Deepwater Drillbits are Humming Again in the

A HART ENERGY PUBLICATION/MARCH 2013
Deepwater drillbits are humming again in the Gulf of Mexico.
DEEPWATER GULF
Pent-up development projects and a deep bench of prospects have drillbits
humming again in the deepwater Gulf of Mexico.
Deepwater GOM Wells Drilled By
Exploration & Development (>1,000 feet)
Historical & Forecasted Deepwater GOM
Wells Drilled (>1,000 feet)
80
160
Exploration wells
140
Development wells
120
60
Wells*
100
40
80
60
20
40
20
Source: BOEMRE; International Strategy & Investment Group
*Weighted average number of wells drilled
Source: BOEMRE; International Strategy & Investment Group
*Weighted average number of wells drilled
2015E
2014E
2013E
2011
2012E
2010
2009
2008
2007
2006
2005
2004
2003
2002
0
2001
2015E
2014E
2013E
2011
2012E
2010
2009
2008
2007
2006
0
2005
Above, the crew
quarters’
welcome sign on
LLOG Exploration
Co.’s Who Dat
floating
production
facility in the
Gulf of Mexico.
Right, after
taking a dive in
2009-2011,
deepwater
exploration and
development
wells are
rebounding, with
further growth
expected. Facing
page: LLOG’s
Who Dat platform
in Mississippi
Canyon Block
503 with the drill
rig Noble Amos
Runner in the
distance.
2004
March 2013
Copyright©Hart Energy
Publishing LLP
1616 S. Voss Rd.
Suite 1000
Houston, TX 77057
(713) 260-6400
2003
Excerpted from
T
water Horizon rig explosion
and subsequent Macondo well
oil spill in 2010 is finally lifting. Visibility is clearing, and
operators are eagerly resuming exploration and development plans.
Jud Bailey, senior managing
director, head of oil services
and equipment for investment
research firm International
Strategy & Investment Group
LLC, believes the deepwater
is poised for a boom.
“Essentially, after being left
for dead following the devastating Macondo blowout, we
believe the deepwater Gulf of
Mexico is in the early stages
of an extended growth cycle and is poised to be
the strongest offshore market in the world
through 2015,” he said in a December 2012 report on the Gulf.
Statoil, the international oil company based
in Norway, is an example of a company riding
the wave. It entered the deepwater basin as recently as 2005, and has identified the Gulf as a
growth edge.
“It’s a combination of large reserves and attractive fiscal terms,” says Jason Nye, Statoil
executive vice president of U.S. offshore. “The
opportunities compare very favorably with any-
2002
PHOTOGRAPHY BY
PETER PIAZZA
he fog enshrouding the
Bristow Group heliport at
the mouth of the Mississippi River near Venice, Louis iana, grounding all flights to
offshore Gulf of Mexico oil and
gas operations this January day,
is a typical pause to a changing
of hands. Some 55 miles south,
the Noble Amos Runner
semisubmersible fourth-generation rig, under contract to
LLOG Exploration Co. LLC,
continued its mission of drilling
out Who Dat Field in Mississippi Canyon 503. It is a two- to
three-year program in 3,100 feet
of water.
Who Dat came online at the
end of 2011, and now has four wells producing
18,000 barrels of oil and 45 million cubic feet
(MMcf) of gas per day. Randy Pick, LLOG
managing director, acquisitions and divestitures, says, “A large-scale development project
such as Who Dat requires a significant amount
of rig time, and we have several prospects that
could be as large as Who Dat.”
Such optimism pervades Gulf operators. Like
a rising wave out of placid waters, projects are
once again gaining momentum in the deepwater Gulf of Mexico. The regulatory miasma that
halted drilling in the basin following the Deep-
Wells*
ARTICLE BY
STEVE TOON
Total
deepwater
Gulf spending
in 2016 is
forecast at
$27 billion.
While the
majors have a
significant
portion of
deepwater
leases, large
independents
have their fair
share of the
action.
thing else in our portfolio, which is why we’re
spending money here.”
