Annual deepwater expenditure is predicted to reach around US $35 billion in 2014, with a total global capex of $167 billion estimated for the 2010-2014 period.

Spending picks up

Between 2010 and 2014, deepwater expenditure is projected to expand at a compound annual growth rate (CAGR) of 8%. The Golden Triangle of deepwater — namely the African and Brazilian coastal areas and the Gulf of Mexico (GoM) — will still account for more than three-quarters of global expenditure over this period. The emergence of Asia as a significant deepwater region should not be overlooked, however, as it is projected to receive around 10% of the total predicted global capex investment.

Three main elements dominate deepwater spend over the next five years: the drilling and completion of subsea development wells, pipelines, and production platforms.

To put this in perspective, $63.6 billion will be spent on the drilling and completion of subsea wells alone. Pipelines and control lines also will continue to play a vital role in providing the necessary infrastructure for deepwater developments. The opening up of reserves further from the coast and the incorporation of satellite fields into deepwater hubs will drive expenditure on pipeline and control lines to more than $62 billion, while investment in subsea wells and pipelines and control lines accounts for approximately 75% of all capex. Platforms are expected to account for around 15% of total deepwater expenditure over the 2010-2014 period (a total spend of $25.4 billion), compared to 17% over the previous five-year period ($21 billion).

Regional updates

This chart shows capex by region in billions of US dollars through 2014. (Images courtesy of Douglas-Westwood)

Africa is by far the world’s most significant deepwater region.

Deepwater activity really began in earnest off West Africa in 2001 with the commencement of production from Total’s landmark Girassol project on Block 17 off Angola.

Over the 2005-2009 period $45.1 billion was spent on deepwater developments in the region — approximately two-fifths of this was accounted for by the drilling and completion of some 535 subsea wells. A large number of world-class development projects are underway or planned for the forecast period, and Douglas-Westwood anticipates these will push annual regional deepwater capex above $12 billion. Expenditure over the period is set to total close to $64 billion — over 40% more than the amount spent in the preceding five-year period.

Production in Asian waters has, until recently, been restricted to shallow-water fields, but there are now a number of deepwater projects under way or producing. Future deepwater prospects may include relatively unexplored places such India’s Cauvery basin, and Sri Lanka’s Mannar basin. Cairn India began a 3-D seismic, plus gravity and magnetic pre-drilling survey offshore Sri Lanka in December 2009.

Deepwater activity off Western Europe over the 2005-2009 period was dominated by Statoil’s Ormen Lange subsea development, in particular the large deepwater pipeline development scheme associated with the project. In fact, pipelines accounted for almost 80% of the region’s historic spend.

Over the 2010-2014 period, a number of projects are expected to go ahead — including Eni’s Aquila field development, which is due onstream in 2011 and includes two subsea wells tied back to a floating, production, storage, and offloading (FPSO) vessel. In the UK, there are several deepwater projects under development including Total’s Laggan/Tomore and Chevron’s Lochnagar/Rosebank. Laggan/Tomore will include subsea wells tied back to an onshore processing plant while Lochnagar/Rosebank will be developed using an FPSO.

Deepwater components

This pie chart shows what percentage of expenditure each region will receive through 2014.

Platform installations form an important proportion of overall deepwater capex, equaling 15% of the total development expenditure during the forecast period. Over the 2005-2009 period, 49 deepwater platforms were installed — only five of which occurred outside the deepwater Golden Triangle.

The Douglas-Westwood forecast includes 52 deepwater installations for the 2010-2014 period — 6% more than the previous five-year period. A capex of $25.4 billion is associated with these forecast installations, equating to 62% of the value of the global floating production system market.

This finding strongly underlines the importance of deepwater for the floating production sector.

Operator budgets

The total predicted expenditure for operators is more than $220 billion — demonstrating the importance of deepwater development over the next decade and beyond. Partially state-controlled Petrobras will prove, by far, to be the biggest player in the sector, having laid plans to invest close to $90 billion between 2010 and 2020, the majority of which will be spent on Brazil’s pre-salt deepwater fields.

Total and BP are expected to invest around $30 billion each on their deepwater assets over the period to 2020. West Africa continues to remain an important area of investment for both operators in addition to the employment of Nigerian fields (Total) and within the GoM (BP). ConocoPhillips has the smallest deepwater portfolio of all of the supermajors. The company’s deepwater capex is expected to be split primarily between Norway and the US GoM.

Activity picks up

E&P deepwater activities are situated at the industry’s technological frontier and imply high risks and high costs. However, the potential rewards — in terms of reserve volumes, productivity and profitability — are very alluring; particularly when considered in the context of a lack of new onshore or shallow-water opportunities and operator requirements to offset decline from existing reservoirs. Indeed, the requirement for techniques and hardware that can enable or improve E&P performance under challenging deepwater conditions is driving much of the innovative work currently underway in the wider industry. This has been demonstrated by significant improvements and innovations in the drilling, floating production, and subsea sectors – all of which have proved especially beneficial in the exploitation of deepwater prospects.

In addition, energy is becoming more expensive as the resources extracted become more technically demanding and intensive to access.

Ultimately, a future peak in world oil supply is inevitable; the only question remaining is the date that this will happen. The implication of this supply scenario for the global energy markets is that the industry will expect to see a sustained increase in oil prices as supplies tighten in the run-up to the peak year. This will impact on deepwater developments to the extent that they will become more economically viable as the oil price rises. In such a scenario, developments that were marginal at $20/bbl will undoubtedly be more vigorously pursued in an environment where the long-term expectation for oil price is $60/bbl and upwards.