Deepwater Gulf of Mexico takes center stage at OTC

Heading the agenda for OTC delegates was the emerging new era of the GOM, with emphasis on the deepwater gulf's future potential and importance to US energy supply and the introduction of a system of floating production, storage, and offloading vessels in tandem with shuttle tankers to deliver that future deepwater supply to market.

Deepwater gulf importance

The deepwater GOM is an expanding frontier that will be of increasing importance to US energy supplies, according to a new report by the Department of Interior's Minerals Management Service.

"The large volume of active deepwater leases, the increased drilling program, and the growing deepwater infrastructure all indicate that the deepwater GOM will increase in importance as an integral part of this nation's energy supply and will remain one of the world's premier oil and gas basins," the MMS report said.

The new publication, "Deepwater Gulf of Mexico 2002: America's Expanding Frontier," was released at OTC last week. Offshore industry representatives in Washington, DC, said the new MMS report highlights the need for policy-makers to continue with rules that offer incentives to explore in technically challenging deepwater areas.

Extraordinary growth

The report details what MMS calls the "extraordinary" growth of oil and gas industry activity in the deepwater (1,000 ft of water or more) gulf over the past 7 years.

MMS officials said that 59% of all oil production in the gulf now comes from deep water. And even in the short time since MMS's last report in 2000, several "remarkable" achievements have been made, the agency said.

For example:

• The number of drilling rigs working in deepwater has increased from 28 to 43.
• The number of ultradeepwater-capable rigs has increased from 18 to 26, and the number of ultradeepwater wells drilled has increased from 37 to 59.
• There was a 59% increase in the number of producing deepwater fields.
• Deepwater oil production is rapidly approaching the all-time shallow-water oil production record established in 1971.
• New deepwater drilling has added over 4 billion boe, a 49% increase, to the gulf oil and gas inventory.
• Several deepwater discoveries were made in very lightly tested plays. MMS noted Unocal Corp.'s Trident II find as an example of the first significant discovery in the Perdido foldbelt play.

Continued deepwater growth

US officials say they anticipate continued growth, although some fields are maturing.

Chris Oynes, regional director, MMS GOM OCS Region, said that 51 deepwater projects were on production at the end of last year, more than triple the level of 4 years ago. "In fact, a record 14 deepwater projects began production last year, and another 13 are expected to begin this year."

One of the newest and most remarkable trends MMS sees is the increasing practice of using subsea completions. There are now 82 subsea completions in the deepwater gulf, with 30 of the 51 deepwater projects relying solely on a subsea completion tied back to some other facility, the report found. "This is the wave of the future," Oynes said.

Technology important

The report also examines the technology of deepwater oil and gas exploration and production, including floating platforms and seafloor installations.

It looks at the process and history of oil and gas leasing, including recent mergers and the roles of smaller companies, and environmental protection.

There also is a section devoted to reserves and recent finds, estimates of recoverable petroleum hydrocarbons in the deepwater gulf, and deepwater production from various companies.

Industry reaction

"The MMS report tells a tremendous story that industry can draw some interesting messages from," said a spokesman for the National Ocean Industries Association. "The first is that the Deepwater Royalty Relief Act of 1995 (DWRRA) was an astonishingly successful program that needs to be continued.

"The explosion in leasing and production activity throughout the deepwater frontier has reversed declining production trends and refocused the world's attention on the Gulf of Mexico as one of the most promising basins in the world."

NOIA said that the rewards of deepwater development are tremendous, but so are the financial risks. "The DWRRA mitigated some of the up-front financial risks faced by companies in these extreme depths. But that up-front mitigation has resulted in much greater domestic production of oil and natural gas and ultimately, therefore, much greater royalty revenue accruing to the federal treasury."

But industry cautioned that while the very potent combination of technology royalty reforms has helped boost production in the gulf, producers need access to areas now off-limits to drilling, if the US really wants a strong national energy policy.

"It's true that technology has revolutionized the offshore domestic industry. This transformation has, for the moment, staved off inevitable production declines from this very mature producing region. However, no matter how impressive, technology cannot change geology. We need to increase access to other promising offshore regions in order to continue to bring the nation the oil and natural gas we need to keep the economy going strong," NOIA said.

MMS said there is strong evidence to suggest that large undiscovered fields remain in the gulf, including in areas not available to industry, such as a portion of the eastern GOM. President George W. Bush last year dramatically pared back Lease Sale 181 in deference to concerns raised by his brother, Florida Gov. Jeb Bush (R.), and members of the Florida congressional delegation (OGJ Online, Oct. 26, 2001).

Transportation issues

Over the coming years, the oil and gas industry will have to keep an open line of communication with national agencies such as the US Coast Guard and MMS in order to successfully develop a safe and reliable transportation infrastructure for the onshore delivery of crude oil and natural gas from the deepwater GOM, participants in a May 6 OTC panel discussion concluded.

