NEWS 1997 OTC highlights 50 years of offshore technological progress

More than 35,000 industry participants were expected to attend the 4-day Offshore Technology Conference in Houston last week. First-day total registrations were 27,528, up 4,972 from the first day of the 1996 conference, an indicator of stronger industry activity and optimism. At OGJ presstime May 8, 40,956 had registered. In 1996, 36,424 attended the conference.

In 1947, industry drilled the first well out of sight of land off Louisiana. Since then, much has been accomplished: offshore drilling and producing records have been set and broken repeatedly, but much remains to be accomplished on a number of fronts, speakers said.

"The opportunity that we have in deep water is huge, not only in the Gulf of Mexico but around the world," said Rich Pattarozzi, president and CEO, Shell Deepwater Development Inc. (SDDI), New Orleans.

Pattarozzi, whose remark summed up the mood observed at the conference, was a keynote speaker for an opening day industry panel on deepwater developments, opportunities, and challenges.

The technical program featured about 300 papers, up from 269 accepted in 1996. The conference included 49 technical sessions, with eight featuring keynote presentations by industry leaders. OGJ will cover OTC technical papers presentations in a lead news story next week.

General sessions included panels on current topical offshore issues and the pros and cons of alliances and partnering.

Significant deepwater projects are moving ahead off Brazil and Canada's East Coast.

And panelists focused on looming shortages of manpower and equipment.

Exxon's look ahead

Jon Thompson, president, Exxon Exploration Co., told OTC attendees that deepwater exploration and production advances are a direct result of industry maintaining a concerted effort to replace production in the face of oil and gas market cycles.

"That I'm able to say deepwater and opportunities in the same sentence is testimony to the vision and persistence of our industry," said Thompson.

He said recent estimates by the MMS indicate that by 2000, oil production from new gulf deepwater leases coming on production will almost double and will "eclipse Alaska as the largest oil-producing region" in the U.S.

Thompson issued a note of caution in spite of increased optimism.

"There's another reality associated with the deep water-the reality of technical challenge." Thompson said that reality applies to shallow waters, as well.

Coupled with that reality, he said, will be uncertainty about excess crude capacity worldwide, scarce resources, capital requirements, prices, and the potential for increasing costs, among others.

Offshore production

Thompson said Exxon planners expect world hydrocarbon demand will rise by more than one third by 2010.

The combined effect of increased demand and the need to replace production to offset field declines will mean that about two thirds of production in 2010 will have to come from new developments.

Since 1990, offshore oil production worldwide has increased by more than 5 million b/d, and it now represents nearly one third of the world's hydrocarbon liquids production, Thompson said.

He said forecasts indicate a further increase in offshore output of about 5 million b/d by 2000, which will push the global offshore total to 27.5 million b/d.

Areas that will make significant contributions include the Gulf of Mexico, the U.K., Norway, West Africa, and Brazil.

Deepwater role

Thompson noted the pace of activity in deepwater areas is increasing rapidly.

In the last 10 years, he said, about 2 million sq km of deepwater areas have been licensed or leased, and by 2000 about 10% of the world's offshore production will come from deepwater fields.

Deepwater fields contributed about 1 million b/d of production in 1996. That contribution is expected to jump to about 3 million b/d by 2000.

Thompson noted that of about 700 hydrocarbon basins worldwide, less than half are producing, and about half of the 240 deepwater basins have never been tested.

Offshore challenges

To set the stage for how far the industry has come-and where it's going-SDDI's Pattarozzi focused on challenges the industry currently faces.

He said water depth is no longer a significant barrier to the oil and gas industry's continued progression into deep water. But there are myriad technical and economic challenges that the industry must overcome as the hydrocarbon search moves farther from shore, including but not limited to field sizes, individual well production rates, fiscal regimes and policies, and experienced manpower.

"In the Gulf of Mexico," he said, "we truly believe today that we have world-class reservoirs. This was not the case 5 or 6 years ago.

