This report was reported and written by Bob Tippee, editor; Steven Poruban, senior editor; and Paula Dittrick, senior staff writer.
Deepwater oil and gas exploration will remain one of the world's "pillars of supply" for its energy needs despite its high-risk exposure to remote locations and commodity price volatility, said industry panelists at the 41st annual Offshore Technology Conference in Houston.
Offshore fields have yielded nearly 70% of the major oil and gas discoveries in the last 10 years, said Bob Fryklund, a director with IHS CERA and a panel moderator.
Major discoveries "are still being made" around the globe, said panelist Jim Demarest, director of international exploration for Noble Energy Inc.
These discoveries are being found through the use of ever-advancing seismic technology among other things, Demarest said. These advances have shown industry "things we never thought possible," he said.
Demarest noted, however, that technology largely resides in service companies and quickly becomes available to everyone, making it difficult for E&P companies to maintain a "technical edge."
Access to acreage also continues to challenge industry, Demarest said. Higher commodity prices have created pressure for a "larger slice of pie" for governments, he said, speaking of rights to access acreage, particularly in sovereign nations. He said countries with a solid track record of "sanctity of contract" will continue to attract investment.
Demarest said Noble's exploration budget for 2010 is the largest in the company's history. But the company has a disciplined approach to acquisitions, not "buying resources for resources' sake," he said.
'Excel,' or 'buy'
As for where exploration is headed, Demarest said technology will continue to improve, but he believes targets will continue to get smaller. At the same time, companies' success rates will continue to improve. "On average, the size of fields will go down, but will remain profitable," he said.
In short, Demarest said, if industry players do not excel at exploration, they should "buy, don't try." He noted exploration companies must have several core competencies including dealing with market volatility, having the technological know-how, and exercising financial discipline.
Being a "first mover" is risky, but "you better not be far behind," he noted, adding, "It is not about luck."
ConocoPhillips, meanwhile, has changed its direction in recent years to organic growth, said Larry Archibald, senior vice-president. The major chooses to expand through exploration and "high-impact wildcats," he said. "There's lots of running room in resource plays." The company intends to continue expanding its footprint in deepwater plays, he said.
Archibald said there are many deepwater plays that remain lightly tested. Other areas have been off-limits because of being tied up in boundary disputes.
Overall, Archibald said, "The revolution has been in horizontal drilling and completion."
World consumption growing
"The world is consuming a major deepwater Gulf of Mexico field every day," observed Frank Patterson, vice-president, international, Anadarko Petroleum Corp. The average discovery in the gulf is about 83 million boe, Patterson calculates, and the world consumes about 85 million bo/d. Of that total, the US consumes about 20 million bo/d. The average global field size (in 2000-09), meanwhile, is about 22 million boe, he said.
Anadarko is looking for oil internationally and has had "a good run on exploration in the last few years," Patterson noted. Good technology is key, he said, but how that technology is applied is just as important.
In short, Patterson said, exploration is "not about unconventional resources" but "about unconventional thought."
Like other panelists, he agreed access remains a challenge. Patterson pointed out, "Fields do not abide by political and geographical boundaries."
Other strengths of Anadarko include consistent and efficient investment as well as alignment with the right partners. "It can be contentious at times," between partners, but it's about "communication, communication, communication," he said.
Regarding technology, it is most important to use "the right tool, at the right time, at the right price," Patterson said.
In the end, he said, companies need to remain "committed to the process."
Advances in the computing environment has been one of the major developments behind the improvement of seismic technology and imaging, said Jeff Spath, president, reservoir management, Schlumberger.
Advances in technology used to measure and log while drilling, for example, allow for companies to have the "ability to image where we're going, and while we're going."
'Impossible' to 'reality'
With perseverance and technology, the oil and gas industry advances by turning ideas once deemed impossible into reality, said Chuck Davidson, chairman and chief executive officer of Noble Energy Inc., at the OTC awards luncheon.
OTC gave the individual distinguished-achievement award to Hugh Elkins, retired from National Oilwell Varco Inc., who worked for many years with Hydril, and a corporate award to Anadarko Petroleum Corp. and Enterprise Field Services for their work on Independence Hub in the gulf.
The industry learned to drill and complete wells profitably in the Barnett shale then expanded into other shale plays by applying an aggressive attitude that Davidson described as "lease it, and ask questions later."
Development of unconventional oil and gas reservoirs, he said, shows how the industry can turn problems "truly viewed as impossible into stunning reality."
A North American gas supply structure that is "radically changing" because of shale-gas development was among key industry changes Davidson addressed.
Others were a shift in operators' emphasis from gas to oil drilling in the US, improved producer access to capital, a "long, long list" of recent oil and gas discoveries, and reassessment by oil and gas companies of traditional business models.
Technology, creativity, and a "belief in possibility" combine to form a "new reality," he said.
Discoveries are rewarding companies that have taken advantage of recently elevated oil and gas prices to test new exploration and development concepts in what Davidson called "R&D drilling."
The challenging Lower Tertiary play in the deepwater gulf developed from "never taking the status quo as a given," Davidson said. Referring to the Deepwater Horizon tragedy and oil spill, he acknowledged, "[W]e do live under a dark cloud this year."
Offshore safety questioned
The blowout was a general topic of conversation at OTC although official speakers wouldn't say much with so few facts yet available.
Officials from BP PLC cancelled at least one planned appearance at the conference so they could concentrate on spill-response efforts.
However, officials from Northwest Territories and Nova Scotia said Canadians are questioning the safety of offshore drilling in the Beaufort Sea and on the Canadian Outer Shelf after the Deepwater Horizon explosion and subsequent spill.
Northwest Territories Minister of Industry, Tourism, and Investment Robert McLeod said the gulf accident raises questions about how fast the oil industry could drill a relief well, if needed, in the Beaufort Sea.
"If in the Beaufort Sea, if you had a blowout, where would you go to find another drillship to deal with it," McLeod asked, noting that some 4,000 wells are drilled every year in the gulf so equipment was readily available to quickly move into place and begin drilling a relief well.
The gulf accident is going to have "some real implications for the Beaufort Sea," McLeod said, adding that Canada's National Energy Board already was contemplating the need for relief wells in Arctic drilling operations before the gulf accident happened.
Future of Georges Bank
Nova Scotia Premier Darrell Dexter said Nova Scotia faces a decision regarding offshore drilling on Georges Bank, which lies on the Outer Shelf of the Canadian and US east coasts. Canada and the US share jurisdiction of Georges Bank, an elevated area on the seabed between Cape Cod, Mass., and Cape Sable Island, NS.
"In the 1980s, Canada and Nova Scotia banned petroleum exploration and development on our side of the bank…and that moratorium expires Dec. 31, 2012," Dexter said. Some 20 years ago, Georges Bank was estimated to contain 1 billion bbl of oil and more than 5 tcf of natural gas.
Ottawa and the provincial government call Georges Bank one of the world's most productive fishing areas. The original moratorium was established in 1988. Previously, the US and Canadian governments extended the moratorium's expiration date from Jan. 1, 2000, to Dec. 31, 2012.
"Government needs to make a decision on whether to extend the ban or end it," Dexter said. "There is not a lot of time left before the government must decide on a public review of the moratorium." If a public review is to be undertaken, Dexter said Nova Scotia officials must decide this by June to allow time for the review process, given that the existing moratorium is scheduled to expire in 2012.
The gulf oil spill has created "a heightened sensitivity" about the possibility of drilling in Georges Bank, Dexter said. "I think there are, of course, questions raised."
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