MMS's recent approval of the use of FPSOs in the central and western gulf has spurred industry players to prepare themselves for what is shaping up as a cost-effective alternative to deepwater pipeline systems.

The panel comprised executives from oil and gas companies currently operating in the deepwater gulf as well as executives from oil and gas service companies that will design and build FPSOs and shuttle tankers for use in the gulf.

Also sitting on the panel were members of the MMS and USCG, both of which will oversee the safe operation and deployment of such vessels.

FPSO history

Discussions about the use of FPSO s in the gulf began in earnest in 1996, but it wasn't until 1997 that these discussions "starting taking shape," recalled MMS's Oynes.

The final programmatic environmental impact statement (EIS) for FPSO use in the gulf was released in January 2001, Oynes noted, and the record of decision (ROD) was completed in 2001. The ROD allows FPSOs in the gulf, with one exception, Oynes said, explaining that they will not be permitted in the US Coast Guard's Lightering Prohibitive area for a period of 2 years.

"The EIS and ROD were significant, proactive achievements," said Mike Bell, vice-president, Unocal Deepwater USA. And both of these agreements "significantly reduced schedule uncertainties," Bell stated. They also yielded significant clarification for an FPSO-based development, he said. FPSOs will be vital in deepwater gulf development projects by reducing cycle time, decreasing a company's capital expenditure costs, and offering more easily expandable facilities.

FPSOs have been used to develop fields in other areas of the world since the 1970s, mainly in the North Sea, off Brazil, off Southeast Asia and China, the Mediterranean Sea, off Australia, and off West Africa, MMS reported. Currently, about 70 such vessels are either in operation or under construction worldwide, MMS said.

Currently, there is no formal application before the MMS or USCG regarding the use of an FPSO in the gulf, although there are "rumors that people are close" to doing so, Oynes said.

Remaining issues, next steps

Some of the remaining issues concerning the use of FPSOs in the gulf include offshore loading and issues surrounding the actual FPSO development concept, Bell said. Also, continued effort and interaction between agencies and industry need to clarify and promote: shuttle tanker design and operating practices, FPSO and shuttle interfaces and operational practices, and shuttle tanker market evolution, Bell noted.

FPSOs offer the "only viable solution for smaller oil fields," said Allan Millmaker, business development manager for Bluewater Offshore Production Systems (USA) Inc., Houston. Bluewater owns and operates five FPSOs operating in the North Sea, off China, and elsewhere.

Millmaker noted that most of his company's experience has been obtained in demanding environments and in areas with intricate regulatory regimes. Bluewater also was the first company to use a closed-flare system on an FPSO, Millmaker said.

The key advantages to using FPSOs in development schemes, Millmaker said, are mainly economic. The adaptability and reusability of the vessels only add to this savings, he said. And, when considering natural gas delivery, new technologies are taking shape with regard to gas-to-liquids schemes and the design and implementation of compressed natural gas vessels.

The regulatory issue is another hurdle left for operating companies to surmount, said Robert Lindsay, CEO, Seahorse Shuttling & Technology LLC, Houston. The company was established as a new wholly owned affiliate of Conoco Inc. (OGJ, May 28, 2001, p. 9). Seahorse is an alliance between Conoco and two shipbuilding firms-Alabama Shipyard, Mobile, Ala., and South Korea's Samsung Heavy Industries-to design and construct the first shuttle tankers that would qualify for use in the gulf.

To help bridge the gap between industry and regulatory agencies during 2001, Conoco worked with USCG to expose the agency to the current regime of shuttle tanker operations in the North Sea, Lindsay explained. And Conoco will continue to work with USCG to develop shuttle tanker operations guidelines, establish minimum manning and training requirements, and assess any warranted oil spill response capabilities, Lindsay said.

Seahorse has completed the design of a new tanker, Gomax 550, for shuttling crude from the deepwater gulf to shore. The tanker, with a 40-ft draft, will be capable of transporting 550,000 bbl of crude oil and will be able to enter most ports in the gulf.

Regarding regulation, it will be important for industry and regulators alike to "know what the rules of the game are before making any important decisions," said Rear Adm. Paul Pluta, USCG assistant commandant for marine safety and environmental production. FPSO and shuttle tanker development will likely take a path similar to the one that tension leg platforms followed a decade ago, Pluta said.

New concepts will include synthetic mooring lines, to be used for weight-saving reasons, and aluminum quarters, for safety and, again, for weight-saving reasons, Pluta noted. Also, there are many questions yet to be answered before safe operations can take place, Pluta noted. These include how vapors will be collected, how tankers will be loaded, and how evacuation of vessels will be conducted. "We won't dictate how you do it, but we need to have it done safely," Pluta said.

Regardless, Pluta said that the USCG is "confident that FPSOs can be operated safely in the Gulf of Mexico."