"We didn't know whether we had these type of reservoirs. But we know we have them today, and I think that is very encouraging-and very necessary-as we move ahead."

Pattarozzi said it is an absolute necessity for the deepwater industry to produce from high-rate, high-ultimate recovery wells, with output of about 20,000-30,000 b/d/well.

Shell's Auger TLP has a well that is producing more than 21,000 b/d, and Mars TLP is producing 12,000-18,000 b/d/well, according to Pattarozzi. Shell's third Gulf of Mexico TLP, Ram-Powell, was scheduled to be installed the night of May 5, after recently completing final onshore activation and commissioning and tow-out to location (OGJ, Apr. 21, 1997, p. 33).

Another issue for industry is long-term production rates, he said.

"We are seeing tremendous flow rates from wells, but the question that we ought to have is: 'What's the long-term performance going to be?'"

Pattarozzi said, "We're not going to know that right now, and it's something that I think that we have to continue to look at. It's going to be very important initially...that we design these wells...so they will last an extensive period of time."

Gulf development prospects

In the Gulf of Mexico, Pattarozzi said, "There have been 42 confirmed discoveries in 1,500 ft or greater water depths."

Shell's definition of deep water is 1,500 ft.

"In 1992, there were around 27. Just in the last 5 years, there have been another 15 that have been added to that, and they continue to be announced on almost a daily basis," said Pattarozzi.

"The number of developments has almost doubled in the last 4 or 5 years. There are currently 24 developments that are either under way, producing, or being talked about at this point in time."

By 2000, "there's going to be over 800,000 b/d of oil and over 2.3 bcfd that's going to be producing from the Gulf of Mexico deep waters...half of that is going to be Shell production."

Timing critical

Pattarozzi and deepwater development panel members indicated industry's base of experience offshore has come a long way in a relatively short time.

From here on, however, industry can expect many new exploration and development challenges, from geohazards to drilling/production to transportation of hydrocarbons.

"From a technology standpoint, we have to continue to figure out how we can reduce the time from first discovery to bringing on production," stressed Pattarozzi.

"When you have projects that are costing a half a billion, or over $1 billion, you have to bring production on as soon as you can.

"Auger...took us over 10 years from the discovery to first production. Our goal within Shell is to do that in less than 3 or 4 years."

Pattarozzi noted other issues that industry will need to address:

• Total life cycle costs of a development: "It is absolutely necessary that we have world-class costs-and I mean low costs-if we are to be successful in deep water. It's becoming a bigger and bigger issue, given the fact there's tremendous pressures right now for costs to increase. And if individual items increase in cost, we still have to figure out how to bring the total cost down on any project we do."
• Drilling thresholds: "We know we can drill in 5,000+ ft of water...How do we move to 10,000 ft of water or beyond even that?" Pattarozzi said continual development and application of technology are absolute necessities in the process.
• Future pressures on the industry: "Competition is intensifying. More and more companies are getting involved in deep water. This is a global type of problem. This is something that's going on in many basins around the world."
• On society's expectations on the industry operating offshore: "As we move forward...we have to be able to do this in a safe and environmentally responsible manner. We cannot give up on either one of those as we move forward in deeper and deeper water. That's what society expects of us, and that's what we need to deliver."

Increasing competition

Pattarozzi said that as recently as 2-3 years ago, there were only eight to 10 companies involved in the deepwater Gulf of Mexico, but the situation since then has changed markedly.

"In the last lease sale, there were almost 50 companies that bid on leases...it's not just majors; it's majors, it's large independents, it's small independents...all coming out and starting to play in the deep waters of the Gulf of Mexico, and I think you're going to see this around the world. "The competition is increasing dramatically. I think this again is going to put tremendous pressure (on industry), because some of these companies may or may not have the total expertise, and...for their service companies, it's going to put a lot of pressure (on them), because they're going to have to provide some of the expertise that's needed." He noted that in 1992-93, 80% of the leases acquired in the gulf were in less than 3,500 ft of water. "In the last couple of lease sales-in particular the last lease sale-over 50% of the leases that were acquired were in greater than 5,000 ft of water. My personal belief was that this was going to probably be a few years longer down the road. But right now, companies are jumping out into 5,000 (ft), 7,000 (ft) and, in fact, the lease sale before last, we (Shell) even bought a lease in 9,500 ft of water."

