Jan. 2001 Vol. 222 No. 1
Feature Article
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REGIONAL FOCUS: U.S. GULF OF MEXICO
Cautious optimism characterizes Gulf of Mexico activity
Healthy E&P activity in GOM will probably remain active through
2001. Rig utilization increases steadily, but some analysts warn of jackup rig reduction due to decline in shelf
reserves
Jerry Greenberg, Houston, Texas
ulf
of Mexico E&P activity appears healthy, with strong indications that it will remain active at least during
the next year. U.S. Gulf rig utilization is increasing steadily along with dayrates. The market is strong
enough to attract rigs from other areas and still sustain increased rates and utilization. The industry could
experience a shortage of ultra-deepwater rigs in the near future, based on the number of leases to be
explored. On the other hand, some analysts suggest there could be a decline in jackup rig activity as the U.S.
Gulf continues to mature and shelf reserves decline.
Development activity, while not as strong this year as
in previous years, is expected to increase in 2001 and is already beginning to see some of that increase in
the form of $1.5 billion of developments announced recently by Shell. But year 2000 saw fewer subsea
completions and no floating production systems (through November). For the future, operators are studying the
possibility of as many as 17 floating production facilities to develop various fields. Subsea completions are
expected to rise also, indicating increased development activity. More than 40 subsea completions are planned
for 2001 compared with perhaps 25 eventually for 2000, Tables 1 and 2.
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Table 1. Subsea trees installed
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1996 |
23 |
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1997 |
33 |
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1998 |
27 |
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1999 |
33 |
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2000 |
25* |
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2001 |
41* |
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2002 |
11* |
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2003 |
0* |
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2004 |
4* |
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*Estimate
Source: One Offshore, Inc. |
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Table 2. U.S. Gulf field
development projects |
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Under construction
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Planned or under
design
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Under study
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Water depth, ft |
Fixed |
Floating |
Fixed |
Floating |
Fixed |
Floating |
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0 150 |
12 |
0 |
35 |
0 |
4 |
0 |
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151 300 |
5 |
0 |
17 |
0 |
6 |
0 |
|
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301 450 |
1 |
0 |
6 |
0 |
1 |
0 |
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451 650 |
0 |
0 |
1 |
0 |
0 |
0 |
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651 1,500 |
0 |
1 |
0 |
0 |
1 |
0 |
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Over 1,500 |
0 |
5 |
0 |
2 |
0 |
17 |
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Source: One Offshore, Inc. |
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Competitive jackup demand vs.
average gas price. |
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Healthy Rig Activity Increase
Gulf of Mexico drilling contractors saw the number of
contracted rigs increase by 26 from the beginning of 2000 to early November, from 149 to 175. This translates
into increased utilization rates of 85.4%, an 8-point increase since the beginning of the year, Table 3.
During the same time, a dozen rigs mobilized to the U.S. Gulf, lured by rising activity levels and increasing
dayrates.
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Table 3. Gulf of Mexico
utilization |
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Total fleet
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Contracted
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Not Contracted
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Utilization
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Jackup |
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Jan-00 |
143 |
118 |
25 |
82.5% |
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Feb-00 |
144 |
119 |
25 |
82.6% |
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Mar-00 |
144 |
119 |
25 |
82.6% |
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Apr-00 |
146 |
124 |
22 |
84.9% |
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May-00 |
147 |
125 |
22 |
85.0% |
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Jun-00 |
146 |
131 |
15 |
89.7% |
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Jul-00 |
148 |
133 |
15 |
89.9% |
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Aug-00 |
153 |
138 |
15 |
90.2% |
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Sep-00 |
153 |
137 |
16 |
89.5% |
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Oct-00 |
152 |
133 |
19 |
87.5% |
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Nov-00 |
152 |
136 |
16 |
89.5% |
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Floater |
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Jan-00 |
42 |
29 |
13 |
69.0% |
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Feb-00 |
42 |
29 |
13 |
69.0% |
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Mar-00 |
43 |
26 |
17 |
60.5% |
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Apr-00 |
45 |
29 |
16 |
64.4% |
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May-00 |
