OTC panel says producers, service firms must cut deepwater costs

More collaboration between producers and service companies will be needed to reduce costs as the worldwide search for oil and natural gas moves into deeper waters, a panel of industry executives said Tuesday in a general session on ultradeep operations at the Offshore Technology Conference in Houston.


Sam Fletcher
OGJ Online

HOUSTON, May 2 -- More collaboration between producers and service companies will be needed to reduce costs as the worldwide search for oil and gas moves into deeper waters, a panel of industry executives said Tuesday in a general session on ultradeep operations at the Offshore Technology Conference.

The primary areas for deepwater exploration remain in Brazil's Campos basin, the US Gulf of Mexico, and offshore West Africa, said Jose Coutinho Barbosa, managing director of exploration and production for Petroleo Brasileiro SA (Petrobras) in Rio de Janeiro, a member of that panel.

The offshore industry can maximize savings and make more deepwater projects economical "by changing the ways producers and contractors work together," said J. Michael Talbert, president and CEO of Transocean Sedco Forex Inc., Houston, the largest offshore drilling contractor.

"It really takes a combined team of operators and contractors working together and looking at a field on a holistic basis instead of its individual components," he said.

Each offshore project must be able to compete against market fundamentals regardless of its water depth, said Matthias Bichsel, director of deepwater services for Shell International Exploration & Production Inc.

Regardless of the technology used, Bichsel said, "A good understanding of the reservoir is the major hurdle on any deepwater project. That has the most impact on reducing costs."

Emil Pena, former deputy secretary for the US Department of Energy, said, "Stresses from government regulations" are also among the key factors that can affect the economics of deepwater projects. "You have to keep up with those standards," he said.

Bichsel said because of restrictions on flaring, a company's ability to deal with associated gas is also a factor for deepwater oil projects.

Panelists generally agreed that the technology of multiphase pumping will probably be used to help move that gas "before we get to offshore production of LNG or gas-to-liquids projects."

Oil and gas operators are not in business to produce oil but to make money for their shareholders, said Robert A. Solberg, president of commercial development for Texaco Inc.'s worldwide exploration and production. So in that sense, he said, the size of a reservoir almost doesn't matter so long as a company can turn a profit on it.

Most producers use a base commodity price against which they judge the potential profitability of proposed projects. However, Solberg said, "It's highly likely that the cycles we've experienced for the last 100 years will continue," with oil prices averaging around $19-$20/bbl, adjusted for inflation.

"Anyone who has been in the business for some time knows he would be a fool to expect today's high prices to continue," Talbert agreed.

Exploration and development spending has been on an upswing for the last 18-24 months "but at a slower rate than would have been expected, probably because of the cautious reaction by producers," Talbert said.

However, David H. Welch, vice-president of Gulf Coast upstream operations for BP PLC in Houston, said, "We've doubled our capital spending during that period and I think it will remain strong."

Some "technological breakthrough" probably will be necessary to move the industry into water depths beyond 10,000 ft, said Bichsel. Simply upscaling existing rigs for deeper water will no longer be sufficient at some point, he said. Reinjecting that gas is not always a solution, he said.

As for any unseen circumstances that could disrupt future deepwater operations, Talbert said, "As an industry, we've been swinging at curve balls for years. A company can't have long-plans that are inflexible."

Welch agreed, "We've got to be quick and ready to change. It's our industry's innovative ability of which I'm most proud."

Contact Sam Fletcher at samf@ogjonline.com

More in LNG