshore Engineer
  by: Russell McCulley, Jennifer Pallanich, John Sheehan
  Tuesday, June 17, 2008

There were 75,092 attendees – a 26-year high – from 110 countries at May’s Offshore Technology Conference in Houston. Russell McCulley, Jennifer Pallanich and John Sheehan sample the sights and sounds of OTC 2008.

Marshall Plan required for ‘rusty’ infrastructure

Some $50-100 trillion will be needed over the next seven years to rebuild the world energy industry’s aging and rusting infrastructure, warned Matt Simmons, chairman of investment bankers Simmons & Company International.

Simmons called for the establishment of an energy czar within the next year to kick start the rebuilding process.

He told OTC delegates: ‘In human life and industrial life, there is no eternal youth. Bodies and assets age. Preventative maintenance only temporarily masks the aging process.’

He cautioned that ‘rust never sleeps’ and that the energy infrastructure is made up of a vast spider’s web of rusting steel. There are more than 335,000 miles of oil pipeline in the US alone.

‘Had the world appointed an energy czar, he would have ordered a global census on the age of the rusting oil infrastructure. A mandate would have forced abandonment when leaks became too toxic,’ Simmons said.

Simmons believes that now is the time to start rebuilding the energy infrastructure while oil prices are soaring.

‘Current prices are high enough to start priming the pump,’ he stated. ‘As prices keep surging ahead, the wellhead windfall revenue can pay the piper who rebuilds the steel infrastructure. But there is no blueprint or master plan in place.’

According to Simmons, just a tiny portion of the infrastructure is now being rebuilt, with $1.5 trillion of energy projects in the Middle East and Shell’s massive Pearl GTL project set to consume vast quantities of steel.

He warned that a lack of raw materials and rising prices could hamper the reconstruction effort. But he said: ‘It is time to stop scrambling and start organizing the world’s most serious redevelopment construction project. Triage management needs to prioritize which links in our chain are the weakest. A Marshall Plan needs to be created by OTC 2009 at the latest.’

Pre-salt on Petrobras top table

Petrobras sees its pre-salt finds as part of a challenging frontier area declared president and CEO Jose Sergio Gabrielli de Azevedo.

The recent Tupi, Jupiter and Carioca finds have generated a lot of speculation about how large the reserves base is offshore Brazil. To-date, five presalt wells in the fields have been drilled, and three rigs are dedicated to furthering the effort, Gabrielli de Azevedo said.

‘We have different knowledge in different parts,’ he said. The company remains unable to say how large the reserves base is because not enough appraisal work has been carried out. 'We have suspicions that we have huge volumes of hydrocarbons in the area.'

Drilling those pre-salt wells presents technical challenges, Gabrielli de Azevedo said, and certain other challenges exist due to water depth and other issues. 'We've not had all those challenges in one project. That's going to be the big challenge,' he added.

Petrobras is working to meet tightness in the resource market, he added. For instance, he said, the company was considering starting its own rig building program.

'We have a very large demand for large drilling rigs,' he said. 'We have to think of nontraditional ways to get those critical resources.' The company already has a plant that produces FPSO hulls in a serial fashion, he noted. 

Since OTC, Petrobras and partners Shell and Galp have confirmed they are preparing a discovery assessment plan for a find with a pioneer well in block BM-S-8 into the pre-salt layer in the Santos Basin. Preliminary analyses indicate 25-28‹API oil, similar to other pre-salt oil found in the basin. The well is in 2139m of water and reached 6773m depth. The discovery was proved via an oil sampling by a lined well formation test in reservoirs at a depth of nearly 6000m.

Indonesia looks to drive up output

Indonesia will put 18 exploration blocks up for grabs this year on top of the 26 that went under the hammer last year. The winners of the 2007 round were scheduled to be identified later in May as the country tries to breathe new life into its stuttering oil and gas exploration and production business.

Luluk Sumiarso, director general for oil and gas at the Indonesian Ministry of Energy & Mineral Resources, told OTC delegates the country has the potential to become a player that could rank alongside the other huge producers.

‘Indonesia still has lots of potential basins which have not been explored,’ he said. ‘We have identified 60 potential sedimentary basins throughout the country, 70% of which are located offshore and more than half of them are in deepwater.’