45 |
29 |
16 |
64.4% |
|
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Jun-00 |
46 |
32 |
14 |
69.6% |
|
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Jul-00 |
46 |
33 |
13 |
71.7% |
|
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Aug-00 |
47 |
35 |
12 |
74.5% |
|
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Sep-00 |
46 |
36 |
10 |
78.3% |
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Oct-00 |
46 |
35 |
11 |
76.1% |
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Nov-00 |
46 |
34 |
12 |
73.9% |
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Total fleet |
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Jan-00 |
193 |
149 |
44 |
77.2% |
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Feb-00 |
194 |
150 |
44 |
77.3% |
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Mar-00 |
195 |
147 |
48 |
75.4% |
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Apr-00 |
199 |
156 |
43 |
78.4% |
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May-00 |
200 |
157 |
43 |
78.5% |
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Jun-00 |
199 |
165 |
34 |
82.9% |
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Jul-00 |
201 |
168 |
33 |
83.6% |
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Aug-00 |
207 |
176 |
31 |
85.0% |
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Sep-00 |
206 |
177 |
29 |
85.9% |
|
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Oct-00 |
205 |
173 |
32 |
84.4% |
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Nov-00 |
205 |
175 |
30 |
85.4% |
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Copyright 2000, OneOffshore, Inc. |
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Most of the increase has been in the jackup fleet,
driven primarily by high natural gas prices this summer and into the fall, see accompanying figure. Jackup
utilization in early November was just under 90%, with 136 of 152 jackups contracted. Not only were 18 more
jackups contracted in November compared with the beginning of the year, but also the jackup fleet during that
time increased by nine units.
Several oil and gas companies are entering the Gulf of
Mexico for the first time, or drilling again following a period of absence. This move to the U.S. Gulf is
partly due to high natural gas prices and because independents are obtaining potentially good acreage left
behind by majors moving to deeper waters or exiting the Gulf. Additionally, high natural gas prices also
attracted some of these companies to recent OCS lease sales. Some of these independents are not well known as
U.S. Gulf operators and include companies such as White Petroleum, Juniper, Fairways Offshore, Matrix Offshore
and Magnum Hunter.
Many of these small independents working in the U.S.
Gulf use turnkey drilling contractors because the oil companies generally lack the staff or offshore
experience / expertise to drill for their own account. Consequently, this year has been quite active for the
turnkey driller. Global Marine subsidiary Applied Drilling Technology Inc. (ADTI) is on track to drill 100
wells. R&B Falcon subsidiary Cliffs Drilling beefed up its turnkey operations with the addition of several
former ADTI employees, and the company expects to drill as many as 60 wells in 2000, and in 2001. This
compares with 23 wells drilled from March to the end of December 1999. Triton Engineering is de-emphasizing
its turnkey drilling in favor of more project-management type contracts. The company historically has been the
second largest U.S. Gulf turnkey driller in terms of number of wells drilled.
As jackup utilization increased, so did dayrates.
Drilling contractors saw rates for typical 250 300-ft, independent-leg cantilevered Gulf of Mexico
jackups nearly double since the beginning of the year, Table 4. Last January, dayrates ranged between $19,000
and $32,000 for this class of jackup, averaging just above $23,000 per day, according to One Offshore, Inc.
Rates rose steadily to an average of $44,873 in November, ranging from $40,000 to $55,000.
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Table 4. Gulf of Mexico
250 300-ft IC jackup dayrates |
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Month |
Average |
Low |
High |
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Jan-00 |
$23,150 |
$19,000 |
$32,000 |
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Feb-00 |
$23,700 |
$19,000 |
$26,000 |
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Mar-00 |
$27,697 |
$20,000 |
$36,000 |
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Apr-00 |
$28,920 |
$25,000 |
$34,000 |
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May-00 |
$29,429 |
$22,000 |
$36,000 |
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Jun-00 |
$31,904 |
$26,000 |
$39,000 |
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Jul-00 |
$34,333 |
$29,500 |
$41,000 |
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Aug-00 |
$39,015 |
$27,500 |
$55,000 |
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Sep-00 |
$40,322 |
$27,000 |
$53,000 |
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Oct-00 |
$43,975 |
$31,500 |
$55,000 |
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Nov-00 |
$44,873 |
$40,000 |
$55,000 |
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Copyright 2000, OneOffshore, Inc. |
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U.S. Gulf shelf activity is presently on the rise, and
oil / gas company budgets are expected to increase significantly in 2001, according to two E&P-company
spending surveys. But one analyst believes that U.S. Gulf jackup activity will decline in the longer term. Tom
Marsh, Associate Publisher at One Offshore, Inc, says the U.S. Gulf is a mature province and there is a trend
of lower leasing activity in shallow waters, implying that jackup demand over the longer term will decline.