Did post-Macondo regulation changes affect
Statoil’s long-term commitment? Not at all, he
says. “There is still some uncertainty, and it’s
still a moving target sometimes, but in general,
we see it as a fairly stable environment. Things
are coming back to normal.”
A wave of capital infusion illustrates operator confidence. Sugar Land, Texas-based research and consulting firm Quest Offshore
Resources Inc. forecasts total spending in the
Gulf to increase 30% in 2013, to $40 billion
overall, and a cumulative $167 billion through
2016. For the first time ever, deepwater spending is expected to have outpaced shallow-water
spending in 2012, led by a growing number of
deepwater fields.
“2012 is expected to represent an investment
shift with deepwater capex and opex spending
surpassing that in shallow water,” according to
the report released in late 2012. And the shift is
expected to intensify over the next five to seven
years, outpacing shallow-water spending twoto-one by 2016.
Total deepwater spending in 2016 is forecast
at $27 billion. “Increased development activity
levels are expected to drive robust deepwater
spending in the Gulf of Mexico in the coming
years,” the report said.
Noble Energy Inc. will contribute its share; it
has multiple deepwater Gulf of Mexico
prospects queued up. “The Gulf of Mexico is
back in business,” says John Lewis, vice president of U.S. operations, southern region. “The
opportunities are there, and I don’t see it slowing down.”
Stepping beyond
The 26%-operated Gunflint, a large four-way
discovery in southernmost Mississippi Canyon
Block 948, represents a calculated step-out for
Majors and
national oil
companies
continue to be
the driving force
for pushing the
boundaries in the
deepwater Gulf.
Key areas of
interest are in
Alaminos
Canyon, Keathley
Canyon and
Walker Ridge.
Top Operators, Deepwater Leases
Operator
Total
% of Blocks
BP
Shell Oil Co.
Anadarko Petroleum
Chevron USA Inc.
ExxonMobil
Conoco Inc.
Hess Corp.
BHP Billiton
Cobalt International
Statoil
Eni Petroleum
Petrobras
Murphy
Maersk Oil
Noble Energy
542
377
377
322
304
246
224
195
171
167
136
122
114
82
79
13%
9%
9%
8%
7%
6%
5%
5%
4%
4%
3%
3%
3%
2%
2%
Source: Quest Offshore Resources; BOEM
Noble Energy—a move beyond suprasalt amplitude plays to the subsalt Miocene, the primary target of deepwater development today.
First discovered in 2008, Gunflint is estimated to hold gross resource potential of 90- to
325 million barrels of oil equivalent (BOE), including untested Lower Miocene potential. It is
the company’s largest Gulf of Mexico discovery to date. Commerciality of the prospect was
confirmed with the first appraisal well completed in third-quarter 2012, delayed by Macondo.
e found more than 500 feet of
hydrocarbon pay in the original
discovery well, predominately
oil with some natural gas zones,” says Lewis.
“We know we have enough resources here for a
commercial development.” Gunflint Appraisal
#2 will spud in first-quarter 2013.
Gunflint, with wells reaching to 32,000 total
feet in 6,100 feet of water, will come online in
late 2015 or early 2016 if developed as a subsea
tieback, or 2017 if sanctioned as a stand-alone
hub.
“Based on reservoir quality, we expect these
wells to be prolific—the deliverability should
be strong,” says Lewis.
They won’t be the last. Subsalt exploration
prospects with 743 million BOE combined
gross unrisked potential can anticipate Noble
Energy-operated drillbits in the next two years.
These include Dantzler and Madison in Mississippi Canyon, and Yunaska in Ewing Bank.
“Below salt, seismic imaging technology
continues to significantly improve our interpretations. That’s where the big potential remains,” says Lewis.
Noble Energy currently generates some
25,000 BOE per day (80% oil) in the Gulf of
Mexico, essentially all from the deep water and
all from amplitude plays. While exiting the
shelf in the early 2000s, the Houston-based
company focused its efforts on these highly
economic, above-salt targets with great success.