Attempts are being made to counter Indonesia’s declining production, he said. The country produced 960,000b/d in 2007 but output has been dropping by 5% a year since 2001, with many discoveries offshore Indonesia lying idle.

Indonesia had hoped to increase its oil and gas output by 30% by 2009, but Sumiarso said he now realised this target had been unrealistic. ‘We’re now looking at maintaining the current level of production or increasing by perhaps 6-10%,’ he noted, adding that Indonesia was keen to bring foreign investors into its offshore oil plays and that the licensing and regulatory regimes were undergoing reform to attract new investors.

‘We’re looking at ways to improve our contract terms and we would welcome any suggestions to improve those terms – come and see us,’ he said.

Contract terms are open to negotiation, but Sumiarso said three key requirements would have to be met, namely: the ownership of the blocks would remain in the hands of the government; investors would have to sign a contract with state-owned BP-Migas which would manage all aspects of exploration and production; and that capital and risk was in the hands of the investor and the government would not bear the risk.

Lows and highs of cost planning

Planning is an essential element in bringing down offshore development costs, speakers at the OTC panel discussion ‘Toward low costs for high-cost resources’ emphasized.

‘Don’t shortcut the front end work,’ said Chuck Pierce, senior vice president of Chevron’s Indonesian deepwater developments. His company is putting that philosophy to practice offshore Indonesia with the West Seno, Gendalo and Gehen fields. The company has put in a lot of hours working out how to best develop the fields.

‘It’s kind of the mother of all development plans,’ Pierce said. Part of that plan includes a drilling rig under a four-year program in the area.

Chevron expects its planning to pay off in several ways, including reducing the drilling cost by $100-$200 million, making up overall savings of $300-$400 million for the project, he added. The savings will come from value being created up front and delivered through the execution of the project, he said.

‘There’s no silver bullet. This is about fundamentals,’ Pierce said.

Controlled experimenting is part of what CRA International counts on to unlock savings.

Experimenting, however, can go against the grain, especially since the cost cutting days led the industry away from planned experimentation, said Chris Ross, vice president of strategy and performance improvement at CRA.

‘It’s so easy after years of cost cutting in the 1990s to just do what we know how to do,’ he said.

Chevron uses experimentation as well. ‘Controlled experimenting is really a continuous improvement process,’ Pierce said.

Cobalt president James Farnsworth saw up-front investment as a solid means of cutting costs. By spending money to obtain the best information possible, he said, the company can make better decisions.

‘A $100 million dry hole is a bad investment,’ he said, noting by having the best information available, the company is able to reduce its risk of drilling a duster.

Another way of keeping costs down, one panelist said, is to manage the supply chain through sufficient resources, thorough research and consistent communication.

A good relationship with the supplier can result in a substantial savings, he said. ‘But it’s like a marriage. Sometimes it’s difficult to change the terms once you’re a few years in.’

Keys to West African success

Key technologies, local content and the use of a single rig were some of the main drivers behind the success of BP’s Greater Plutonio development in Block 31 offshore Angola.

The development, which came onstream last October, comprises the Galio, Cromio, Paladio, Plutonio and Cobalto fields in water depths varying from 3937ft-4757ft (1200m- 1450m) and uses an FPSO to process produced fluids and export crude (OE November 2007).

Among the challenges overcome by the oil company, according to Graeme Stewart, BP’s resource development manager for Angola, were the fast-track schedule and the high commitment to local content, while the development came at a time of high market activity and supplier demand.

Stewart told OTC delegates that three key pieces of technology – seismic imaging, subsea acoustic monitoring and realtime downhole data – had made the development possible.

‘We were blessed with the fact that we had world class seismic giving us very clear imaging of the subsurface. That clearly was absolutely critical to targeting wells,’ he said. Subsea acoustic monitoring (SAM) was also employed with a SAM unit on the seabed continually uploading data to a source vessel.

‘One of the key decisions we made on the project was to use just a single drilling rig when normally at least two would be used,’ he added. ‘This gave us the option of a much more gently-paced development and allowed us time for subsurface learning.’

The fifth generation Sedco Express was chosen for the job.

