Turbulent times ahead for the next wave
  from: Offshore Engineer
  by: Russell McCulley, Jennifer Pallanich, John Sheehan
  Thursday, June 19, 2008

Delays and skyrocketing costs in several ultra-deepwater Gulf of Mexico projects have been offset to a degree by healthy prices for crude oil, a panel of industry leaders said in Houston last month. Russell McCulley, Jennifer Pallanich and John Sheehan review this and other GOM-related issues raised during OTC 2008.

During a forum session examining the challenges facing E&P companies working in the US Gulf ’s deepwater frontiers, OTC delegates heard that recent oil prices – even if they do not remain at current record levels – have helped keep exploration viable.

‘We do need a fairly robust oil price to make [deepwater exploration] attractive,’ said Brian Smith, general manager of major capital projects at Chevron. While Smith and his fellow panelists – Russell Ford, Shell’s technical vice president, Americas, Darrell Hollek, Anadarko’s VP Gulf of Mexico operations, and Neil Shaw, BP’s senior VP, E&P, who were joined by US Minerals Management Service associate director Chris Oynes – would not reveal specific costing structures their respective companies used when planning the viability of deepwater fields, they did agree that some softening in prices would likely not derail any current or proposed projects.

‘You can survive in a $50 to $80 [per barrel] world,’ said Ford, provided prices for other commodities associated with exploration, such as steel, move in tandem.

In a wide-ranging discussion, officials said a handful of well-publicized delays in large US Gulf projects – and the interruption of natural gas production at Enterprise Product Partners’ Independence Hub platform due to a gas leak – should not raise questions about the companies’ ability to perform well as operations move into ever-deeper waters.

‘It is very difficult to predict the exact month that you’re going to bring a project online,’ Smith said. ‘You tend to not plan for something going badly wrong.’

The scheduled mid-2008 launch of Chevron’s $3.5 billion Tahiti project in the Gulf was pushed to 2009 because of the discovery last year of metallurgical problems with the facility’s mooring shackles.

Other setbacks on several current deepwater projects can also be chalked up to pressures created by over-demand on the global fleet of heavy lift vessels and deepwater drilling units as well as for specialist contractors services.

The panel session, on the theme of ‘New Waves in the Gulf of Mexico,’ cited escalating costs, a tight labor market and increasing technology and seismic demands as the major challenges associated with deepwater exploration, and said dealing with such complications would be even more critical as the industry moves into the region’s highlyprospective Lower Tertiary trend.

‘The conditions in the places where we find our new, major sources of hydrocarbons and supplies are becoming more difficult,’ Ford said. ‘It’s going to take more investment and it’s going to take more ingenuity to get this out of the ground and get those supplies to market.’

The MMS’ Chris Oynes said that despite delays and other challenges that have cropped up in deepwater exploration, the agency remains confident that the Gulf ’s offshore oil frontiers eventually will produce yields in keeping with MMS projections issued in 2007. ‘I think the point is not to stick with the finite numbers but rather the broad trend,’ he said.

‘I think we’re very comfortable that the 2.1 to 2.2 million barrels per day of oil production is certainly doable in the relatively near future.’

Playing the numbers

The oil industry may be facing what amounts to a ‘new energy equation’ but many of today’s issues are not new ones, declared Chevron vice president of exploration Robert Ryan Jr during OTC’s energy roundtable.

Constrained supply, growing demand and geopolitics are some of the factors putting new pressures on the sector, he said. ‘It’s important not to forget about areas that have already been well explored when it comes to growing reserves numbers,’ he added, citing the industry’s continued success in the Gulf of Mexico.

‘The “Dead Sea” just doesn’t seem to die. Every time we thought we were played out, we discovered something new,’ Ryan said of the progression through various water depths, plays and salt. ‘Now salt is just the next casing point.’

Without technology, the industry would be lost, underlined Technip chairman and CEO Thierry Pilenko, who mentioned some of the industry’s latest technology feats in the US Gulf, including reeled pipein- pipe SCRs at Na Kika in 6350ft of water; the spar destined for Perdido in 9600ft of water; and five freestanding hybrid risers at the Cascade and Chinook development in over 8200ft of water.

‘The operators are becoming more bullish with technology,’ he said.

The big challenge, Pilenko acknowledged, is finding experienced people to hire.

‘The experience is moving off the cliff and retiring,’ he added, finding people who can motivate, mobilize and keep costs down is the current biggest bottleneck in the industry.’

Chevron’s Ryan said he encourages people hesitant to join the oil industry because of its boom and bust nature to consider other high-tech industries that also have cycles, such as the auto industry. ‘All business is cyclical,’ he said. ‘Is it a myth that only the oil industry has cycles and no one else does?’

Mark Lee, CEO of SustainAbility, said he doesn’t see scarcity of reserves as an issue but rather management of reserves as essential.

If the reserves are not difficult politically or in terms of security, technology and access prove to be other sticking points.

‘If the polar ice cap continues to melt, maybe we can get to [the Arctic reserves]. This is a fabulous resource,’ said Art Smith, managing member of Triple Double Advisors.

Patrick Pouyanne, senior vice president of E&P at Total, said the industry needed to focus on four areas to reach success: operational excellence, a balanced relationship, care for producing countries and concern for the environment and climate change.

Regarding balanced relationships, he said, ‘in this current environment there is a lack of trust’ related to the ‘excessive’ profits IOCs are making and other companies’ desires to revise contracts to cope with market conditions.

Addax Petroleum president and CEO Jean Cleaude Gandur said the company is focused on managing risk, real or perceived.

‘If one learns how to manage that risk, the rewards can be large,’ he observed.

Deep exploration in the crucible

MMS director Randall Luthi called for greater exploration in the Gulf of Mexico to meet the nation’s growing energy needs, even as a new report released by the agency showed a strong increase in the number of new wells drilled in the region.

Speaking on OTC’s opening day, Luthi said that coal, oil and gas would continue to feed the nation’s hunger for energy for at least a generation, despite calls for alternative energy, and that the US Gulf would remain the country’s best domestic production prospect.

‘Never has there been a greater demand for a time to move forward [with oil and gas development],’ Luthi said. ‘Industry has got to increase its efforts to increase production.’

The report shows movement on that front. This year, lease sale 206’s offering attracted $3.7 billion in high bids and high interest among exploration companies, with the MMS receiving 1057 bids from 85 companies on 615 blocks. About 67% of those blocks are located in water depths of greater than 1312ft (400m), the report said.

Deepwater now accounts for approximately 72% of the oil and 38% of the gas produced in the Gulf of Mexico.

By the end of 2007, a record 15 rigs were drilling for oil and gas in ultra-deepwater, classed as water depths of greater than 5000ft.

At least 13 new drillships that can operate in water depths of 12,000ft and drill to TDs of 40,000ft are under construction, the MMS chief said, and will be operating in two to three years.

Luthi said that there has been ‘some interest’ among companies in the deployment of FPSOs following the MMS’ green light for an FPSO-based development on the Cascade and Chinook fields in Walker Ridge – the US Gulf ’s first – which is expected to begin producing oil in 2010.

If the Cascade operation proves a success, he said, the agency expects to see heightened interest among producers in FPSOs and other deepwater exploration technology. OE

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