Pattarozzi cited a widespread perception that industry will have to contend with operating in a relatively low-price environment for the foreseeable future.

Accordingly, how industry deals with increasing costs of materials and services will determine the role that technology plays. That means operators, service/supply companies, and governments must collectively find beneficial solutions to the challenges of sustaining current robust activity and fostering technological development. "In my view...it's going to take all of us working together...to solve these technological challenges so that we make this thing a reality."

Advanced systems

Numerous new systems and units to drill and produce offshore were highlighted during the conference.

As premium offshore drilling units grow scarce and day rates climb to new highs, operators will be looking for ways to get more out of existing and new drilling units, gain new efficiencies, and trim costs.

"We've got to find a more efficient way to drill and complete wells in deepwater," said W. Dennis Heagney, president of Houston's Transocean Offshore Inc., in discussing his company's efforts that will result in a dual-purpose drilling/completion unit (OGJ, Jan. 20, 1997, p. 37).

Transocean's vessel will have a dual derrick and dual rotary table and a single moon pool and will be designed to cut drilling and completion time by roughly half.

"The whole idea here is to eliminate as much of the flat time on drilling a well as you can," Heagney said, noting that the unit "is just one link in the chain" to improving deepwater economics.

While drilling one well with one rotary table, he said, the vessel will be able to carry out completion operations and setting casing using the other and running the guide base. Other features include getting the BOP landed on the seafloor much faster and more efficiently.

"This is one way to try and eliminate all of the non-productive time in drilling a well."

Heagney said the unit now being constructed to work for Amoco Corp. will be out in about 16 months. "It's about five times larger than the deepwater drillships that are in existence today."

He said the objective is to reduce the cycle time for exploratory and development wells, with a major benefit coming from template drilling or cluster-well drilling: "You could drill two wells simultaneously, if you wanted to."

During completion operations, he said, "subsea trees can be prepared and tested and they can be run and landed in one piece while you're finishing the drilling operations or doing the completion."

Subsea, standardization

Pierre-Alain Delaittre, deepwater developments project manager for Elf Aquitaine Production, said subsea production systems have proven themselves over time.

He said the one-time belief that subsea systems were unreliable and expensive and had no future has been proven wrong.

Delaittre said Elf's operations off West Africa include four discoveries: Bonga off Nigeria, Moho off Congo, and Bengo and Girassol off Angola. The company plans 19 wells off West Africa in 1996-98.

"Subsea has always been really a front-runner in the exploitation of deepwater reserves," he said, noting subsea systems are virtually insensitive to water depth and offer flexibility because the location and number of wells can be changed easily.

He said subsea systems are well-suited to West African offshore operations and shallow reservoirs, because subsea wells can be placed so as to maximize production reach.

"Deep water in West Africa, in particular, is a very new thing from the geological standpoint; we have little knowledge of (reservoir) behavior, and using subsea systems allows us to have an expenditure that is commensurate with the risk," Delaittre said. "We can drill a few wells, produce them for a short time, and drill more later if the reservoirs are up to our expectations."

Delaittre said Elf, Royal Dutch/ Shell Group, Den norske stats oljeselskap AS, and BP Exploration formed the West African Development Operations (WADO) group with the basic objectives to cut costs, speed development schedules, and standardize equipment and systems "because we were basically starting with a blank sheet of paper in West Africa."

One result is a new design for a workover and completion riser, he said, that could be deployed by a non-rig vessel and used by the WADO participants. The 10,000 psi system is designed for use in more than 6,000 ft of water. Another WADO development on standardization is a hinge-over subsea template, designed to cut installation costs by 40% and equipment costs by 25%.

