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Brazil leads the industry in demand for deepwater drilling rigs, and the Gulf of Mexico, East Africa and West Africa are making the market even tighter.
If you want to gaze out a decade at how the offshore -- and deepwater in particular -- will evolve, look no farther than the pre-salt region in offshore Brazil, which is home to one-third of worldwide deepwater discoveries over the last half decade.
As Global Hunter Securities analyst Jeff Spittel argues, offshore Brazil represents “the most compelling commercial opportunity for the oilfield services sector over the next decade.”
That comment may actually understate the size of the prize, thanks to rapidly developing momentum in the global deepwater market. True, Brazil’s Petrobras is planning $54 billion in pre-salt drilling through 2015 (where Petrobras enjoys an 80% success rate) with another $64 billion post-salt.
If all goes as planned, 12 projects, including 10 in the Santos Basin, will add 1.72 million barrels of oil per day at peak capacity, though first oil from those projects is spread from 2010 to 2019.
But it won’t be easy getting there, due to an idiosyncratic stew of technical, logistical, political and regulatory hurdles. Still, Petrobras spending is poised to ramp as early as 2012 and Brazil’s impact on future rig employment is sobering. Brazilian demand for drilling rigs capable of working in waters more than 6,000 feet deep will grow from 15 at the end of 2010 to 37 by 2015, and 65 by 2020. Petrobras has announced plans to build 28 units locally, though this remains an ambitious and optimistic goal, even without assuming the normal construction delays.
Furthermore, coupling Petrobras with other firms suggests total demand in the Brazilian offshore space could reach 135 floaters near the end of this decade, according to a Morgan Stanley study.
Currently there are just 97 floaters that can drill in water 7,500 feet or deeper globally.
Brazil’s oncoming ramp is beginning during a period when availability for ultra-deepwater units (UDW) is declining as operators lock up the last remaining UDW rigs in the supply chain. Meanwhile new UDW rig deliveries will enter a trough beginning in the second quarter 2012 before recovering in mid-2013. New UDW deliveries are expected to peak at 11 units during the first quarter 2012 before falling to three units or less per quarter through the first half of 2013.
New evidence for a tightening deepwater market is found in the fact that UDW rig rates on three units topped $500,000 per day over the last 30 days. Additionally, tightness in the UDW sector reportedly is leading to rising down-market interest in legacy floaters.
But let’s ignore the Brazilian 800-pound gorilla in the deepwater space for the moment where Petrobras employs 55 of the 159 mid-and-deepwater units working globally as of October 2011. Absent Brazil, momentum in the UDW space is rising globally with rig demand from emerging basins in West Africa and East Africa -- not to mention the advent of exotic new entries into the deepwater space in Cuba, the Bahamas, and Greenland.
Elsewhere, Statoil’s recent 1.5 billion bbl North Sea discovery at Aldous also indicates that plenty of treasure awaits the industry even in mature deepwater basins.
Separately, Atwood Oceanics also ordered a $600 million UDW drillship to operate in waters up to 12,000 feet for June 2014 delivery.
Those widely disparate recent news events signal an accelerating tightening in worldwide floater utilization, which was pegged at 72% at the beginning of October with 203 out of 281 units employed, according to ODS-Petrodata.
Closer to home, bullish indicators are also evident in the deepwater GOM where Atwood Oceanics signed a 21-month, $522,000-per-day contract (including mobilization) with Hess Corp. upon delivery of the Atwood Condor in June 2012. Similarly, ENSCO inked a two-year, $475,000-per-day contract for a UDW semisubmersible, which will work for Anadarko, Apache, and Noble Energy in the Gulf when the newbuild ENSCO 8505 is delivered in the first quarter 2012. ENSCO now has six of the seven rigs in its 8500 series contracted with the final rig under construction in Singapore anticipating a delivery date in the second half of 2012.
Earlier in October, Seadrill entered a memorandum of understanding with an undisclosed major oil company for a five-year, $495,000 contract in the GOM for the West Capricorn upon delivery in December 2011. The contract will provide nearly $1 billion in revenues for Seadrill before expiration.
There were 20 floaters at work in the GOM in early October 2011 versus four during the same period one year ago, though the current number is still shy of the 30 at work when the Macondo incident occurred. It may not be long before the GOM returns to pre-Macondo intensity. The U.S. BOEM and BSEE accelerated new well deepwater permit approval in the GOM with 10 awards in October.
Add it together and it becomes evident that the global deepwater sector will give the unconventional oil and gas plays sharp competition over the next decade as the prime contender for “King of the Hill” in global frontier oil and gas development.
Contact the author, Richard Mason, at firstname.lastname@example.org.