Offshore in Depth

Two very different companies have demonstrated that having an innovative offshore strategy and executing it well can result in a consistent record of exploration success and early first oil production. The Italian major, Eni, and the Gulf of Mexico independent, LLOG Exploration Company LLC, have been leaders in striking offshore discoveries, and accelerating project review and implementation. Their unique approaches show how offshore operators can obtain strong returns on their investments in the “lower-for-longer” oil price environment. 

Dual exploration model. Eni has made a series of notable offshore discoveries in recent years, including Mamba field in Mozambique, the Nooros and Zohr discoveries offshore Egypt, the Offshore Cape Three Points (OCTP) discoveries off Ghana, the Nené Marine project in the Republic of Congo, the East and West Hub fields in Angola’s Block 15/06, and Jangkrik field in Indonesia. Eni reports that resources discovered from 2014 through 2016 totaled 3.4 Bboe, found at a unit cost of $1.00/boe. 

Eni CEO Claudio Descalzi describes the company’s approach to offshore exploration and production as the “dual exploration model.” Following this strategy, Eni quickly monetizes important discoveries by selling partial interest in the fields to other companies, and then uses the proceeds to fund other exploration activity. The dual exploration model enabled Eni to generate $9 billion for exploration activities between 2014 and 2017.

Overlapping processes. Eni also compresses the offshore project timeline by overlapping the exploration and development processes. Development engineering is begun as part of the analysis of newly discovered reservoirs. Eni relies on seismic imaging and computing power to reduce the number of appraisal wells, improve project design, and shorten the time to final investment decision (FID). Eni also subdivides the development phase into well-defined stages with established workflows. Using this method, Nené Marine field in the Republic of Congo came online just 12 months after discovery. The OCTP field in Ghana began producing just three years after FID. Five deposits in Angola’s West Hub were producing to the N’Goma FPSO just 44 months after discovery.

In addition, Eni speeds time to first oil by exploring near fields that are already in production. Prime examples are Nooros field in Egypt and Jangkrik field in Indonesia, both of which can produce through existing or planned infrastructure. Eni also saves time and money by repurposing existing assets. Two oil tankers were converted to FPSOs for use in Ghana and Angola, and an existing platform was moved from Louisiana for the Nené Marine project in the Republic of Congo.

Gulf of Mexico innovator. Though operating on a smaller scale, LLOG has been equally resourceful and innovative in exploring for, and developing, fields in the Gulf of Mexico. Privately held LLOG is the fourth-largest producer in the Gulf, operates the Who Dat and Delta House floating production platforms, and has conducted 21 deepwater developments, to date. From January 2016 to August 2017, LLOG made 12 of the 23 discoveries in the Gulf of Mexico.

The Delta House project in Mississippi Canyon 254 is a characteristic example of LLOG’s innovative approach to offshore development. After the 2010 Deepwater Horizon incident, LLOG assembled a portfolio of deepwater leases that could be developed from a production hub. In early 2012, LLOG made two major discoveries and began planning an ambitious project to develop at least three fields with subsea wells. Project managers considered a development scheme to tie back to existing platforms, but the nearest was more than 25 mi away, so LLOG decided that the best solution would be a new floating production system (FPS).

Creative financing. Unlike supermajors with easy access to capital, LLOG had to be creative to obtain up to $3 billion in financing for a two-rig drilling program and construction of a new FPS. To finance the drilling program, LLOG formed a joint venture—called LLOG Bluewater—with equity firm Blackstone Group and obtained a Reserve Based Loan through HSBC Bank. Another private equity firm, ArcLight, underwrote 51% of the construction of the FPS and export lines. A consortium of LLOG and five partners funded the rest. ArcLight assumed ownership of the FPS, and would receive tariffs on the oil and gas processed through the Delta House facility. Because of its location in the Mississippi Canyon area, LLOG and ArcLight assumed correctly that other operators would tie subsea assets to Delta House. The arrangement would assure a return for ArcLight and enable LLOG to quickly start production. 

Fast production, low break-even. LLOG’s development strategy called for batch drilling wells through subsea templates. LLOG also standardized subsea wellheads, manifolds and other components, and used a single-deck design for the FPS that was similar to its Who Dat facility. Production to Delta House commenced in 2015, three years after the first discovery. LLOG estimates that it can achieve break-even at Delta House at $27/bbl. The project was sanctioned after just three wells were drilled, and now 12 wells are producing 95,000 bopd to the FPS. Three more fields are slated to tie into Delta House by the end of 2018.

In November 2017, LLOG announced that it has begun drilling operations on the Buckskin Project in Keathley Canyon, in 6,900 ft of water targeting as much as 5 Bbbl. Production from Buckskin will tie back to Anadarko’s Lucius Spar, which is 6.0 mi away. 

About the Authors

Ron Bitto

Contributing Editor

Ron Bitto has more than 30 years of experience as a technology marketer and writer in the upstream oil and gas industry. RON.BITTO@GMAIL.COM