Where is the money going offshore? Just as importantly, how much of it is there? These two questions are forever puzzling those in the industry whose job it is to make strategic and investment decisions for their companies. Briefly, the answers are "anywhere with deep water" and "around US $60 billion or more." But there is more to it than that...

Deep water is still fashionable. Two reasons support this view: one is the high flow rate seen from deepwater discoveries, and second, the size of the discoveries suggests great potential from the world's deepest offshore basins.
That's where the latest and greatest drilling rigs are being sent to operate at premium day rates. Deepwater basins, particularly offshore West Africa, are surrendering big finds - including nine in ExxonMobil's Block 15 offshore Angola, with between 500 million and 1 billion bbl of oil on average.
But other global factors must be considered before arriving at a conclusion as to where the oil dollars will go next.
First, according to the International Energy Agency (IEA), world oil consumption will grow massively - 50% - in the next two decades, from 75 million b/d to about 112 million b/d by 2020.
Douglas Westwood Associates, in a report that emerged early this year, assured us: "The global market is set for continuing growth. But the only places where major discoveries are likely in future years are in deep water, so subsea and floating production will develop into major sectors."
That report, commissioned by the UK Marine Foresight Panel, identified several macroeconomic trends at work in the offshore industry:
• depletion of shallowwater fields;
• growth of deepwater discoveries;
• growth in subsea fields with well numbers expected to double in 5 years;
• growth in the use of floating production systems;
• reducing development cost due to improving technology;
• fast-tracking of projects with a halving of discovery-to-development time to 3 years; and
• slow response to oil price recovery.
Furthermore, some countries are growing to like gas more than oil. In the United Kingdom, for example, gas is said to be the energy source of choice for power generation. According to the IEA, global gas use is set to rise 2.6% a year until 2010. The United States is already said to be the biggest gas market, accounting for 30% of global consumption, and this figure is expected to increase to 40% by 2010, meaning nearly half the world's gas will be consumed by the United States alone.
Clearly, if this demand is to be satisfied, gas has to be an investment priority.
Douglas Westwood's World Deepwater Report 2000 also backs the claim that deep water is an investment priority. It said 173 known development projects were in depths beyond 984 ft (300 m). "We forecast that the deepwater market will more than double in size over the next 5 years," the report said.
And subsea production is emerging as another part of the toolbox for oil and gas projects, with 2,800 subsea completions under consideration. "We expect Europe to form the largest sector of the subsea market, despite growth in Brazil, the Gulf of Mexico and West Africa," Douglas Westwood said.
Norway's Norland Consultants in its 2001 World Offshore Market report suggested a 20% rise in the value of the world offshore market between 2000 and 2002, with northwest Europe and the North Sea sector, in particular, remaining the largest regional market.
Total offshore expenditure for northwest Europe is estimated to fall from $20.95 billion in 2000 to $20.37 billion in 2001 before hitting $20.14 billion in 2002. In this same region, total offshore expenditure then will start falling to $19.94 billion in 2003, $18.33 billion in 2004 and $17.41 billion in 2005.
By comparison, the numbers for other regions are smaller. Take North America, including the US Gulf of Mexico, for example. Here, total offshore expenditure is estimated at $14.264 billion for 2000, $17.722 billion for 2001 and $19.357 billion for 2002.
In other words, not until next year does US spending start to come close to the kinds of figures we are used to seeing in Europe. Looking at West Africa too, the investment level is much smaller - less than half - than in Europe (Tables 1-4).
So the most oil dollars are staying in Europe, for the time being at least. But the picture is inevitably going to change over time.
Spending outside the United States is forecast to be around $60.611 billion this year, compared with $50.938 billion in 2000, according to Lehman Brothers, based on its expenditure survey, which sought data on the spending plans of 344 international exploration and production companies. This survey took in all of the international E&P companies, as well as a host of smaller US-based players.
Based on the results of its questionnaire, Lehman Brothers detected a 19.1% predicted growth in E&P expenditure this year compared with 2000. US E&P also was predicted to rise 19.1%. Spending by majors was predicted to rise 15.9% on aggregate, while independent companies, "which have been the primary drivers in the recovery over the past 18 months," according to Lehman, are planning a 21.7% increase in E&P outlay.
Furthermore, the analyst said, "This particular survey represents the largest, most comprehensive survey ever done on oil and gas company exploration and production spending plans."
Additional survey highlights include:
• 84 Canadian E&P companies predict a 19.9% increase;
• internationally, 113 companies predict a rise of 19% ("This is the most encouraging item to us in our survey," Lehman said);
• an overall underspending of E&P budgets was expected in 2000; and
• US and Canadian expenditures will be above original estimates.
On the back of all of this, Lehman detected a bonus for oilfield service companies - including drilling contractors - who can expect to see their markets bounce back from the doldrums. "The strong increases in budgets in worldwide E&P expenditures in 2001 support our broad-based positive stance on oilfield service and drilling stocks," the report noted. "We believe that the sector is in the early stages of a multiyear recovery."
West Africa, North America, Asia and Australasia are set for the largest expenditure increases, reflecting the decline in investment in the North Sea as operators seek more lucrative returns for their cash. Growth in Asia and Australasia is based on expectations of a strongly expanding gas market there. Norland's figures suggest the West African region will see the biggest increase, with total expenditure forecast to more than double from $7.64 billion in 2000 to $15.16 billion by 2005.
What are the majors saying about their spending plans? Chevron has committed to spend $6 billion worldwide this year - a 16% rise compared with 2000. Conoco has committed to $2.4 billion - down $400 million from last year.
Others are set to increase their spending outside the United States (Table 1).
Looking at world offshore field development capital expenditure, the areas predicted to see less spending during the next 5 years are Central and South America, Northwest Europe, the Mediterranean, the Former Soviet Union and the Middle East. However, upside can be seen in North America, explained by Gulf of Mexico investment, while West African spending will stay around the $9 billion mark between 2002 and 2004, and only then drop to $7.9 billion in 2005. Asia and Australasia can expect to see a peak of $10.9 billion in 2004.
BP, Exxon, Royal Dutch/Shell and Petrobras have significant exposure to deepwater acreage either in the US Gulf, off West Africa or offshore Brazil. Once the Chevron and Texaco combination is completed, the company will have major interests in Kazakhstan and the Caspian Sea sector and associated transport infrastructure there, which while under construction, will require considerable investment. Furthermore, TotalFinaElf's growing interest in the giant (50 billion-bbl) Kashagan discovery offshore Kazakhstan - by the acquisition of BP's 7.9% stake and Statoil's 4% interest - will require the French conglomerate to increase its spending in Kazakhstan.
Driving the big mergers of the past 3 years is the opportunity for cost saving. It was interesting therefore to read that of 241 responses Lehman Brothers obtained to a question on the determinants of E&P spending decisions in 2001, the top answer, cited by 66% (158) of respondents, was gas price. Another 65% (156) cited cash flow as an issue, and 60% (145) mentioned the availability of drillable prospects. Surprisingly, only 47% (106) mentioned oil price. Perhaps this could be simply explained by the perception that oil prices (for the time being) are at a level not considered a big risk in E&P spending decisions. Only 44% (106) mentioned drilling success as a factor in their spending plans, while 43% (104) mentioned the availability of capital, and 35% (85) talked about drilling costs.
From this it can be concluded the industry seems in a buoyant frame of mind as it moves into the 21st century. Given that most of the majors are increasing their world expenditures, there should be good times ahead.