Major offshore provinces, deepwater, & frontiers all enjoying resurgence of exploration and production

The worldwide high growth period for the offshore petroleum industry that we predicted last year has, in fact, begun and is virtually guaranteed to last through 2002 and probably beyond. The direct result of both the internationalization of the industry and the development and implementation of advanced technology, the growth in oil production alone should exceed 4.1% this year and be near 5% next year. As a consequence, the unsavory period of callous cost cutting and layoffs, downsizing and selloffs, has come to a close, since international operators are pumping ever greater funds into exploration and research, certain indications of a more optimistic attitude in boardrooms. Furthermore, 1997 is expected to chalk up the highest expenditure for exploration and production so far this decade, up an estimated 8.3%, according to forecasts of E&P outlays for this year.

At conference after conference and seminars around the world, industry leaders are expressing a new optimism that is made manifest by operators drilling just about anywhere leases can be had, and by concessions and particularly attractive profit sharing contracts being offered by almost every country in the world with the slightest indication of offshore hydrocarbons vying for operators' investments.

As a result, in the Gulf of Mexico, North Sea, West Africa, and Southeast Asia, drilling rigs and seismic crews are at a premium if even available, and are becoming more and more difficult to find anywhere in the world. All the best rigs and high-capability seismic vessels are fully booked for 1997, much of 1998, and some for even longer.

Effectively, demand for drilling rigs has outstripped availability, and newbuilds are finally under construction in various yards around the world. Most expect to see a significant fleet of new offshore mobile drilling rigs within three years. That's essential, says C. Russell Luigs, chairman of Global Marine, because of the unprecedented demand for oil and gas worldwide. "We're going to have to have enough rigs running to maintain production in order to supply the demand. We're going to go from a day when prices determined the number of rigs to a day when prices will be whatever they have to be to keep the rigs running. That's a major switch that is about to occur."

Nineteen ninety-six's rate of offshore oil production is believed to approximate that of 1995, or be almost six times that of the industry as a whole, with the largest advances being made by Northwest Europe. Gas production likewise was led by Northwest Europe, the Far East, and US Gulf of Mexico. Next year's figures are expected to be pressing even higher.

Factors driving this international engine have been:

• Oil prices - As predicted, the price of oil has slowly risen from its painful but operable US$16.50/bbl high in 1994 to a reasonably profitable $18.80/bbl level in 1995, and just over $20.00 a bbl last year, and is expected to continue the slow climb, perhaps to a world average of about $22.00 a bbl by mid-1998, due to rapidly accelerating global demand and the industry's inability to meet that demand.

  World oil supply is growing at only half the rate of demand, which this year alone will increase by 1.5 million b/d. And that supply is uncertain: although producing briskly today, the North Sea is being depleted of known reserves, the US Gulf is shifting to more difficult prospects, Russia continues its torpidity, and more than half the world's oil is now originating from politically unstable areas where war, civil violence, and political upheaval could disrupt its flow.

  As a consequence, the price of oil is increasing, and, as it is, exploration and development around the world are being positively impacted - a phenomena that will take us into the new millennium. Structures than once looked uncommercial with oil at $16/bbl are now looking considerably more commercial. All but the most difficult frontiers and most remote locations are no longer awaiting higher prices, but are currently being drilled or surveyed or having feasibility studies done, and many previously shut-in wells are being reactivated. And, in the words of Robert Priddle, chief executive of the International Energy Agency, "Il existe une forte possibilité que d'autres zones complétement nouvelles, sans acun project actuellement envisagé puissent contribuer l'offre mondiale de pétrole au début de la prochaine décenie."

  The only negative consequence of this renewed strength in international exploration and production could be that cash-hungry countries may tighten their terms with demand for greater percentages of participation by their state or national oil companies, increased royalties, and addition of previously eliminated special petroleum taxes. So far, however, there has been little to indicate this is in the offing.

• Frontiers - With the steady higher price of oil, exploration and development have been shifting into some of the world's more interesting plays, out on the frontier of the industry in remote and difficult places where little search and discovery have taken place, into the deepwater provinces that look the most promising, and into select areas across the world where salt strata once obscured what lay beneath them. Particularly now, with very attractive terms in place, these frontiers are drawing operators by the drove and can be expected to show considerable activity at least until the turn of the century, or until the higher price of oil becomes so irresistible that offering governments can't resist upping their contracts again to garner a greater share of the profits.

• Fast Track - Although some of the less attractive aspects of cost cutting have ended, one feature of that movement has been retained in the development and production process, the use of a fast track approach to bringing a field onstream. Proven very effective on both marginal and major fields, it has led to today's generally faster approach to each phase of the process. As a consequence, many operators have switched to one form or another of fast track development to help them maintain productivity and income flow. To that end, the formula frequently consists of letting out platform tenders shortly after a field's discovery, of having one project team rather than a sequence of teams, and of performing parallel work rather than sequential. It includes concurrent engineering, the building of equipment of the same basic design, and use of portable, reusable equipment. Components are ordinarily either comparable wellhead platforms - not normally staffed, if possible - or subsea equipment tied back to existing infrastructure, as well as floating production systems, topside process equipment, and production offloading systems.

  Floating production systems, in particular, have come into their own recently. After first finding currency on deepwater sites and in storm tracks, FPSs and FPSOs have proven themselves efficient at shallower depths as well. Today, they are almost essential to a fast track production program.

• 3D Seismic - By now, just about everyone associated with the petroleum industry realizes that the advent of high tech 3D seismic acquisition, modeling, and interpretation was the seminal turning point in the efficiency of oil and gas exploration. No other factor has been more influential in the growth of production internationally.

  As a direct consequence of the growth in computer technology, particularly parallel processing, whole new possibilities are available to the geophysicist that allow 3D seismic data to be acquired in a multitude of traditional and unique ways, including from one to four sources and up to 16 streamers in any number of survey patterns, on the surface of the sea and on the ocean's bottom. Onboard processing is becoming more prevalent for both QC and delivery, and interpretation via very accurate 3D modeling is resulting in fewer wildcats being drilled, but more of them striking oil and gas.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.