Offshore in depth

Offshore operators will be increasing their interest in frontier areas during 2014, according to a survey of industry executives by DNV GL. The allure of new reserves will mean operators continue to push the boundaries, in terms of the new frontiers they pursue, the survey found. Among operators, nearly three in 10 intend to expand into challenging territories this year.

This is especially true among larger operators, reinforcing the trend that such exploration will, increasingly, become the preserve of those companies with the greatest financial resources. Deepwater locations, the Arctic and East Africa were the most commonly cited destinations that companies plan to target, along with northwest Australia.

The survey, The Outlook for the Oil and Gas Industry in 2014, was performed by DNV and GL Noble Denton. The two joined forces late last year to ask industry leaders and executives about their major interests, goals and concerns heading into 2014. They surveyed 438 senior professionals and executives across the global oil and gas industry. All of the respondents were at senior engineer level or above; 45% were at least at director level. About 40% of respondents were operators, and 60% were suppliers and service companies.

SUBSEA, HARSH ENVIRONMENTS

One in five respondents (22%) indicated their intention to move into challenging new environments in 2014, and among operators, DNV found, the figure is even higher, with 29% planning to enter new frontiers.

The survey revealed strongest interest in deepwater sites in East Africa and the Arctic, although these locales will not reach full production until around 2018, notes DNV GL’s V.P. Graham Bennett.

The move to frontier areas is increasingly being driven by sustained technological advances, particularly in the subsea realm. The highest proportion of respondents by a considerable margin (52%) expects subsea technologies to absorb the strongest investment in coming years, to support exploration in new or challenging environments. This response indicates that many of those surveyed view the development of deepwater reserves as a principal means of replacing depleting traditional reserves.

The Arctic is estimated to contain as much as 13% of the world’s undiscovered oil reserves, and 30% of its gas reserves. Per Olav Moslet, arctic technology program director at DNV GL, believes there will be a significant increase in offshore activity there during 2014, compared to last year. He pointed out several significant planned drilling campaigns, such as Shell in the Chukchi Sea, off Alaska, and Exxon Mobil and Rosneft in Russia’s Kara Sea, among others.

Aside from the technical challenges, the oil and gas industry is facing difficulties in a lack of trained personnel, Moslet said. It is not only the competence of working in a harsh, cold climate that is important, he noted, but also understanding the potential risks, and what the likely consequences of an accident could be, for the personnel, the environment and the company.

SIZE MATTERS

Bigger firms are nearly twice as likely, as small companies, to target difficult new areas (33% versus 17%), the survey showed. This result reinforces expectations of a growing dominance of larger organizations. (Bucking this trend, of course, is the U.S. unconventional growth story.)

More than one-third of the respondents (37%) said that their companies intend to acquire partners with the specialist knowledge and skills they need as they move into tougher E&P sites. Nearly half of respondents (49%) said that they will need to increase alliances with others, to share knowledge, in order to cope with more challenging environments. Companies also expect to rely more on external partners for technology and advisory services, with 30% identifying this, ahead of those choosing to develop new technologies internally (cited by 26%), an option only open to already large firms.

“For example, major offshore projects now generally require floating structures as opposed to fixed structures,” explained Arthur Stoddart, director, Marine and Technical, North America, for DNV GL. “Even for floating structures, in the past, station-keeping was a matter for mooring experts. Now dynamic positioning technology and experts are required.”

Highly prospective frontier regions are drawing in an array of new firms, which often develop alliances with the prevailing NOCs, Erik Karlstrom, CEO of North Energy, told the researchers.

There are significant hurdles facing IOCs in frontier regions—such as a shortage of specialist skills to operate there, and financial risks associated with moving into uncharted territory—but topping the list is political risk, cited by 22% of respondents.

BEST INVESTMENT LOCATIONS

The U.S., Brazil and Australia were ranked as the top three countries for investment in 2014, unchanged from last year. In fourth place is Malaysia, up from eighth in 2013, followed by China, which rose one spot to fifth place. Security issues, corruption and political uncertainty made Nigeria the least favored country to invest in, as it was in 2013. Other key destinations which are regarded as highly risky for investment include few surprises—Afghanistan, Iraq, Russia and Iran.

Heightened political risk, in parts of the Middle East and North Africa region, could trigger a shift in priorities for oil and gas operators, some respondents said. Companies are seen as moving their activities away from areas that were once looked upon as very promising, toward areas like the Norwegian Continental Shelf, which is seen as a safe haven in terms of geopolitical stability.