Floating systems

According to data provided by Shell International Exploration & Production BV, the company expects about 140 floating production systems (FPSs) of various types will be needed and/or in service in the next 10 years throughout the world.

Of the total, most likely 30 will be split between spars or tension leg platforms.

"There's a range of mature FPS concepts, which are available for water depths up to 1,000 m," said Shell's Rob Inglis, senior engineer, offshore structures and pipelines..

"Over the next 10 years, there's certainly going to be demand for FPSs in the 1,000-2,000 m water depth. Demand for deepwater FPSs over the next 10 years could be something like 140 systems, and the industry needs to expand to meet this demand."

He said experienced staff is likely to be a limiting factor, and critical areas for development include riser and mooring systems.

As of yearend 1997, the company expects there to be about 90 floating systems operating throughout the world, including floating production, storage, and offloading (FPSO) vessels, semisubmersibles, and tension-leg platforms.

Based on Shell's estimates of needed systems in the future, using its own prospects in inventory worldwide in water greater than 200 m and excluding all shallow water basins, it sees demand for about 400 wellheads during about a 10-year period, based just on existing prospects.

Based on industry projections of growth in various systems, about 32 FPSOs could be in use by 2000 compared with 22 in 1996; semisubmersibles could increase to 11 from six last year; TLPs could increase by two from three planned/installed in 1996; and spars could increase by one from three last year.

Pipelaying

The industry continues to push the limits of deepwater pipelaying and related technology, and anticipated developments in deep water will continue the progression of pipelay technology.

Edward Heerema, president of Allseas Marine Contractors SA, said industry's pipelaying capability in deep water has increased from about 500 ft in the 1970s to 5,400 ft in the 1990s "and that's not the end.

"I think we can lay pipe in around 12,000 ft," Heerema said, noting that new-generation lay vessels and systems will assist industry in continuing to make advances in deepwater projects.

Heerema said seven operators have deepwater leases in water greater than 6,000 ft, "so we can see there's a clear activity coming up here and a fascinating area technologically."

Existing J-lay and S-lay method systems will need to be upgraded in the areas of thrust, stingers, towers, tension capacity, etc., or new units built to meet anticipated need, according to Heerema. For S-lay, he said, the technological boundaries have increased by a water depth factor of two or three by improvements involving high overbend strains.

Allseas, operator of the Lorelay pipelay vessel, which has worked on the Mensa 12-in. pipeline project for Shell, is soon coming out with the next-generation vessel, the Solitaire, which Heerema said will constitute a "giant step in the ability to lay pipe in very deep water."

Solitaire will be ready for service at the end of summer 1997. Without the stinger, the vessel is about 950 ft long; about 1,150 ft with the stinger.

Brazil's Campos basin

At OTC, Petroleo Brasileiro SA officials said production start-up was imminent from the Marlim Sul (South) 3 well, a 1996 discovery in about 1,709 m (5,607 ft) in the Campos basin and in 1998 from its Roncador discovery in about 6,500 ft of water.

Marlim Sul 3 will set the record for deepest completion/production, Petrobras officials said, as well for the pipeline, risers, and host unit installation.

Antonio Carlos Agostini, director of exploration and production, said Petrobras foresees a need for 18 additional deepwater production systems in coming years, and the system planned for Roncador will be able to handle 108,000 b/d.

Its 1996-2000 Campos development program includes plans for 210 subsea trees, 15 manifolds, 1,000 km of flexible lines and umbilicals, and 12 steel pipelines beyond what has already been installed in the basin.

Sable project

Off Canada's East Coast, work is continuing on the Sable gas development and Hibernia field development.

John Savage, premier of Nova Scotia, cited the bright outlook for natural gas exploration and development in coming years and noted that Nova Scotia is now the only jurisdiction in Canada that is producing offshore oil.