The company then expanded its attention to the
subsalt Miocene in 2008.
“To grow, we knew we needed opportunities
with material scale,” says Lewis, but notes the
company takes a measured, strategic approach
to new ventures.
Noble Energy has since amassed a resource
base of about 1.6 billion barrels of net unrisked
resource potential in the Gulf. “The deep water
by itself has potential resources larger than
Noble Energy’s entire reserves at year-end
2011,” Lewis says.
Bucking the notion that the deep water is becoming a basin for majors only, Noble Energy
is a large independent operator with a global
portfolio on an upward trajectory and development projects more typical of a major. “We
have successfully transferred the experience
and expertise we’ve gained in the deepwater
Gulf of Mexico over the years to safely and responsibly create exceptional opportunities, internationally, and vice versa,” adds Lewis.
“W
The Eastern Mediterranean and offshore
West Africa are two of Noble Energy’s core
operations areas. The company also holds international exploration prospects offshore Falklands Islands and Nicaragua.
“Given the resource scale we’ve captured in
the deepwater Gulf of Mexico, we see great
growth potential there. Exploration is a true
value creator for us,” says Lewis. “We have an
opportunity to bring high-margin barrels on
production in a proven basin where infrastructure exists and where we’ve had success. It’s
material to Noble Energy going forward.”
Noble Energy has the distinction of being
awarded the first deepwater permit to drill a
well post-Macondo, as well as having the first
exploration discovery after the incident. The
company was twice awarded the Safety Award
for Excellence (SAFE) immediately before Macondo, and assumed a leadership role in a partnership with 23 other dependents to create the
Helix Well Containment System post-Macondo.
But don’t think Noble Energy has abandoned
amplitude plays. Its Big Bend discovery in
November, in which it has 54% interest, shows
potential—an estimated 30- to 65 million BOE.
As subsea tie-backs, drilled to 17,000 feet for
about $75 million gross, these shallow amplitude plays remain very profitable, he says. “We
can get them on line fast with very productive
wells.”
Troubadour, next door, could double the potential. Noble Energy holds 87.5% in this
prospect scheduled to be tested later this year.
These two fields should be developed together,
with first production expected in late 2015 or
early 2016.
oble Energy has not yet pursued emerging Lower Tertiary prospects like other
deepwater operators. “We understand
the Miocene,” says Lewis. “It’s our core area.
Big discoveries, especially subsalt, remain to be
found here as imaging continues to improve.”
That could change, however. “We see potential for significant resources not only in the
Miocene, but other horizons,” he says. “We see
new opportunities we haven’t played before.”
The company picked up several remote
blocks in Atwater Valley called Chadwick.
“We haven’t drawn a line that we can’t go
deeper,” he says. “We’re not limiting ourselves.”
Nor stepping back. “The scale of the projects
we do is on par with what any supermajor does.
We’re not intimidated by technical challenges.
N
Above, LLOG
Exploration’s
Who Dat Field
production
platform seen
from above.
Natural gas
prices have
pushed virtually
all of the
company’s
capital
investment
toward oil-rich
targets in the
deep.
Project backlog
Who Dat
LLOG Exploration Co. LLC, founded in
1977, is a large private company that historically liked to operate under the radar. However,
the Covington, Louisiana-based operator
Deepwater Drilling Permit Approvals
180
10
160
9
140
8
7
120
6
100
5
80
4
60
3
40
2
20
1
0
0
2008
2009
New APD’s Exploration
Monthly Average Exploration
2010
2011
2012E
New APD’s Development
Monthly Average Development
Source: Bureau of Ocean Energy Management, Quest Offshore
PREDICTABLE—IF NOT PERFECT
sk an operator—any operator—about
the status of the permitting process in
the Gulf of Mexico post-Macondo,
and they all answer uniformly. Predictable.
