Koil Energy Solutions Inc. (KLNG)

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Global Deepwater Expenditure to Exceed $108 billion through 2012

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Further west, the Amerada fields (formerly operated by Apache) have a 25-year lease and sales agreement that will allow the development of the Abu Sir, El Max, El King, and Al Bahig discoveries to go ahead.

The Latin America region is dominated by Brazil in terms of deepwater activity. National operator Petrobras has established itself as a pioneer in the use of innovative technology to achieve production from water depths in excess of 1,800 m (5,905 ft). The operator is continuing with its development of the Roncador, Marlim Leste, Marlim Sul, Jubarte, and Albacora Leste fields, while pursuing newer finds such as Golfinho. Overall, the region is expected to account for nearly 20% of deepwater development capex over the 2008-2012 period.

With a few notable exceptions, deepwater fields in the US Gulf of Mexico tend to be smaller than those in other deepwater “hotspots” such as Brazil and West Africa, for example. The region’s extensive offshore infrastructure, in the form of production platforms and export pipeline networks, and the relative proximity of supply and service centers have a significant influence on E&P activity, turning otherwise marginal prospects into viable commercial propositions. These factors also mean that project lead times tend to be shorter than in other regions.

In addition, the use of subsea tiebacks to floating production systems has resulted in “hub and spoke” developments, allowing production from several small (otherwise uneconomic) fields to go ahead, produced via a single floating production system. An example is the Atwater Valley Producers’ Independence Hub, a semisubmersible unit that recently started operating from the Atlas field. Additional production is set to begin from a number of other fields in the DeSoto Canyon and Lloyd Ridge areas, including Spiderman, Jubilee, Merganser, Vortex, San Jacinto, and Atlas NW. Petrobras is also set to operate an FPSO to receive production from the Cascade and Chinook fields.

North America is expected to account for over 25% of deepwater development Capex over the 2008-2012 period.

Asian prospects are centered around Indonesia, Malaysia, and India and include Chevron’s Gendalo and Gehem/Ranggas developments offshore Indonesia and Murphy’s Kikeh and Shell’s Gumusut off Malaysia.

The “Golden Triangle” of deepwater (Africa, Gulf of Mexico, and Brazilian) will still account for 84% of global deepwater expenditure over the forecast period, but the rapid emergence of Asia as a significant deepwater region should not be overlooked.

Indonesia, Malaysia, and India all have development prospects on screen for the 2008-2012 period, and the region should account for 10% of deepwater capex during this time.

After the drilling and completion of subsea wells, an activity that is becoming increasingly expensive in areas such as the US GoM, it is pipelines and platforms that form most of the remaining spend for deepwater developments. Advances in technology, particularly in mooring systems and innovative hull designs, are allowing production from greater water depths to be viable both technically and economically.

Over the next five years, $28 billion is likely to be spent on deepwater floating production systems, $38 billion on drilling and completing subsea wells, and $32 billion on flowlines and control lines, while subsea hardware and surface completed wells could account for a further $10.5 billion.

The deepwater “shopping list” for the forecast period includes over 1,270 subsea trees, 300 templates and manifolds, 68 platforms, and nearly 13,000 km (8,078 mi) of pipelines. Annual expenditure in the deepwater business is expected to reach $24.6 billion by 2012, with the overall spend for the 2008-2012 period totaling $108.5 billion.
Drilling supported by deepwater activity

Without exception, deepwater development drilling spend is increasing rapidly in all regions where deepwater oil and/or gas fields have been discovered, especially offshore West Africa. Deepwater development drilling spending is also forecast to begin in other regions, including Asia and Mexico.

Results from the World Offshore Drilling Report estimate that over the last five years $164 billion was spent on shallow-water drilling, representing 80% of all drilling expenditure. Meanwhile, $41 billion was spent on deepwater drilling. Over the next five years, it is forecast that $221 billion will be spent on shallow-water drilling, representing 72% of all offshore drilling expenditure. It is estimated that $85 billion will be spent on deepwater drilling.

The increase in deepwater spending relative to spending in shallow water is substantial. While shallow waters are seeing increased expenditure because of rising prices and rising unit well costs, deepwater expenditures reflect a real increase in global activity of global importance to rig contractors and associated drilling services.

From a mere 2% of global expenditure in 1991, almost all in Brazil, the deepwater share had increased to 17% by 2002 and is forecast to reach nearly 30% by 2011.

Within the deepwater sector, 28% of expenditure is directed toward engineering services, down from 42% in shallow waters. Just under a quarter is once again earmarked for support, but rig spends have gone up to 47% due to the increased use of expensive equipment. Only 4% goes toward geoscience.

The large jumps in deepwater spending throughout the period in all categories are due to big increases in drilling levels in the deepwater sector as well as inflationary pressures.

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Adrian John has conducted market analysis in the oil and gas sector as part of commissioned research, commercial due-diligence, and published market studies. He has worked on projects focusing on the downstream sector and is the lead author of the World LNG & GTL Forecast. John has a background in engineering and construction and holds an engineering degree from the University of Cambridge.

Georgie MacFarlan is publications manager for Douglas-Westwood and contributes to DWL publications. She has worked on a number of the firm’s studies for oil majors, government departments, and investment banks.

Dr. Michael R. Smith has spent over 20 years in the oil and gas industry. He has worked for several consultancies and oil companies as a geoscientist and as exploration manager with responsibilities for ventures in the many countries. Smith is chief executive of Energyfiles where he has developed a data and forecasting service available at www.energyfiles.com.