He said the $2 billion Sable Offshore Energy Project (SOEP) has 3 tcf of reserves.

Once all governmental approvals are received and the project is sanctioned, Sable gas supplies will be sent via pipeline to shore as part of the Maritimes & Northeast Pipeline project to serve U.S. markets.

Gas is to begin flowing to an onshore complex at Goldsboro, N.S., by Nov. 1, 1999.

Six fields have been identified as suitable for development: Venture, South Venture, Thebaud, North Triumph, Glenelg, and Alma. They lie 10-40 km north of the edge of the Scotian shelf in 20-80 m of water.

"Front-end engineering and design work is ongoing, and we expect it will be completed by the time project sanction occurs this fall," Savage said.

He said initial production will be about 460 MMcfd.

"This will be our first gas project, but it will not be our only one," said Savage. "This is the first step.

"We believe that there are 18 tcf waiting to be tapped...and we are told that this is the fourth largest natural gas basin in the world."

Newfoundland/Labrador activity

Charles J. Furey, minister of the Department of Industry, Trade and Technology for Newfoundland and Labrador, said industry has made significant progress drilling offshore since the first well off the province was drilled in 1966.

Twenty-two significant discoveries have been made off Newfoundland and Labrador, and 17 discoveries on the Northeast Grand Banks contain 1.6 billion bbl of oil, 4 tcf of gas, and 237 million bbl of natural gas liquids. Off Labrador, discoveries include 4.2 tcf of gas and 123 million bbl of NGL.

Estimates indicate about 5 billion bbl of oil and more than 53 tcf of gas are yet to be discovered off Newfoundland and Labrador, Furey said.

"Western Newfoundland is an exploration hotspot and has been ever since the Dallas-based Hunt Oil Co. encountered oil in its Port au Port 1 exploratory test in 1995," Furey said.

"Another Texas-based company, Tatham Offshore, a subsidiary of DeepTech International Inc., is investigating the feasibility of construction of a natural gas pipeline from the Grand Banks, linking into the Sable project offshore Nova Scotia, and on to the New England market."

Furey said Hibernia, the first field to be developed offshore in the province, is due to begin production this December.

Hibernia, 196 miles east of the capital of St. John's, is the largest field on the Grand Banks discovered to date with more than 615 million bbl of oil and more than 1 tcf of gas reserves. Furey said the project will be developed at a cost of about $12-13/bbl (Canadian).

"The owners are going to reap very handsome profits over the life of the project," Furey said.

Hibernia's topsides were mated with its gravity-based structure at the end of February.

"The Hibernia project is acting as a catalyst for the development of other fields, such as Terra Nova, Whiterose, and Hebron," said Furey.

Operator Petro-Canada is leading a group that plans to bring Terra Nova on stream, with first oil expected late in 1999. The field is expected to produce at an average peak rate of 125,000 b/d.

Furey said, "Overall, I expect that by 2004, the province will be producing about 400,000 b/d of light oil. This represents about 36% of Canada's light crude oil production of 1.1 million b/d.

"This is a very significant percentage, which is indicative of a future shift in the Canadian upstream oil and gas business to Newfoundland and Lab- rador."

Off eastern Newfoundland, Furey said more than 28,000 line miles of 3D seismic data will be collected this year in a multiphase program, the largest of its kind ever conducted off Canada.

Furey said wells planned include testing of the West Bonne Bay prospect by Amoco Canada Petroleum Co. Norsk Hydro Canada Oil & Gas and Petro-Canada are planning to finance a portion of that well's cost in return for a 10% ownership each in the exploration license, awarded in 1995. The prospect is about 10 miles northeast of Terra Nova field.

He said delineation drilling is also planned at Hebron field, about 25 miles southeast of Hibernia, by Petro-Canada, Mobil Oil Canada Ltd., Chevron Canada Ltd., and Norsk Hydro Canada.

