IHS Herold, a research and consulting firm focused on valuation, strategy, and performance measurement of oil and gas companies, and Harrison Lovegrove & Co., an oil and gas corporate finance advisory firm, released a study in September called the 2008 Global Upstream Performance Review. According to the study, while 2007 saw worldwide spending for petroleum industry development and exploration increase 20% and 19% respectively, net income per boe remained flat at $12.98 – this after nearly doubling since 2003.

This is so, says the report, because even as spending increased, lifting costs also rose, by 17%. Clearly, more efficient movement of oil and gas from the wellhead to processing facilities remains essential to profitable operations, regardless of how high oil and gas prices are today or might be in the future.

The study examined worldwide upstream investment of 232 oil and gas companies, and concluded that it remained unchanged in 2007 at $402 billion.

“Higher prices drove a 10% increase in revenue to $931 billion,” said Robert Gilon, IHS Herold senior vice president and co-director of Equity Research. “But cost pressures have been unrelenting…. As a result, net income edged up 2% to $246 billion, which is a record result, but far from the heady advances of the prior three years.”

The study also notes that despite record development spending, reserve volumes increased just 0.3% to 264 billion boe.

According to a May 2008 Wood Mackenzie report, titled Deepwater GoM platform capacity – room to expand, one area that is ripe for performance improvement is the deepwater Gulf of Mexico (GoM), where use of deepwater processing facilities is dropping quickly. Significant spare processing capacity suggests that use there of subsea tieback developments could reduce the capital expenditure and lead time required to bring emerging fields onstream.

As is well known, subsea tiebacks connect new discoveries to existing production facilities, improving the economics of offshore oil and gas production, with the potential to transform marginal fields into profitable assets. Many of the world’s major offshore oil and gas fields are reaching maturity, and new discoveries tend to be smaller and challenging to produce. Tiebacks lower production costs for these assets while maximizing the value of existing production infrastructure.

The authors of the Wood Mackenzie report conclude that in coming years, processing infrastructure distribution is likely to influence exploration and development activities for some operators. Further, the impact of spare capacity will be that some currently marginal or undiscovered GoM fields will be developed more expeditiously.

The Wood Mackenzie report indicates that large volumes of spare processing capacity are available in the near-shelf deepwater GoM, in particular Green Canyon and Mississippi Canyon.

In 2009, utilization of deepwater GoM processing facilities is projected to be 46% for gas and 48% for liquids. This is down from nearly 80% and 70% respectively in 2000. Utilization rate reductions are the result of new facilities coming online, capacity upgrades at existing facilities, and declining production in mature fields.

According to Wood Mackenzie, Green Canyon and Mississippi Canyon offer “enormous” potential for future developments to be tied into existing platforms that are currently operating below capacity.

The superior economics of subsea tie-backs versus a stand-alone facility, according to Wood Mackenzie, include not only reduced capital expenditure, but also more rapid development and monetization.

The report points to the Droshky field in Green Canyon block 244 as a good example of a field in development that leverages the spare capacity available in deepwater GoM.

It estimates recoverable reserves in the field to be around 85 million boe. In many cases this would be large enough to justify stand-alone development. However, Marathon is developing the field as a multiple-well subsea tie-back to the Bullwinkle fixed platform on block GC 65.

Other platforms capable of accommodating large tiebacks include Brutus and Joliet/Marquette in Green Canyon and Na Kika, Pompano, Ursa, and Mars in Mississippi Canyon. All of these platforms have at least 75,000 boe/d of spare capacity.