Deepwater Activities Drive Oil, Gas Sector; 2009 Brings Challenges, Caution

Sea Technology, Jan 2009 by Pagano, Susanne

High utilization of deepwater drilling rigs at attractive charter rates, placement of a broad range of offshore equipment orders, delivery of sophisticated offshore supply vessels and the start-up of production from new oil and gas fields are among oil patch highlights of the last 12 months.

The biggest factor generating concern was the price of crude. After a wild roller coaster ride to a record $145 a barrel in July, oil then plummeted to the $50 a barrel range just four months later. Natural gas prices also skidded from around $13 per million British thermal unit midyear to nearly half that amount as the winter season began.

Operators, drilling companies and service contractors/suppliers remained optimistic that most committed offshore activities would remain feasible despite lower oil and gas prices. Project economics were based on oil and gas estimates significantly lower than peak commodity prices.

A Look Back

Energy companies had budgeted approximately $369 billion for global exploration and production capital expenditures in 2008, an estimated 10 to 12 percent increase over the prior year. Spending was driven by international programs and deepwater activities.

In 2008's homestretch, utilization of the global fleet's 700 rigs topped around 90 percent, with units commanding favorable charter rates, particularly in deep water. In the U.S. Gulf, about 90 rigs were working, including a record of close to 15 semisubmersibles and drillships in deep water and ultra-deep water. Domestic charter rates reached as high as $650,000 a day for the newest generation of drillships, $535,000 a day for high-end semisubmersibles and $190,000 a day for premium jack-up rigs.

One rig deal in particular attracted headlines - Transocean Inc. 's (Houston, Texas) October charter of a newbuild drillship for five years. The $740 million rig is equipped for drilling in up to 10,000 feet of water and can be upgraded with additional equipment to drill in 12,000-foot waters. Revenue from the multiyear contract is expected to total around $1 .7 billion, depending on the countries of operation. Steel for the rig is expected to be cut this month at Hyundai Heavy Industries Co. Ltd. 's (Ulsan, South Korea) shipyard.

Exxon Mobil Corp. (Irving, Texas), the nation's largest oil company, posted its biggest quarterly profit in history - $1 4.8 billion in the third quarter, surpassing the oil giant's previous record $11.68 billion in the prior quarter.

Oil and gas companies remained committed to searching for new reserves, building their lease portfolios in the U.S. Gulf and Alaska. High-stakes lease sales attracted $9.5 billion in bids from major and independent oil companies. One March sale in the Gulf's Central Planning Area attracted a record-setting $3.7 billion in high bids.

Ambitious project announcements captured industry interest. The Minerals Management Service (MMS) approved development plans for the deepwater Cascade-Chinook oil and gas project, a major milestone. Operated by Petrobras America (Houston), this Walker Ridge project will be the first in the U.S. Gulf utilizing a floating production, storage and offloading (FPSO) facility. Operation plans are under review.

Last year's list of significant hydrocarbon discoveries includes BP Exploration (Angola) Ltd. 's (Luanda, Angola) Dione discovery in Block 16 offshore Angola. Transocean's drillship GSFExp/orerdrilled the prospecl in 5,565 feet of water. Partners in the well include Sonangol (Luanda), Esso Exploration and Production (Leatherhead, England}, Marathon International Petroleum Angola Block 31 Ltd. (Luanda) and Statuii Angola (Luanda). Other new discoveries were announced offshore Brazil and Southeast Asia.

One cannot overlook new domestic production from several major oil fields. Chevron Corp.'s (San Ramon, California) $1.4 billion Blind Faith platform pumped first oil in the Gulfs deepwater Mississippi Canyon area. BP America Inc. (Houston) also logged the sizable Kodiak prospect m 5,000 feet of water in the Gulf of Mexico's Mississippi Canyon.

Earlier in the year, BP America commenced production of its Thunder Horse field using a nearly nearly 60,000-ton structure, the world's largest moored semisubmersible platform. Production will reach 250,000 barrels of oil a day in 6,000 feet of water.

Hurricanes Gustav and Ike took their toll on operations off Texas and Louisiana. Ike destroyed several rigs in its path, including the Ensco 74 and Pride Wyoming. An estimated 27 percent of oil production and onethird of natural gas production remained shut-in late in the year due to damaged infrastructure. Repairs were under way on platforms, pipelines and transmission lines.

Fingers Crossed for 2009

Without a doubt, the next 12 months will bring challenges to the offshore sector. Given the global economic slowdown, the Wall Street meltdown and the credit squeeze, energy companies will be cautious as they proceed with projects in the Gulf of Mexico and internationally. Corporate goals will include strong balance sheets, healthy cash flow and low debt.