U.K. scene

"The U.K. continental shelf (UKCS) is in extremely good shape," said Sir Ian Wood, chairman of the U.K. Oil, Gas and Petrochemicals Supplies Office (OSO), Aberdeen. The UKCS "continues to be a remarkable success story."

About 250 wells were started there in 1996, 18 new fields received government approval, and 16 new fields came on stream.

Wood said the new Labour Government of Prime Minister Blair is expected to hold fast to preelection claims and not impose any new measures that would be detrimental to the oil and gas industry.

"North Sea oil companies have nothing to fear from Labour Party taxation plans," Wood said.

He said there will be no change in government's feeling that the oil and gas industry is essential to the U.K., especially because there is intense international competition for oil company resources throughout the world.

Wood said 1996 U.K. oil and gas export sales totaled $6 billion, of which about $4 billion was for downstream products. For 1997, the OSO predicts sales approaching $8 billion.

DOE view

During OTC, top U.S. Department of Energy and Interior Department officials voiced support for offshore development as a means of bolstering U.S. energy security.

But stated official support for offshore development is expected to have little effect on the longstanding political logjam over acreage in the eastern Gulf of Mexico that is off-limits to leasing and will be for at least the medium term.

"Americans must understand the critical importance of petroleum to the economic fabric of our nation," U.S. Energy Sec. Federico Pe?a told the OTC press contingent.

Pe?a, who briefly toured the conference exhibits, said he is the first Energy secretary ever to attend OTC. The Brownsville, Tex., native stopped in Houston while en route to a meeting with officials in Mexico, Costa Rica, and Caribbean nations as part of a Clinton administration swing to discuss economic and trade issues.

He noted the U.S. offshore industry is not on its deathbed, as some pundits believed at one time. "We now have a vastly different situation today, an offshore industry with a robust outlook worldwide."

Noting how more U.S. oil and gas reserves are coming from deeper, more difficult-to-produce areas of the gulf, Pe?a emphasized that DOE "can play an important role in partnership programs with industry to develop and deploy technologies that can tap the energy wealth of these more challenging resources."

One key partnership effort, Pe?a said, will be to develop single-well seismic imaging technology to help define hydrocarbons in subsalt or salt-flank reserves.

Because the industry's makeup is "shifting from large, multinational producers to smaller companies with limited research and development capabilities," Pena said the role of DOE "in bringing new technologies to commercial threshold remains vital to the future of all Americans."

Pe?a said DOE is continuing to work on formulating an energy strategy to reduce U.S. dependence on oil imports, increase domestic production, protect the environment, and increase the use of all forms of energy, among other objectives.

"The role that I see for the Department of Energy and the federal government is to improve our own government decision-making and our own coordination," he said, particularly in the areas of environmental compliance, enhancement in the value of federal lands, stimulation of the market for natural gas, and advancement of natural gas and oil technology.

MMS view

Cynthia Quarterman, U.S. Minerals Management Service (MMS) director, told the OTC press contingent that the agency is making progress on its inquiry into expanding royalty relief into shallower waters of the gulf, where most offshore U.S. production occurs.

She said MMS will soon review comments on the extent of its authority to extend royalty relief, currently provided for wells in deepwater areas, to wells in shallow areas.

Meanwhile, she noted that MMS now has available 50 years of paleontological data from government and industry on CD-ROM. The data cover more than 14,000 wells in the gulf.

Quarterman also said MMS hopes to "work constructively" with citizens of Alabama and Florida concerned about offshore drilling and hold the lease sale in the eastern gulf now planned in 2002. The next sale in the western gulf is set for Aug. for 27.

On another heavily debated offshore issue, Quarterman said the planned lease sale in Alaska's Cook Inlet will go forward this June "barring litigation."

Cautious optimism

Despite surging offshore activity, the industry is only cautiously optimistic about what lies ahead.

Speakers warned that the current surge in offshore drilling and production is nothing like the boom of the early 1980s.

