DEEPWATER EXPLORATION: DEEP DIMENSIONS FOR CRUDE SAKE!

By Oluwasheyi Nicholas Lisk-Carew

As the world’s demand for oil increases, so does the search for more sources of oil by oil and gas companies. In today’s highly competitive oil and gas industry, over 80% of the global spending on deepwater projects is going to take place within the golden triangle off the deepwaters, which is made up of West Africa, Deep Water Gulf of Mexico and off the coast of Brazil (Gue, 2009).

Benefiting from investment in the offshore sector has never been easy, especially as it entails a lot of costs and required state of the art technology. Projects could start from around 1,000 ft to well over 38,000 ft such as the Tiber field in the deepwaters of the Gulf of Mexico; which contains about 3 billion cubic metres of oil reserves (Gue, 2009).
The diagram below illustrates the costs involved in deepwater drilling and suggests that deepwater projects should increase by around 18% withn the next 2 years (Isherwood & Reinsvold, 2009).

Overview of Deepwater drilling, exploration and production

As far back as the 1940’s oil was drilled offshore, producing around 1 million barrels per day in the 1960’s and today offshore produces around 24MBBL/D (Dr. Sandrea). However, the onshore production has slowed down within the last 2 decades, and offshore production has been the major contribution to the world’s supply of oil and gas. At present, the offshore crude oil output accounts for close to one third of the world’s total production and is without a doubt, the growing sector of the industry (Subsea World, 2010).

What exactly is deepwater/ offshore drilling?

Deepwater drilling is simply the process in oil and gas production and exploration which is carried out in water far away from the coastline. In most cases, deepwater is considered at 1000 ft deep but more recently the industry focuses more on ultra deep waters of around 5,000 ft (Crooks, 2010); this is because oil and gas is situated in deeper ends of the ocean.

Offshore Crude oil production vs. onshore production

In recent years, there has been a decline in the big onshore oil fields, which were once upon a time the main source of oil production (EIA, 1994). This decline in production has indeed been a trend for decades (EIA, 1994). For example, non-OPEC oil supply fell to 52.4 mb/d in April (IEA, 2010). Oil fields outside of OPEC such as China’s Daqing and Shengli onshore fields also show a decline in growth rate. However, the new offshore fields in Bohai Bay positively influence the overall net growth. Offshore production in China is expected to account for 25% of its total oil output, once increased from 680 to 980KB/D (IEA, 2009). Hence it appears that offshore sector seems to be growing. Figure 2 below shows that US consumption is increasing while the production from onshore fields is declining. Figure 3 goes further to illustrate that the same US production compared to offshore production is approaching convergence- which suggests that offshore production is contributing more significantly towards the consumption especially as the onshore production is on a declining trend.

Also, Texas and Alaska of the US reflect a decline in onshore fileds (Hamilton). Figure 4 illustrates this decline in comparison to the production from the US Federal offshore reserves.

OPEC however has observed a reduction in production, such as in Saudi Arabia where it is unlikely that growth has been the case in recent years, as the focus is more on developing smaller fields, which are more complicated and expensive (Gue, 2009); this can only suggest that the bigger fields are dractically reducing (Gue, 2009). Based on the foregoing one may suggest that it is becoming increasingly complicated to access crude oil onshore (this will be explained in detail below).

In a country such as Nigeria, over 5,200 wells have been drilled and around 603 oil fields in the Niger Delta region are discovery wells (NAPIMS, 2010). 355 wells are onshore and about 251 (NNPC, 2010).

Nigeria’s average exploration rate has increased from around 11% to well over 60% presently with the aid of technology, which is deemed as the best in the world (NAPIMS, 2010). The deepwater section of Nigeria’s offshore is on an increase, and gives interested parties- both local and international- an avenue for profitable business alliances (NAPIMS, 2010). Currently, emphasis is on wells which have the capacity to produce in excess of 20,000 bopd.

Considering the fact that offshore costs significantly more to produce in Nigeria, it costs $5 per barrel for offshore compared to $3.5 for onshore, hence Nigeria offers one of the most profitable exploration business opportunities for foreign investment (NAPIMS, 2010).

Deepwater operations and systems

Without a doubt we can definitely notice depletion in the onshore and shallow water fields. As a result of this, oil companies are more interested in the deepwater areas, which are effectively maximized with the combination of subsea production units/systems, which aid the extraction process (Karra & Knight, Subsea boosting and processing developments, 2010). However operators opt to favour technology rather than political risk- such as Venezuela and Iran- with unpredictable business environments (Karra & Knight, Subsea boosting and processing developments, 2010). One aspect of interest for favoured technologies is in enhanced oil recovery technologies with the deployment of techniques such as subsea processing, subsea boosting, subsea tiebacks and well intervention systems (Karra & Knight, infield Systems Ltd., 2010). However, the subsea trees have shown a lower potential of recovery as well as high running costs (something for the engineers) while running dry trees maximizes profits- simply because it minimizes issues along the pipeline in the deepwaters and increases the recovery rates. Subsea processing entails various technologies which enable production from offshore wells without the need for surface production facilities.

With the aid of technology there has been an increment in the success rate of deepwater drilling. With the discovery of the 3-D seismic data, surveys appear to be much more precise. In as much as the technology is very expensive, it records around 90% success rate (Percival, 2010). However it is important to note that these technologies save costs, are highly efficient, include overall improved oil and gas recovery systems, improved NPV’s, reduced surface production facility costs, boosted production rates and most importantly- reduced gas hydrate formation in flow lines (Karra & Knight, Infield Systems Ltd., 2010).

The long-term drivers of the subsea market are well known and the relentless depletion of onshore and shallow water fields has compelled oil companies to focus on deepwater areas where a combination of floating and subsea production units is used to extract hydrocarbons. In recent years, this trend has been reinforced by operators favouring technological considerations over political risk factors, with oil companies preferring to leverage their technological capability in deepwater plays rather than to engage in economies such as Iran and Venezuala which have unpredictable business environments for investors (Karra & Knight, Infield Systems Ltd., 2010)

NUTSHELL:

In this article, Oluwasheyi has explored the general logic underlying business decisions to seek frontier oil and gas reservoirs such as offshore deepwater plays. He focuses his analysis on the consumption and production trend profiles for onshore and offshore crude and takes the analysis up one notch by exploring some more intricate technical considerations. On the whole, this analysis provides a platform for an insight into company business decisions. A recent example is the decision of BP to partner with ROSNEFT; and it’s all about the offshore reservoirs. For more information on this article and to view Oluwasheyi's professional profile, click here.-->