Marsh sees this declining activity rate occurring over the next five to ten years.
Deepwater Exploration
At this writing, there are 46 deepwater rigs in the
Gulf of Mexico, including 40 semisubmersibles and six drillships. Another three semis and one drillship under
construction are destined for the U.S. Gulf. Additionally, several semis are being converted or upgraded for
ultradeepwater use. Yet, despite the number of rigs, some in the industry are predicting a deepwater rig
shortage in the U.S. Gulf.
Before oil prices collapsed in 1997, One Offshore (then
Offshore Data Services) studied worldwide deepwater rig demand and determined the need for 40 50 new
deepwater rigs for the U.S. Gulf alone. There were numerous new semisubmersibles and drillships on order then,
but the construction cycle was interrupted by the oil price collapse. Since 1997, a total of 22 deepwater rigs
were delivered to the Gulf, implying a need for an additional 18 28 rigs to meet expected demand.
If the expected demand materializes over the next 12
24 months, says Marsh, the problem is that new rigs will not be ordered until it is obvious to drilling
contractors that the demand cycle is real. It will be about 24 months following new orders, he says, before
any new rigs could be delivered to meet demand, resulting in potentially severe shortages. These shortages
could occur within 24 months, possibly quicker if the next demand up-cycle is sooner.
Exacerbating the situation is deepwater exploration in
other areas of the world, such as Brazil and West Africa. Demand for deepwater equipment in those markets will
likely pull units from the U.S. Gulf.
Meantime, deepwater and ultra-deepwater drilling is
proceeding, including a Gulf of Mexico water depth record. BHP spudded a well in Walker Ridge Block 425 in
8,835 ft of water with the recently delivered state-of-the-art
Glomar C. R. Luigs drillship. Additionally, two more wells are being drilled in over 7,000 ft of
water. Shell is drilling in 7,790 ft of water in Alaminos Canyon Block 557 with R&B Falcons
semisubmersible Deepwater Nautilus. Spirit Energy 76 is drilling in 7,044 ft of water in Walker Ridge
Block 678 with Transocean Sedco Forexs drillship Discoverer Spirit.
The Walker Ridge area is garnering particular attention
recently from the oil industry. In addition to BHP and Spirit Energy 76, Texaco is drilling in 6,725 ft of
water in Walker Ridge Block 456 with Global Marines Glomar Explorer drillship. Marathon drilled a well
in Walker Ridge Block 165 in 7,997 ft of water in 1999.
Slack Development Activity Poised For Increase
Gulf of Mexico development activity was relatively slow
in 2000 due primarily to E&P companies uneasiness about the stability of oil prices. High natural
gas prices resulted in more exploration activity on the shelf, which will result in development activity, but
deepwater and ultra-deepwater exploration / production lagged previous years. For example, there were no
floating production systems installed in 2000, but at least three are planned for installation in 2001.
Another 17 floating production systems are under study, according to One Offshore. Subsea tree installations
totaled only 13 through October compared with 33 in 1999. This total may increase slightly by years end.
As many as 41 subsea installations are planned for 2001.
The number of fixed platform installations could
experience a significant increase this year with possibly as many as 100. That would be the highest figure
since 1997, when 107 fixed platforms were installed, or 1998 when 88 were installed. There were 49 fixed
platforms installed through the first three quarters of 2000, with as many as 54 scheduled to be installed
during the fourth quarter. However, scheduling problems and other considerations may result in some
installations being pushed into 2001. Most of these fixed platforms are well protectors installed by
independents in less than 200 ft of water as they put their gas production onstream in light of high natural
gas prices.
