Drilling advances

	Vol. 230 No.5
LES SKINNER, PE, CONTRIBUTING EDITOR, LSKINNER@SBCGLOBAL.NET

All eyes turn toward Brazil

Last month, Petroleo Brasileiro SA (Petrobras) announced that it was planning to search for new deepwater floaters to develop its massive offshore oil and gas reserves—28 floaters over the next five years. Last year they awarded contracts for 12 floaters. This means there will be at least 40 new rigs working offshore for Petrobras. All this at a time when drilling in the offshore US and the North Sea is down by about 50%! Maybe Petrobras knows something the rest of us don’t. Talk about aggressive!

According to Petrobras, they will need $19 billion in investment to increase production to target levels. Brazil is already producing about 2.8 million boepd. They want to bump that up to 3.7 million boepd over the next three to four years. Funding for the rig purchases will be handled by the Development Bank of Brazil; however, there are delegations in Singapore, South Korea and China to raise capital for Brazil’s production expansion. Petrobras is about to finalize a $10 billion line of credit with China. I’ll bet my hat that they can raise all the money they need.

In another twist to the story, the Brazilian navy is looking for a nuclear-powered submarine to patrol offshore waters to protect the drilling fleet and existing production facilities, including FPSOs. When the new floaters are purchased, there will also be a need for over 150 boats of various kinds to support drilling and production operations. A fleet that size needs protection, I suppose. The navy is building two 500-tonne patrol boats to protect their offshore assets and they plan to build 27 more. They also have five conventional submarines, but they need an additional seven subs, plus the nuclear one. They are planning all this to protect their assets, when Brazil doesn’t even have any sworn enemies.

Who’s going to supply all these vessels to Brazil? Well, last December an arms deal was signed with the French, possibly including a nuclear submarine hull. The agreement was to supply four conventional subs and everything on a fifth one, except the nuclear power plant. Apparently, the Brazilians will develop their own nuclear capability to power the new sub.

China is also drilling wells in the South China Sea to develop oil and gas reserves. Theirs is a more measured approach than that of Brazil, but they are still aggressively pursuing energy development with a focus on long-term supplies. Recently, China has been quick to shoo others away from those areas they consider belonging exclusively to them, causing all sorts of problems with their neighbors, especially Japan. The Chinese military has always been quick to respond to anything they consider a threat, and it is no less the situation today in protecting their offshore drilling rigs.

It seems that both Brazil and China are thinking about the future of their oil and gas industry, not just looking at the current oil price and wringing their hands in dismay. Both also seem to be eager to develop and protect the industry. In short, they know which side of their bread is buttered, unlike several other countries in the world, including the one I reside in.

Last month, a three-judge US federal court ruled that offshore leasing done under a previous administration was not done correctly, and ordered leasing to stop. That’s fine except for the folks that are presently drilling on those leases or are planning to do so in the near future. Environmental Non-Government Organizations (ENGOs) apparently argued that the Minerals Management Service (MMS) had not characterized threats to wildlife in the offshore areas properly. The court agreed and remanded the whole matter back to MMS. In the meantime, all federal offshore leasing came to a screeching halt while the MMS works on the problem. It’s still too early to tell what will come out of this.

In another twist, Department of the Interior Secretary Ken Salazar decided to halt leasing in offshore areas previously blocked from exploration by both Presidential and Congressional moratoria off the US’ east and west coasts and off Florida. The new moratorium is only for six months, while the Secretary and his staff gather information. Four regional meetings have been held where testimony was  gathered. Again, the ENGOs have indicated their disdain at having drilling rigs in the oceans around the US, because of oil spill fears. Incidentally, the last big oil spill that occurred during drilling operations happened 40 yr ago at Santa Barbara, California. The ENGOs continually dredge this up as the typical outcome for any offshore drilling.

It seems that the British are also content to let their taxing policies stymie drilling in the North Sea. Last year when oil prices were sky-high, the Brits decided to increase taxes on North Sea oil production to raise money for the Crown and to punish the “dirty” oil companies for making a profit. Now, with Brent crude at $53/bbl, there has been no attempt to lower the tax as crude prices have fallen. Upshot: North Sea exploration drilling has come to a near-standstill.

What do the international drilling contractors say about all this? Let’s go to Brazil! And why not? The alternative is to let floaters sit idle, lay off crews, allow maintenance to lag and shut down drilling, while waiting on goofy crude oil prices to dictate activity levels.

The Brazilians are doing this right. They are looking past the present government and economic situation to reservoirs that will provide energy for local and foreign markets. They are looking at long-term supply issues, and they are to be applauded for their stand. They’re also leaders in deepwater technology—I’ll bet they were chagrined by Shell’s world record deepwater well at the GOM Perdido project. I’m sure that record will fall soon to Petrobras. The new floaters they are ordering must be capable of working in 3,000 m (9,847 ft) of water. That’s deeper than at Silver Tip. I’ll bet they plan to develop the real deep stuff off the coast of Brazil.

I was once told by a coach that tough times don’t last, tough people do. There must be a bunch of really tough people in Brazil.