March 1999 Vol. 220 No. 3  Offshore

Robert E. Snyder,  Editor

North Sea, drilling contractor woes, global warming

The UK’s Department of Trade and Industry said, in January, that the country now has 200 offshore oil/gas fields in production following first gas from the new Brown field in the Southern North Sea. This landmark occasion was reached just 31 years after the first offshore UK field entered production. The total includes 105 oil fields and 95 gas/condensate fields. The 100th field came on in 1993.

Smaller fields are obviously being developed faster these days — Brown’s first well was drilled only last October. The problem is the declining size of recent developments, e.g., Brown is expected to have a service life of only four years.

In other UK North Sea news, Enterprise Oil announced first oil from Pierce field on February 1, producing 20,000 bopd, initially, to the Berge Hugin FPSO. And in a record artificial lift installation, Reda has installed a downhole electrical submersible pump in one of Shell’s Gannet E subsea wells located 14 km (7.6 mi) from the host platform.

Drilling contractor speaks out. In late January, Rowan Companies, Inc.’s CEO C. Robert Palmer testified before the U.S. Senate’s Committee on Energy and National Resources in its oversight hearing on the state of the petroleum industry. Palmer said the oil service industry is in a state of confusion. One year ago, drilling contractors were being encouraged by major oil companies to expand, build more rigs, and hire and train more people.

To enable this, many companies entered into long-term contracts of several hundred million dollars each. But today, no one is contemplating new capital expenditures for expansion.

Now the relationship between oil companies and contractors is not good. And those long-term contracts are being challenged, often on the "narrowest of technical or legal issues, in an effort to cancel or renegotiate at lower prices." This is forcing contractors to choose between uneconomic contracts or litigation. Active rigs have dropped 30% in the U.S. Gulf and publically-owned contractors’ stocks have dropped 70%.

Palmer says the problem is not the cost of development, as this has been steadily reduced by improved technology. The problem is lack of revenue — principally caused by low oil prices. He notes that, in his 46 years in the industry, he has experienced four "boom/bust" cycles.

He told the Committee that he is not seeking protection or hand outs, and "we are willing to take our chances in the marketplace." But he emphasized that the biggest problem is that contractors have no control over such cycles, and the results can be devastating.

As suggestions, he says the Federal Government needs to provide industry with a consistent OCS policy that results in predictable access, i.e., a reliable leasing policy. And the Congress needs "better oversight" of the regulatory agencies that tend to frustrate industry’s efforts to explore/develop leases.

Palmer noted that the initial impact from recent oil company mega-mergers will be negative for companies such as his. There will be inevitable delays as these new organizations restructure and transfer vast sums of money from drilling budgets to reorganization fees to investment bankers, lawyers, accountants and terminated employees. There will be a temporary change in bargaining power as the customer base shrinks and the survivors gain more negotiating power.

As positive changes from the mergers, independents will be seeing more opportunities through farmouts. And "by digging through the body bags" they will find many talented geologists and engineers. Palmer says, further, that those contractors who offer premium equipment, operated by skilled personnel and who properly manage their balance sheets, will once again be in a position to make good money.

Data on global warming. Many people are blaming global warming and the "Niños" for recent weather changes, without much real scientific data for backup. Sandia National Laboratories in Albuquerque, New Mexico, is trying to change that. A team of researchers from the U.S. DOE’s national labs in New Mexico traveled 6,500 mi recently to a remote Pacific island to better understand why the American Southwest is having such a warm dry winter and why the Great Lakes states are getting so much snow.

The scientists took with them an atmospheric measurement station built and tested at Sandia called an Atmospheric Radiation and Cloud Station (ARCS). The system is now gathering information about clouds and sunlight from the tiny Pacific island of Nauru, 1,800 mi NE of Australia. The cloud-watching station will operate for at least 10 years.

Clouds can reflect incoming sunlight and contribute to cooling; or they can absorb radiation leaving the Earth’s surface and contribute to warming. Scientists suspect that atmospheric moisture may amplify global warming effects as well. But with little data about these interactions, they can’t verify whether Earth is experiencing a temporary hiccup in global temperatures or a gradual, global warming.

The station will help study this uncertainty. In addition, the tropical Western Pacific region is thought to play a critical role in the periodic El Niño, and the La Niña weather pattern that typically follows El Niño.

The Nauru station is the second ARCS operating in the Western Pacific. The first began operating in 1996 on Manus Island, Papua New Guinea. Sandia is building a third ARCS, scheduled to be placed in the region next year. The location is particularly significant because the island is situated on the edge of what is called the "warm pool." By watching a decade of weather develop from the edge of the warm pool, researchers hope to shed light on the role of clouds in these phenomena.

Data gathered will be fed into programs that simulate global climate. These models may one day help researchers/policymakers better understand the mechanisms that affect Earth’s climate and determine whether it is undergoing a systematic warming triggered by emissions of manmade "greenhouse" gases.

Copyright © 1999 World Oil
Copyright © 1999 Gulf Publishing Company