Deepwater Production Set To Rise
Deepwater oil and gas production rose significantly in
1999 and will post another increase in 2000. The Minerals Management Service (MMS) estimates that production
from the deepwater areas jumped 41% in 1999 over 1998. Natural gas production increased an estimated 51% in
1999. A major milestone was reached in November 1999 when the volume of oil from the deepwater Gulf surpassed
that from the shallow water portion. Although only 30 (4%) of the 747 producing fields are in deep water, they
provide over half of the Gulfs daily production.
Floating production facilities planned for installation
in 2001 include a spar for Chevrons development in Green Canyon Block 237 in about 2,100 ft of water, a
tension-leg platform for El Paso Productions Prince prospect in 1,490 ft of water in Ewing Bank Block
1003, and Shells Brutus TLP in 2,985 ft of water in Green Canyon Block 158.
Recent developments by Shell Exploration and Production
Company (SEPCo) indicate the type of deepwater development projects to expect and are reasons why the industry
could see such a high number of subsea completions in 2001. Shells Na Kika and Oregano and Serrano
projects are estimated to cost more than $1.5 billion to develop. These development projects include a
floating production facility (FPS) as well as numerous subsea completions to tie in several fields to the FPS.
The Na Kika project represents a first for the U.S.
Gulf deep water, consisting of six subsea production systems servicing satellite fields that will be tied back
to the central FPS. The Ariel, East Ansley, Fourier, Herschel, Kepler, and Coulomb fields are in water depths
ranging from 5,800 to 7,600 ft. Production will initially be from the first five fields. Production from
Coulomb field will be tied back to the FPS as production capacity becomes available.
The Na Kika project will cost about $1.3 billion and is
expected to come onstream with the first five wells in mid-2003. Peak production rates are expected to reach
325 MMcfd of gas and 100,000 bpd of oil. Estimated total recoverable reserves amount to more than 300 million
boe.
Development of the Oregano and Serrano discoveries will
use subsea completions tied back to Shells Auger TLP, eight and six miles away, respectively. The
discoveries are in about 3,400 ft of water. Each development will consist of two wells, flowline sleds and
6-in. by 10-in. pipe-in-pipe insulated flowlines tied back to Auger.
The Oregano and Serrano field developments are
estimated to cost about $130 million and $120 million, respectively. Each development is estimated to recover
about 50 million Boe. Serrano is expected to start up in September 2001, with Oregano following in December
2001. Peak production rates are expected to reach 150 MMcfgd and 20,000 bopd.
FPSOS Still Far In The Future
One floating production scheme awaiting its first use
in the U.S. Gulf is the FPSO (floating production storage and offloading system). A draft environmental impact
statement (EIS) has been prepared and public hearings were held in September.
Mostly favorable comments were received during the
public hearings and, in fact, the draft EIS was favorable to FPSOs. Deep water in the draft EIS is defined as
over 200 meters. The EIS said that potential, site-specific impacts are essentially the same as with other
deepwater development and production systems. The draft EIS also stated that most of the risks of oil spills
are associated with the shuttle tankers and not the FPSO itself, and that the risk is comparable to risks from
other deepwater production systems and from pipelines. Additionally, the draft EIS stated that excluding the
use of FPSOs would not reduce the cumulative environmental impacts because other production systems would be
used in its place.
Preparation of a final EIS was expected to begin by the
end of November and be finalized by early 2001. But while a final EIS is to be completed, an MMS spokesman
says he does not expect to see an application for use of an FPSO in the Gulf "for a few years."
The spokesman said deepwater royalty relief spurred
deepwater leasing but has done little to increase deepwater development. The MMS has received only three
development plans based on deepwater royalty relief and believes development plans for the foreseeable future
are going to be based on existing production systems. Also, completion of an EIS does not automatically mean
an application for use of an FPSO will be approved. MMS has stated that, although an EIS has been completed,
site-specific environmental assessments may take time to complete and eventually be approved by the MMS.
The author |
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Jerry Greenberg
is a Houston-based journalist with more than 20 years experience reporting, analyzing and
forecasting activity in the worldwide offshore drilling rig market, including ten years as editor of a
monthly newsletter about the offshore drilling rig market. He also has seven years experience
working for offshore drilling contractors in marketing, public relations and corporate communications.
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