Stewart said sand control was also essential to maintain the pace with one rig targeting 200,000b/d of oil from nine wells, with 200mmcf/d of gas to be re-injected into two wells. ‘We had to have robust sand control that could be reliably delivered without well damage,’ he said.

Three methods of sand control were chosen with open gravel pack for gas injection wells, cased hole frac pack for the gas injection wells and standalone screens for the water injection wells.

Tony Oldfield, BP Angola’s Surf manager, said local content was also one of the keys to the success of the project, BP’s largest ever subsea development. Some 25 subsea trees, 33 PGBs, 33 well jumpers as well as six production manifolds, plastic lined flowlines and the hybrid riser tower – the longest in the world – were assembled in Angola.

The world’s largest Calm offloading buoy was also assembled there.

China opens its doors

China is hoping to encourage more foreign investment in its oil and gas sector as the country’s energy needs rocket.

China, the world’s largest energy consumer along with the US, is looking to boost offshore oil and gas production in particular and is taking steps to smooth the path for foreign companies looking to get involved.

Laws for joint ventures are being simplified and financial constraints are being eased, Jin Ju, a representative from the Chinese Embassy in Washington told OTC delegates.

Ju said: ‘We are facing very severe challenges in the near future.We need to increase energy supply to meet increased demand due to rapid economic development and the improvement in public living standards.We believe that Chinese energy development will bring opportunities for other countries as we expand into the global market.’

He said China’s basic aims were to give priority to energy conservation and to rely on domestic resources as well as technology and new advanced equipment to push forward.

Ju said China would look to fulfil its energy goals by strengthening international cooperation in a bid to achieve its goal of quadrupling its year 2000 per capita GDP by 2020.

Ju added: ‘China is rich in offshore oil and gas resources and there is great potential for future exploration.’ He said that in 2007 there were 58 offshore oil and gas fields in operation, 30 of which had international investors on board. China produced 27 million tonnes of oil in 2007 and 7.6bcm of gas.

‘Foreign companies have played an important role in development and exploration of our offshore resources. Twenty-eight companies from 11 countries are implementing 44 contracts in China and they are responsible for 60% of production.

‘There has been $11.3 billion invested by foreign companies, with $5.3 billion in exploration,’ he added.

Ju said China was encouraging foreign investors in the oil and gas sector by creating a ‘fair environment’ and making an active effort to improve laws and policies to bring them in.

‘China encourages foreign businesses to participate in oil exploration and development. We are targeting an improvement in the oil recovery rate and foreign investment is encouraged in oil sands, tar, heavy oil as well as in pipeline and storage infrastructure.’

ITF targets tight gas technology

UK-based Industry Technology Facilitator (ITF) is launching five separate joint industry projects to improve knowledge of tight gas reserves and maximize gas recovery, its managing director Neil Poxon told OTC.

ITF, a not-for-profit organization owned by 19 major operator and service companies, has identified tight gas as an important technology theme this year.

‘Tight gas is available throughout the world sometimes in huge volumes, particularly in North America and in the UK southern North Sea,’ said Poxon. ‘It is not typically easily accessible due to the tight nature of formations and low permeability. It is not considered economically feasible to produce.’

It is for this reason, he says, that tight gas has become ‘such an important focus’ for ITF and its members. ‘The level of quality proposals we have received has led us to launch five separate JIPs, 40% of which are with US-based researchers,’ said Poxon.

Sandia National Laboratories and the Colorada School of Mines in the US have won backing for two JIPs, while UK-based Rockfield Software has won one, the University of Leeds another and the universities of Bristol and Leeds have teamed with Rockfield for another.

Poxon added: ‘While some of the technology challenges faced by those operating in North America are common to those faced by oil and gas companies globally, there are also those which are specific to the region.

‘In light of this, it is evident the US development community has the knowledge and expertise to engage with the ITF process and to coherently address the specific technology needs which are pertinent to both North American basins and indeed the global industry.

‘We recognize that members are pursuing internal initiatives within their global operations, yet we do believe that for a large multi-faceted area like this, a coherent and collaborative approach would not only be beneficial but in some cases essential if the value is to be realized,’ stressed Poxon.

ITF has seen substantial growth in the last two years with more than 15 global JIPs launched last year, 70 technology proposals received in the last three months alone, 32 projects running simultaneously and a 50% increase in membership. OE

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