Diving deeper in the race for new reserves

The ever-growing number of deepwater fields successfully producing or due onstream in the next few years around the world is no longer considered noteworthy news. This is now very much “business as usual” for the offshore sector, with some deepwater fields having produced since the 1980s. But for many, the surprise story has been just how quickly the E&P industry has moved into the ultra-deep arena of 1,500-m (4,921-ft) water depths and well beyond far faster than it cautiously tackled its first generation of deepwater projects.

With at least 200 ultra-deepwater subsea field developments lined up to come online over the next four years and more than 11,000 subsea wells forecasted to be in operation worldwide by 2020, according to Schlumberger’s CEO Paal Kibsgaard at a recent energy event, water depths are proving to be less and less of a barrier to innovation.

2012 has been a turning point for global deepwater spending after several years of slight decline due to the economic downturn and the Macondo effect. (Graph courtesy of Douglas Westwood)

Ultra-deepwater projects are expected to be the fastest growing part of the subsea market over the next few years. Infield pipelines in these water depths are forecast to grow at an annual rate of more than 15% between 2012 and 2017, according to reports from Technip and Heerema, who have formed a new joint venture (JV) aimed specifically at this market. The JV is aimed at addressing some but certainly not all of the ultra-deep development challenges being faced by the industry as a whole, including:

• The increasing size and complexity of ultra-deepwater projects that require extensive project management skills and an execution track record;
• The complexity of deepwater reservoirs that requires technology investment to optimize field design and provide solutions for HP/HT or highly corrosive hydrocarbons; and
• Deeper water and heavier pipes that increase pipe-tensioning and installation requirements of specialized pipelay vessels.

Dramatic subsea capex increase

Nearly a quarter of all subsea christmas trees installed annually between 2012 and 2016 will be in ultra-deepwater territory, according to analyst Infield Systems. The analyst said in its latest subsea market report that the potential for subsea capex to 2016 “has increased dramatically” and that global subsea tree manufacturers’ utilization rates are expected to increase to an average of 75% in the next three years, up from 49% in the 2009 to 2011 period.

The growing move into the ultra-deep is being led by major international oil and gas companies who recognize that they stand to find large discoveries if they are willing to pour substantial dollars into exploration efforts.

With 174 Bboe of deepwater reserves found but not yet developed, there is an estimated further 591 Bboe still to be found. (Graph courtesy of Sevan Drilling and Rystad Energy)

This emerging trend was featured in a recent report by Bernstein Research, which said deepwater production had jumped globally from less than 500,000 b/d 15 years ago to around 5.5 MMb/d in 2012 (about 7% of the world oil supply). If exploration, access, willingness, economics, and a growing Brazilian presalt outlook align properly, the company predicted an additional 4 MMb/d from deep water and ultra-deep water by 2020.

“The beneficiaries of the trend into deeper water mainly include international oil companies and the oil service companies with deepwater offerings,” said Rob West, co-author of the report and senior research associate, European Oil and Gas, for Bernstein. “These resources are hard to access – compared to conventional hydrocarbons onshore – and so resource-holding governments are more dependent on the technical capabilities of the majors and international E&Ps. The services benefit because of a tight deepwater rig market and the reliance upon specialized equipment, [subsea umbilicals, risers, and flowlines], and technologies.”

About 70% of the discovered resources so far have been found in water depths of more than 1,000 m (3,280 ft), and 50% of the discoveries have been found in frontier areas in the past three years, he said.

600 MMboe giants in ultra-deep water

The report also stated that deepwater acreage, specifically frontier deepwater acreage, resulted in the largest discoveries in the last five years. The average size was 600 MMboe in water depths greater than 1,500 m (4,921 ft).

This continued increase in ultra-deepwater exploration and development activity also is expected to spread across product lines, the report said. These likely include greater demand growth for products including subsea equipment and infrastructure, infrastructure installation, marine well testing, wireline, directional drilling, LWD, and completion equipment.

Challenges still remain such as higher well costs, with rig rates for ultra-deepwater capable units up to and more than US $600,000/day. Exploration expenses have increased more than 14% in the last decade and jumped 30% to about $90 billion in 2011, according to the report.

So what are the deepwater drivers that are pushing the industry? The generally accepted figures:

• 142 Bboe of deepwater resources have been found and developed globally, but only approximately half have so far been produced;
• 174 Bboe have been found but have not yet been developed;
• The deepwater development backlog amounts to 55% of the volume discovered so far;
• Another 591 Bboe of resources is expected to be discovered; and
• This is 90% higher than that already discovered.

The core areas driving the industry’s advance into the ultra-deep water remain the established regions such as the US Gulf of Mexico (GoM) with attractive fiscal terms and Lower Tertiary wells; Brazil with presalt success and light oil and gas; and West Africa with long lead-time developments in Nigeria and Angola and increasing activity in Ghana, Liberia, Namibia, and Cote d’Ivoire.

But it also is now featuring increasing exploration activity in emerging areas such as East Africa, Mexico, the Mediterranean Sea, Malaysia, Brunei, Indonesia, India, the South China Sea, the Black Sea, Atlantic Canada and Greenland, Suriname, and Guyana.

Floaters riding the wave

Of course, where exploration drilling takes place, development expenditure usually follows, and in the ultra-deep sector it is not only the subsea market that is benefiting. The floating production systems sector will see demand from ultra-deep projects dominate over the course of the next five years.

