November 1998 Vol.219 No. 11  Offshore

Robert E. Snyder,  Editor

Strong deepwater market, other industry news

In a comprehensive review and analysis of the deepwater market, Prudential Securities, in its September 11 Offshore drilling industry update, predicts that the worldwide industry will need all the rigs it can find to develop its growing deepwater plays. The report notes that the deepwater fleet is starting from a different base than other classes of rigs, because it was never overbuilt in the first place.

The number of rigs capable of operating in greater than 2,000 ft of water has increased to 73 by third quarter 1998, from 47 in first-half 1996. Yet this 26-rig increase has not included one newbuild, meaning the industry has basically been expanding on what Prudential calls "cannabilistic additions." Over the next 12 months, the analyst expects an additional 28 rigs to enter the fleet, with another 25–30 in the 12 to 18 months after that. By 2000, at least 130 deepwater rigs, 20 to 25% of the total offshore fleet, could be active. A total of 32 deepwater newbuild projects are underway now around the world, to join the fleet by year-end 2000.

The recent U.S. Gulf of Mexico lease sales are positive signs of strong industry commitments. More than 2,500 of the industry’s 3,400 total outstanding GOM leases have been purchased in the last three years. In fact, Prudential estimates that the domestic U.S. industry has "almost twice as many deepwater leases than it can possibly be able to explore over the next 10 years."

For exploratory drilling, some 3,500 GOM leases will expire over the next 10 years. Yet the analyst estimates that the deepwater fleet in the GOM will be able to drill only 1,800 wells through 2008. If only 25% of the leases require only a single well, this 900-well commitment for exploration would tie-up the GOM fleet for five years.

Besides that, many projects will require development; and each of these developments could require an average 12 wells, or three rig years. If 20% of the 900 exploration wells strike, the resulting180 development projects would require 2,160 additional wells, or 12 years of work — which Prudential says totals an implied 17-yr backlog for the GOM fleet.

More news from the GOM. Operator EEX, an Enterprise / Enserch operating company, is making plans for early development of its Llano discovery in Garden Banks Block 386. According to newsletter reports, an appraisal well will be drilled with Diamond’s Ocean Voyager semi, after it completes an exploratory well on EEX’s Sheba prospect. The appraisal will be 4,000 ft from the discovery to further delineate the main reservoir.

Early development of Llano could utilize the Enserch Garden Banks FPS, now on Garden Banks 388’s Cooper field which is being closed as non-productive. The FPS now uses the free-standing riser system, originally developed by Cameron for Placid’s Green Canyon 29, which never saw development. The system was retained by partner Enserch, and additional riser sections were added. EEX operates four blocks in Garden Banks, 344, 386, 387 and 388. And it is drilling exploration wells in deepwater Sheba, Elvis and Gamera prospects.

In another high-profile deepwater GOM development, Amerada Hess, with partner Oryx Energy, has announced first production from its Baldpate field compliant tower development in 1,650-ft water in Garden Banks Block 260. Initial output was 2,000 bopd and 8 MMcfd, heading for 75,000 bopd by early 1999, with seven wells.

The Gulf of Mexico Newsletter says nearby Penn State Shallow’s reservoir is being developed as a subsea tie-back to Baldpate and will come on by year-end. The operator had some anxious moments with the Baldpate tower installation in April and May, with a dropped base section piling and temporary "sinking" of the tower section, but everything turned out OK, apparently.

Eastern Canada draws interest. The Offshore International Newsletter reports that the Canada-Newfoundland Offshore Petroleum Board has received bids on 10 of 13 blocks for offshore Newfoundland. The auction of concessions saw operators committing to spend $140 million, far exceeding 1997 commitments of $78 million. There had been concerns that low oil prices would dampen eastern Canada activity.

The largest bid was made by Mobil, followed by Chevron, Petro-Canada, Norsk Hydro, PanCanadian and Tatham Offshore. Hibernia is presently the only producing field off Newfoundland. Terra Nova is set to come onstream in 2000; fabrication began this year on a development vessel.

And in the UK, under the 18th Licensing Round, 50 companies filed 43 applications, by the September 11 deadline, to drill in 82 areas of the UK Continental Shelf. The UK Department of Trade and Industry says it will announce license awards in six months.

Gas use growth. In the 1999 edition of its Baseline projection of U.S. supply and demand, released in late August, the Gas Research Institute describes a "highly competitive, low-price energy future, with natural gas expanding its share of the nation’s total energy market." The report shows total primary U.S. energy consumption growing 1.8% annually, from 94 quadrillion Btu (quads) in 1997, to more than 115 quads in 2015.

The outlook for gas shows it growing 2% annually, to about 32 quads (32 Tcf) in 2015, from 22.5 quads (22.5 Tcf) in 1997. This will increase the share of gas in total U.S. energy consumption to 28%, from 24%.

GRI says this represents two major challenges: 1) increasing output to supply the 9 to 10 Tcf/yr increase by 2015, and 2) meeting additional demands on gas that could come from "potential implementation of the proposed 1997 Kyoto Protocols mandating reductions in CO₂ and other greenhouse gas emissions."

Further information on the report is available from Val Megginson at GRI’s Baseline Center, Arlington, Virginia, at Fax: 703 526 7808, or E-mail: vmeggins@gri.org.

Copyright © 1999 World Oil
Copyright © 1999 Gulf Publishing Company