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A report by Bernstein Research suggests a progression from onshore to deep water for oil based on current trends, deepwater potential, and a willingness to spend more on deepwater upstream activity.
A move from onshore to deepwater offshore drilling is expected to grow, led by major international oil and E&P companies that stand to uncover large discoveries if they are willing to pour substantial dollars into exploration efforts.
The emerging trend was featured in a recent report by Bernstein Research, which said deepwater production has jumped globally from less than 500,000 b/d 15 years ago to about 5.5 MMb/d in 2012, about 7% of the world oil supply. The shift, which caused a decline in oil produced onshore worldwide from 90% in 1970 to 70% today, could continue to move toward more deepwater oil production. If exploration, access, willingness, economics, and a growing Brazilian presalt outlook align properly, the company predicts an additional 4 MMb/d from deep water by 2020.
“The beneficiaries of the trend into deeper water mainly include international oil companies and the oil service companies with deepwater offerings,” Rob West, coauthor of the report and senior research associate, European oil and gas, for Bernstein Research, told E&P. “These resources are hard to access – compared to conventional hydrocarbons, onshore – and so resource-holding governments are more dependent on the technical capabilities of the majors and international E&Ps. The services benefit because of a tight deepwater rig market and the reliance upon specialized equipment, SURF, and technologies.”
About 70% of the discovered resources have been found in water depths of more than 1,000 m (3,280 ft), and 50% of the discoveries have been found in frontier areas in the past three years, he said.
In the mid-70s, offshore oil discoveries were mostly in less than 305 m (1,000 ft) of water, contained up to 10 Bboe, and were concentrated on the Norwegian Continental Shelf or the North Sea, the report said. After a slowdown in the mid-1990s, a deepwater resurgence emerged worldwide as discoveries were made in Brazil, the Gulf of Mexico (GoM), and West Africa. New seismic imaging technology facilitated the move into salt basins and deeper water, leading to even more discoveries.
Companies that are best positioned for such work include Tullow Oil, which has a history of unlocking frontier basins, and Total, which has a large frontier acreage position, West said. But the deepwater market continues to be dominated by Petrobras.
Overall, the industry has been willing to pour money into deepwater exploration efforts, which is about five to 10 times more costly than drilling onshore, in hopes of big payoffs. The report noted that deep water, specifically frontier deepwater, acreage resulted in the largest discoveries in the last five years. The average size was 600 MMboe in water depths greater than 1,500 m (4,921 ft).
The US Geological Survey estimated that about 1.6 Tboe of hydrocarbons remain undiscovered worldwide. However, most of those resources are located in the top 10 basins, mainly onshore and in places such as Siberia, Saudi Arabia, Iran, Iraq, the Capsian, and West Africa. Some of these areas generally provide little access for international companies, which offer expertise needed for deepwater exploration, according to the report.
However, there are other areas considered potentially lucrative. These include offshore Brazil and the GoM. “The fiscal take is lower than other offshore basins (Norway, Angola, etc.) and the peakier production profiles in the GoM generate c20% higher NPVs per barrel discovered,” West said.
In the GoM, production has continued to shift from shallower water to plays in deep water, “arising from downslope sliding of sedimentary layers and a deepening of the basin since the Jurassic,” the report said.
The report and West spoke highly of Brazil’s potential, though they noted the Brazilian market is being underestimated. About 2 MMb/d of Brazilian presalt supply could add 40% growth to deepwater supply, according to the report. “Extremely strong flow rates around 25,000 b/d at Lula, minimal pressure drawdown, and phenomenal reservoir quality all suggest upside, while economics are strong at $6/boe from BG’s five fields on average.”
West believes investors’ attitudes toward Brazil will improve as data emerges on presalt production and reservoir performance. The four wells at Lula are producing about three times the typical flow rate of a new GoM subsalt well, West said, allowing the FPSO to reach its plateau production of 100,000 b/d with 33% fewer wells than anticipated.
The increase in deepwater exploration and development also is expected to spread across product lines, the report stated, noting various companies could reap benefits.
“While the volume growth is beneficial for the entire industry, some product lines will experience greater demand growth, primarily due to the nature of deepwater projects,” according to the report. “These include subsea equipment and infrastructure, infrastructure installation, marine well testing, wireline, directional drilling, logging-while-drilling, and completion equipment.”
But challenges still remain for deepwater production. These include higher well costs, with deepwater rig rates around US $600,000/day. Using Africa as an example, West said the cost of drilling onshore is between $5 million and $25 million per well. Deepwater wells are $50 million to $250 million, depending on the location. However, international and E&P companies have worked to overcome this challenge, “reinvigorating their exploration budgets” with an “appetite for higher-risk, higher-reward exploration as part of their portfolios,” West said.
Exploration expenses have increased more than 14% in the last decade, and they jumped 30% to about $90 billion in 2011, according to the report.
“The other key consideration is safety, as Macondo is still latent in everyone’s minds,” West said. “Deepwater operators everywhere are increasingly cognizant of the risks, and several companies have abandoned expensive wells this year as safety precautions due to encountering high pressures while drilling.”
Contract the author, Velda Addison, at firstname.lastname@example.org.