Not perfect, not fast, not like it was preMacondo, but predictable. After months of
uncertainty and numerous back-and-forth
processes while learning what the Bureau of
Safety and Environmental Enforcement
(BSEE) required, all can agree that—finally—the process to get a permission slip to
get on with the business of drilling for offshore oil and gas is known and doable.
“We know what it takes to get an exploration permit and a permit to drill,” says
Cobalt’s James Painter. He emphasizes
A
Cobalt and other operators are aligned with
the Bureau of Ocean Energy Management’s
(BOEM) goals of safe operating to protect the
environment and workers, but the process to
permit does now take longer, with myriad
more requirements. “It’s an issue of making
sure our business is planned out so a rig is not
waiting on order, resulting in lost dollars.”
Before Macondo, operators could get several permits in advance and determine details of the drilling plan after the fact. Now,
all technical details must be buttoned up before a permit is considered, including identifying the rig to be used. With the onus on the
operator to pay for an idle rig, contractors
are careful to not overextend rig plans.
Monthly Average
Could the flurry of deepwater activity be
only a temporary surge of pent-up projects?
Possibly.
The impending wave of deepwater development projects is a result of both the Macondo
downtime, as well as the preceding financial
crisis, according to Quest Offshore consulting
manager Sean Schafer. “A lot of projects got
held up. Now they’re all hitting at the same
time.”
A rise in permitting reflects this. Multiwell
campaigns using a single rig are being issued
permits regularly, driving permits to near preMacondo levels. On the flip side, regulators are
taking their time reviewing true wildcat exploration permits.
“As a regulator, you’re going to be more reticent of an exploration well over a development
well,” says Shafer. “In a development well, the
reservoir has already been penetrated and the
geology is known. There’s less risk.”
Quest Offshore calculates permits issued for
multiwell projects account for 44% of exploration permits and 62% of development drilling
permits from October 2011 through September
2012. Pre-Macondo, multiwell exploration permits accounted for less than 1% and development permits for less than 2%.
But true exploratory drilling, defined as an
undrilled prospect, is definitely down relative to
total drilling in the Gulf, he says. “Operators
are at a point where they want to develop their
projects and get them into production, but at
some point you’ll run out of new reserves to develop if they don’t return to exploration. The
Gulf needs wildcat exploration.”
ISI’s Bailey notes the same trend. “We forecast the balance between exploration and development wells drilled in the deepwater Gulf of
Mexico to return to roughly 50-50 for the first
time since the early 2000s, which implies almost three times the annual development activity as the peak of the last deepwater cycle in
2006-2008.”
Application For Permit To Drill (APD) Actual Count
We have the technical capability to efficiently
execute large-scale projects.”
Noble Energy has Ensco rig 8501 under contract for its upcoming Gunflint appraisal well
and has multiyear options to extend that contract. The company also shares a one-third-interest contract with Ensco 8505. “Our strategy
is to keep one rig drilling exploration, then let
follow-up development needs determine the
rigs we’ll add after that. I think we’ll be adding
rigs, but the timing will be a function of success,” he says.
Lewis says Gulf of Mexico capex will total
about $300 million in 2013, about 10% of the
company’s total. “We see a lot of opportunities
here, and we’re poised to take advantage of
them.”
Above, LLOG
vice president of
deepwater
projects Rick
Fowler says
room remains to
find plenty of
significant fields
in the Gulf.
Facing page: A
walking
inspection under
way on the
company’s
production
platform. Left,
deepwater
drilling permit
approvals surged
in 2012.
stepped into the spotlight in 2011 when it became the first privately held company to own
and operate a deepwater floating production facility on its Who Dat prospect.
It captured the limelight again when it entered into a $1.2-billion partnership with global
private-equity giant Blackstone in November.
Not afraid to play alongside the big boys,
LLOG (pronounced “log”) is poised to be a significant player in the deepwater Gulf.
“There is room to find plenty of significant
fields in the Gulf of Mexico,” says Rick
Fowler, LLOG vice president of deepwater projects. “We’re confident in our ability to execute.”