"It is not a boom in any way, shape, or form," said Frits van Riet, managing director of Noble Drilling (Nederland) BV and chairman of the International Association of Drilling Contractors.

There was a 4% decline in the total number of wells completed in 1996, compared with 1995, van Riet said. "The single silver lining was that the rate of decline slowed."

Other not-so-favorable statistics he cited were that overall footage drilled declined 2% from 1995 last year, and exploratory drilling fell as well. In terms of development drilling, only gas well completions rose, up 4% to 8,167 in 1995-96, while the number of oil wells fell 10% to 6,959.

Even in the gas-rich arena of the Gulf of Mexico, proven reserves have fallen 30% from a decade ago, despite a rise of 25% in output during the same period, he noted.

"This is our Monday-morning hangover from a decade of neglect," he said of the 10-year slump of the mid-1980s and early-to-mid-1990s.

The industry is "fast exhausting its sources of easy capacity," van Riet noted.

If oil prices remain flat, producers will be squeezed between inelastic profit margins and rising costs of services. "This will most hurt the small and midsize independents who are now coming to the fore in the Gulf of Mexico," van Riet said.

Efforts by the MMS to expand royalty relief to all water depths should ease the margin squeeze, he predicted, noting that such a policy would be consistent with incentives offered by other nations involved in offshore oil and gas leasing.

Gulf's gas role

Among other concerns expressed at the conference, Bob Rose, chairman of the National Ocean Industries Association (NOIA), questioned whether the gulf can remain the backbone of U.S. natural gas deliverability.

Much of the current rise in deliverability comes from "just-in-time drilling" of shallower fields, rather than large field discoveries in deep, hard-to-reach areas, such as subsalt zones, Rose said.

But these fields will typically take 4-5 years to bring on stream. The gulf is "not a bottomless sink," Rose said.

The eastern gulf shows high promise for natural gas, but lies in a "political fault zone" because of opposition to offshore drilling from citizens of Alabama and Florida. NOIA is expanding its outreach programs in an effort to "calm the fears" of people in these states and hopes that MMS will deem drilling in the eastern gulf to be "politically feasible" as planning continues for the proposed offshore lease sale in 2002.

Labor shortage

Meanwhile, James Bryan, chairman of the Petroleum Equipment Suppliers Association, detailed the severity of the labor shortage in the offshore industry after a 10-year exodus of downsizing-leery employees from the field.

Engineers and other technical support staff are in particularly short supply. Only 111 petroleum engineers graduated in the U.S. last year. Overall, the number of engineers of all types has dropped 18% since 1992, but the ranks of petroleum engineers have fallen by 65%, Bryan noted.

The sharp reduction in the number of engineering graduates comes at a time when experienced engineers are edging toward retirement. "Most skilled workers will retire in the next decade," he said.

As a result, companies need to launch aggressive programs to recruit and train engineers and technical support staff, and cross-train them in different specialties.

But companies need to be on guard not to hyperinflate salaries, in case a bad business cycle hits again. Bryan said that variable pay plans, based on a combination of fixed salary and incentive awards, are one way to keep employees motivated and well-paid, without losing flexibility.

Equipment shortages

On the equipment side, Max Lukens, chairman, president, and CEO of Baker Hughes Inc., said the industry is trying to make rig construction more efficient.

One dilemma is: "How do you build components? Historically, it was a stick-by-stick process."

Although there's been some improvement in newer semisubmersible units, there's "nothing in the near term that will make a big difference" in speeding the rig construction process.

James Day, chairman, president, and CEO of Noble Drilling Corp., Houston, said major oil companies-more than independents-seem to lack a grasp of the "sense of urgency" about lining up offshore rigs.

"It's an exciting time, but it's not a time to get carried away," he cautioned. The rig fleet is experiencing natural attrition due to age and occasional accidents, such as hurricanes, of about 2.5%/year, he said. This translates to a decline of about 10 units/year.

"We're converting everything but a bathtub to make it into a rig," he said. "You can spread the life of assets only so long."

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