Cautious optimism characterizes Gulf of Mexico activity

World Oil, Jan, 2001 by Jerry Greenberg

Healthy E&P activity in GOM will probably remain active through 2001. Rig utilization increases steadily, but some analysts warn of jackup rig reduction due to decline in shelf reserves

Gulf of Mexico E&P activity appears healthy, with strong indications that it will remain active at least during the next year. U.S. Gulf rig utilization is increasing steadily along with dayrates. The market is strong enough to attract rigs from other areas and still sustain increased rates and utilization. The industry could experience a shortage of ultra-deepwater rigs in the near future, based on the number of leases to be explored. On the other hand, some analysts suggest there could be a decline in jackup rig activity as the U.S. Gulf continues to mature and shelf reserves decline.

Development activity, while not as strong this year as in previous years, is expected to increase in 2001 and is already beginning to see some of that increase in the form of $1.5 billion of developments announced recently by Shell. But year 2000 saw fewer subsea completions and no floating production systems (through November). For the future, operators are studying the possibility of as many as 17 floating production facilities to develop various fields. Subsea completions are expected to rise also, indicating increased development activity. More than 40 subsea completions are planned for 2001 compared with perhaps 25 eventually for 2000, Tables 1 and 2.

HEALTHY RIG ACTIVITY INCREASE

Gulf of Mexico drilling contractors saw the number of contracted rigs increase by 26 from the beginning of 2000 to early November, from 149 to 175. This translates into increased utilization rates of 85.4%, an 8-point increase since the beginning of the year, Table 3. During the same time, a dozen rigs mobilized to the US. Gulf, lured by rising activity levels and increasing dayrates.

Most of the increase has been in the jackup fleet, driven primarily by high natural gas prices this summer and into the fall, see accompanying figure. Jackup utilization in early November was just under 90%, with 136 of 152 jackups contracted. Not only were 18 more jackups contracted in November compared with the beginning of the year, but also the jackup fleet during that time increased by nine units.

Several oil and gas companies are entering the Gulf of Mexico for the first time, or drilling again following a period of absence. This move to the U.S. Gulf is partly due to high natural gas prices and because independents are obtaining potentially good acreage left behind by majors moving to deeper waters or exiting the Gulf. Additionally, high natural gas prices also attracted some of these companies to recent OCS lease sales. Some of these independents are not well known as U.S. Gulf operators and include companies such as White Petroleum, Juniper, Fairways Offshore, Matrix Offshore and Magnum Hunter.

Many of these small independents working in the U.S. Gulf use turnkey drilling contractors because the oil companies generally lack the staff or offshore experience/expertise to drill for their own account. Consequently, this year has been quite active for the turnkey driller. Global Marine subsidiary Applied Drilling Technology Inc. (ADTI) is on track to drill 100 wells. R&B Falcon subsidiary Cliffs Drilling beefed up its turnkey operations with the addition of several former ADTI employees, and the company expects to drill as many as 60 wells in 2000, and in 2001. This compares with 23 wells drilled from March to the end of December 1999. Triton Engineering is de-emphasizing its turnkey drilling in favor of more project-management type contracts. The company historically has been the second largest U.S. Gulf turnkey driller in terms of number of wells drilled.

As jackup utilization increased, so did dayrates. Drilling contractors saw rates for typical 250-300-ft, independent-leg cantilevered Gulf of Mexico jackups nearly double since the beginning of the year, Table 4. Last January, dayrates ranged between $19,000 and $32,000 for this class of jackup, averaging just above $23,000 per day, according to One Offshore, Inc. Rates rose steadily to an average of $44,873 in November, ranging from $40,000 to $55,000.

U.S. Gulf shelf activity is presently on the rise, and oil/gas company budgets are expected to increase significantly in 2001, according to two E&P-company spending surveys. But one analyst believes that U.S. Gulf jackup activity will decline in the longer term. Tom Marsh, Associate Publisher at One Offshore, Inc, says the U.S. Gulf is a mature province and there is a trend of lower leasing activity in shallow waters, implying that jackup demand over the longer term will decline. Marsh sees this declining activity rate occurring over the next five to ten years.

DEEPWATER EXPLORATION

At this writing, there are 46 deepwater rigs in the Gulf of Mexico, including 40 semisubmersibles and six drillships. Another three semis and one drillship under construction are destined for the U.S. Gulf. Additionally, several semis are being converted or upgraded for ultradeepwater use. Yet, despite the number of rigs, some in the industry are predicting a deepwater rig shortage in the U.S. Gulf.