Infield noted that installations in water depths of 1,500 m (4,921 ft) and greater will make up a 31% share of floating platform capex over the 2012 to 2016 timeframe. This compares to 22% over the historical 2007 to 2011 period. Of these developments, Latin America will continue to hold the dominant share at 58% of capex spend, with key floating production and storage vessel projects including the Lula and Sapinhoa developments in Santos basin blocks BM-S-11 and BM-S-9 offshore Brazil.

Since 2000, the trend for floating platform installations beyond water depths of 500 m (1,640 ft) and greater has primarily been driven by Brazil. Since then, the country has consistently held a 35% market share of capex at this water depth and is expected to maintain this throughout the forecasted period.

Project 20K

Advances in ultra-deepwater technology are being pushed in many different areas. Bernard Looney, executive vice president, Developments at BP, said that the company’s Project 20K – aimed at increasing its capability to 20,000 psi and temperatures of 175°C to 204°C (350°F to 400°F) – was in many ways “the next chapter in deepwater.” Over the next decade BP will work with others to develop an integrated system from the rig to the risers and the subsea all the way to the well with the ability to intervene.

This could include equipment, he continued, such as:

• Subsea valves weighing 20 tons, capable of closing and isolating hydrocarbons in a matter of seconds;
• State-of-the-art sensing and monitoring systems for real-time subsea integrity management;
• BOPs weighing in excess of 1 million lb and standing more than 21 m (70 ft) high; and
• Equipment capable of operating at 30,000 psi onshore – one-and-a-half times its designed working pressure.

Deepwater discoveries are expected to remain at a consistent level throughout the next three decades. (Graph courtesy of Sevan Drilling and Rystad Energy)

Those resources are inaccessible with current equipment, which has a technical limit of 15,000 psi pressure and temperatures of 120°C (250°F).

BP said that in the GoM, Project 20K technology will play a key role in developing its future major ultra-deepwater discoveries such as Kaskida and Tiber.

Tapping industry expertise

With this in mind, the company is tapping into expertise from within the industry, recently awarding initial contracts to KBR and FMC Technologies for the technology initiative. KBR will develop program execution and management plans, including capital cost and schedule estimates, risk assessments, and technical designs. FMC will participate in a technology development agreement in which it will work jointly with BP to design and develop 20,000-psi-rated subsea production equipment, including a subsea production tree and a subsea high-integrity pressure protection system.

The end game for BP is that the eventual application of this technology across its own global portfolio could access an additional 10 Bbbl to 20 Bbbl of resources, it estimates.

For many, the ultra-deep challenge is largely represented by drilling and rig-related issues. Balmoral Offshore Engineering has tackled the issue of drill riser buoyancy by launching two additions to its portfolio enabling operations in up to 4,500 m (15,000 ft) of water.

The company’s Durafloat Superlite and Durafloat Superlite-X materials are rated to operating depths of 4,500 m – typically 900 m to 1,500 m (3,000 ft to 5,000 ft) deeper than industry-standard drill riser buoyancy it said. Balmoral sank a six-figure sum into its R&D program for the syntactic foams, which were developed by its technical and engineering teams in Aberdeen, Scotland.

Drill riser buoyancy provides uplift by effectively decreasing the submerged weight of the steel riser joints that run between the drilling vessel and the BOP on the seabed.

Global expenditure on subsea projects is set to rise consistently through 2017, largely driven by ultra-deepwater demand. (Graph courtesy of Quest Offshore)

Drilling rig demands

The highest profile item most often mentioned whenever the subject of ultra-deepwater comes up, however, is the drilling rig itself. The current rig-building boom has seen a flood of new units arrive on the market, with plenty more still to come. According to Tom Kellock of IHS-Petrodata, speaking at a recent International Association of Drilling Contractors event, ultra-deep water is the dominant specification. He also said that despite water depths of 3,048 m (10,000 ft) or more being the bespoke capacity for most, the average water depth for rigs working today is 1,067 m (3,500 ft). “So we do not need ultra-deepwater rigs all the time,” he said.

However, the long-term picture remains one of an offshore industry going deeper, and this means that more rigs capable of drilling in these depths must be built – development drilling requirements alone will make up around half the demand for deepwater rigs going forward. With most deepwater discoveries having not yet been developed, the future level of rig demand becomes clearer, with the stage set very much for growth.

The factors fueling demand and heightened technical requirements for these new ultra-deep floaters include:

• Challenges of remote drilling sites;
• Drilling deeper, more complex wells with longer offsets;
• Greater drilling efficiency to reduce total well costs;
• Advances in well construction techniques such as intelligent completions;
• More demanding downhole environments such as HP/HT drilling; and
• An increasingly demanding regulatory climate. For the latest drillships, manufacturers have typically responded by building units with specifications such as:
• Water depth capability of 3,048 m to 3,657.6 m (10,000 ft to 12,000 ft) with enhanced load paths and mud systems;
• Dual-activity derricks with the ability to take critical path activities offline;
• More accommodation space and variable deckload capacity; and
• Advanced dynamic positioning class 3 systems, 6-ram or 7-ram BOPs, and redundant mud pumps.

This unflinching demand for such units has created an ultra-deepwater rig market that is tight and shows no sign of slowing up any time soon. Virtually all of the competitors involved agree the market is in a strong cycle that will prevail over the coming years. The same is true for the global ultra-deepwater E&P sector as a whole.