Analysis: The offshore petroleum industry apparently suffered little serious damage from the effects of Hurricane Claudette as she passed through the western Gulf of Mexico a couple of weeks ago. It was a small favor granted during the first half of this year's storm season in the GOM--but only that, considering most of the heftier Atlantic hurricanes brew up from August through November, often spiraling their way into the Gulf.
Despite storms like last year's Isidore and Lili, which did wreak some pretty heavy damage to both mobile drilling rigs and some fixed platform equipment, and stronger storms in earlier years, the Gulf actually is considered a "benign" environment for offshore operations, particularly when compared to areas like the North Sea and the Atlantic off Eastern Canada or the typhoon-tossed South China Sea. However, a sizable hurricane in the Gulf still poses a threat to life and limb, as well as to offshore drilling equipment, particularly that of the floating, deepwater, and ultra-deepwater variety, a growing number of which are working far offshore in the Gulf.
Currently, Gulf deepwater and ultra-deepwater exploratory, appraisal, and field development drilling is proceeding at an almost all-out pace. According to the Rigzone.com web-based Mobile Offshore Rig Directory there are 46 floaters (drillships and semisubs) with a water depth rating greater than 1000 feet in the US Gulf of Mexico. Out of these 46 rigs 10 are non-competitive, currently cold stacked or under going shipyard repairs or modifications. The remaining 36 rigs make up the Gulf of Mexico competitive deepwater rig fleet and 32 of these rigs are presently under contract. That's an 89 percent utilization rate. But working water depths tend to be much deeper than 1,000 ft. these days. Operators are drilling almost routinely in up to 5,000 ft (1,525 m) of water in the Gulf, with occasional exploratory tests drilled in the 8,500- to 9,700-ft (2,593- to 2,960-m) water-depth range. And even strong hurricanes are less of a threat to such equipment than in the past.
Floating offshore production facilities, which usually lag exploration/appraisal drilling somewhat in the water-depth department, nonetheless are working at, or being fabricated or designed for, field development in up to 6,950 ft (2,120 m) of water. This activity, too, is expected to grow, since today's floating production facilities are designed to withstand a 100-year storm. All this points to making the industry's quest for producing in 10,000-ft (3,000-m) or greater water depths a reality only a few years hence.
According to offshore industry analysts, the total of deepwater rigs operating in the Gulf should rise somewhat during the next four or five years, and their combined utilization rate should continue at a moderately high average. Also, somewhat higher deepwater rig totals are expected in other areas of the world, particularly off West Africa and to some degree, Brazil.
In a new forecast of spending on worldwide offshore drilling activity, published by U.K. energy consultancy Douglas-Westwood (D-W), analysts forecast deepwater drilling expenditures will see strong growth during the next five years, with US$40.2 billion to be spent worldwide on some 537 exploration, 327 appraisal, and 1,209 development wells in water depths of 1,300 ft (about 300 m) or more. That would increase the annual deepwater share of total global offshore spending from around 15 percent in 2002 to about 26 percent by 2007.
Broken down by region, the report estimates that spending on deepwater drilling in North America will total $13.2 billion during the study period. Africa will see $11.8 billion in spending; Eastern Europe/Former Soviet Union, $9.1 billion; Asia, $2.7 billion; Pacific Rim, $1.6 billion; and Western Europe, $1.6 billion. Latin America, surprisingly, will see total deepwater expenditures of only $154 million during the five-year period, but that's because Brazil has become mainly a development, rather than exploratory region, and future exploration drilling hinges on awarding new offshore contract areas to multinational companies, which is not expected to happen for several years.
According to Michael Smith, Ph.D., of Energy Files Ltd., who prepared the D-W report, one of the main drivers for the changes appears to be an increasing shortage of shallow-water prospects, particularly in the U.S. Gulf region, combined with innovations in drilling technology that now allow deepwater drilling in more extreme met-ocean conditions.
Working from the estimated US$33.6 billion spent for total worldwide offshore drilling and well completions in 2002, the D-W report expects spending levels to remain reasonably steady during the five-year period 2003 through 2007. However, the report projects that significant changes will be made in certain regions. North America, with an estimated offshore total of 4,798 wells, will have the highest share of spending from 2003 through 2007, increasing to about $46.8 billion, a hike of some $2.4 billion from the $44.3 billion spent during the previous five-year period. Growth of a similar magnitude also is expected offshore Africa, where deepwater drilling spending will exceed shallow-water spending for the first time in history. Additionally, there's the possibility of a comparable spending increase in the Persian Gulf area if controlling governments encourage outside investment to a greater extent than they do now, says Smith.
Meanwhile, both the Asia/Pacific region and Western Europe are expected to see a significant decline in total offshore expenditures. The Asia region will exhibit a shortfall of some $4.5 billion from total spending between 1998 and 2002 of $43.1 billion. In Western Europe, the forecast spending cutback will be more than $5.2 billion from the $32.3 billion spent from 1998 through 2002.
As for the outlook for drilling equipment, the D-W report expects the deepwater and ultra-deepwater market to remain at high utilization rates throughout the study period, especially for drillships and fifth-generation semisubmersible rigs with water-depth ratings of 4,920 ft. (1,500 m) or greater.
The shallow-water semisubmersible market, on the other hand, will be weaker, but decline in demand for such rigs in the Gulf of Mexico and North Sea areas will be counterbalanced by a demand pickup in West Africa, India, and China, at least for the first three years of the study period.
And finally, demand for high-specification jackups is likely to remain strong as new gas projects are identified. Consequently, the report expects most new spending on drilling equipment to be directed at upgrades of both floating rigs and jackups to allow faster drilling in deeper water and to deeper reservoirs.
While offshore analysts agree that a rally for rigs of all types is underway currently in the Gulf of Mexico, it's thought that the area will experience a slow decline in demand through 2010 due, apparently, to the gradual downward trend in shallow-water drilling--jackups and early-generation semis being the dominant rig types for such work. Apparently this will materialize as the number of deep gas exploration prospects on the U.S. Gulf Outer Continental Shelf begins to wane. Analysts also agree, however, that the much more expensive, time-consuming deepwater activity should continue at or somewhat exceed its current pace.
They also expect that a current dip in activity offshore W
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