Deepwater spending to nearly double by 2002

• Deepwater Activity Forecast [100,396 bytes]

Petroleum companies will increase capital spending on deepwater oil and gas developments by 85% during the next 5 years, says Douglas-Westwood Ltd., Canterbury, U.K.

Deepwater expenditures in 2002 will be $18.8 billion vs. $10.8 billion in 1998. And deepwater spending during the 5-year period will total $71 billion.

John Westwood, co-author of a deepwater study by Douglas-Westwood, said, "As shallow-water oil is increasingly depleted, deepwater reserves are becoming more important, and oil companies big and small are gearing up for a major financial commitment. Exxon Exploration Co., for example, holds interests in more than 300 deepwater blocks totaling approximately 20 million gross acres."

A number of factors are driving increases in deepwater activity:

• Depletion of shallow-water re- serves.
• Greater potential for large finds compared with shallow water.
• Improved technology and management practices and resulting reduced development costs.
• Favorable fiscal policies towards deepwater by host governments.

Future activity

Douglas-Westwood predicts that 134 oil and gas fields will be developed in water deeper than 300 m during 1998-2002. During the 5-year period, 65 deepwater floating production systems (FPSs) will be installed, and 1,296 deepwater wells will be drilled (see table). More than 8,000 km of pipelines and risers will be installed for deepwater developments, and 5,800 km of control lines will be needed.

"FPSs of various types will continue to be the most important field development method," said the firm. "There will, however, be a considerable growth in satellite developments by subsea tie-back to existing production facilities."

Deepwater fields account for 90% of the reserves involved in future developments off Brazil. In the Gulf of Mexico, they account for 89% of reserves; off West Africa, 45%; off Norway, 38%; and off the U.K., 9%.

"For these key areas," said Douglas-Westwood, "44% of the combined reserves of future fields are in deep water-a clear demonstration of the growing importance of deepwater activity to the world oil and gas industry."

Petrobras, for example, plans to increase production 50% to 1.5 million b/d. Of this, 60% will come from fields in water deeper than 400 m.

At yearend 1996, global production from deepwater fields (300 m) was about 1 million b/d. At the Offshore Technology Conference this year, Exxon Exploration Pres. Jon Thompson said he expects this figure to triple by 2000, at which time deepwater production will account for 10% of total offshore output.

Douglas-Westwood predicts that the number of deepwater fields brought on stream will increase to 38/year in 2002 from 15/year in 1998.

Industry adjustment

Of existing offshore fields, less than 3% are in deep water, but 25% of future fields are expected to be found in these areas, according to the report.

"Such a growth in deepwater activity will have considerable implications for both oil companies and their suppliers," said Westwood, "as a significant proportion of the offshore industry has to reorient itself to deepwater operations."

"Contractors and operators are restructuring themselves to meet the challenge," said the firm. "Shell and Exxon both have established companies primarily focused on the large deepwater development opportunities.

"But the majority of deepwater finds are small, and some operators are targeting these with proprietary technology; others are targeting new geographic areas. The major contractors have established one-stop shops for deepwater developments, sometimes taking payment by way of equity in the fields.

"The development of the world's deepwater oil and gas reserves is one of the great unrecognized technological achievements of the 20th century," said Douglas-Westwood.

In 1960, production was limited to fields in 60 m of water or less; in 1990, that figure was up to 600 m. "By the year 2005, we expect 2,300 m to be achieved," said the firm.

Its deepwater forecast was adjusted for increasing efficiency: "We particularly expect to see a growth in well productivity, so expect (capital expenditures) to grow at a rate greater than well numbers and associated hardware."

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