The multibillion-dollar company operates
both in the shallow and deep waters with total
company production of about 34,000 BOE per
day, 60% oil. But current gas prices have
pushed virtually all of its capital investment toward oil-rich targets in the deep. There, daily
production represents some 28,000 BOE, with
proved and probable reserves in excess of 200
million BOE.
With 147 blocks in the portfolio, LLOG has
identified 40 deepwater prospects, of which 15
are considered “hub class”—larger than 50-million-barrel potential and able to support a standalone production facility. LLOG operates 95%
of all of its production and touts a 70% success
rate. Its core area is in Mississippi Canyon in
3,000 to 5,000 feet of water targeting the
Miocene trend.
“The central Gulf is our bread and butter; we
focus most of our activity there,” says Fowler.
hen the drilling moratorium took effect post-Macondo, LLOG kept the
Noble Amos Runner rig busy completing seven deepwater wells. Three of those
were in Who Dat Field, a 100- to 300-million
BOE potential discovery that it sanctioned just
a month after the incident. When it commissioned the Who Dat floating production facility
(FPS) during the moratorium, “many consid-
Quest Offshore
senior research
consultant Leslie
Cook says all the
rigs ordered
and under
construction
now are ultradeepwater
drillships, as
opposed to
semisubmersibles.
W
Large
independents
are expected to
grow their share
of the floating
rig count in
coming years.
Floating Rig Count By Operator Type
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Small Independent
Large Independent
Source: IHS Petrodata; International Strategy & Investment Group data
11
20
12
E
20
13
E
20
14
E
20
15
E
10
20
20
09
08
20
20
07
06
20
20
05
04
20
20
03
02
20
20
20
01
0%
Super Major
ered that a bold move because we didn’t know
if we would be allowed to drill or even produce
anymore,” Fowler says.
Since the Exmar platform was built on spec,
LLOG was able to purchase the facility, make
necessary modifications, and put it online in
under a year, a record. It is LLOG’s first FPS.
Who Dat (“Who dat say dey gonna beat dem
Saints?”) has capacity of 60,000 barrels and
150 MMcf per day. Exmar financed the acquisition over 62 months, further freeing LLOG
capital.
“We expect to have 14 wells coming into that
facility, and do think we’ll use up the capacity,”
Fowler says.
Next up: Delta House. This second FPS will
accommodate nameplate capacity of 80,000
barrels and 200 MMcf, with peaking capacity
of 100,000 barrels and 240 MMcf. “This one is
going to be significantly larger than Who Dat,
and will accommodate a number of fields,”
Fowler says.
Those fields include Marmalard in Mississippi Canyon Block 300, drilled to total depth
of 18,100 feet, and Son of Bluto II, affectionately known as SOB 2, in Mississippi Canyon
431, total depth 18,500 feet. These are LLOG’s
first exploration wells since Macondo.
Showing its confidence, LLOG began engineering and requested bids from fabrication
yards for Delta House ahead of any discoveries.
“We felt confident that ultimately we would
need it. We designed a unit that would work for
any of our hub class prospects,” Fowler says.
The FPS is financed by ArcLight, which will
have majority ownership interest once completed.
When LLOG, the largest private operator in
the Gulf of Mexico, entered into a five-year
joint-venture partnership with Blackstone, it
was a seismic shift from its grow-within-cashflow history and a sign of the ripening opportunities offshore. The partnership is the largest
private-equity financing executed in the Gulf of
Mexico to date. The funds will accelerate development of LLOG’s four recent discoveries
and appraisal of new discoveries, increase participation at federal lease sales and farm-ins,
and provide the opportunity for acquisitions.
Scott Gutterman, LLOG chief executive, said
at the time of the announcement, “This transaction is indicative of the many exciting assets
and opportunities we have at LLOG and will
enable us to capture opportunities that we could
not otherwise pursue. We believe the Gulf of
Mexico deepwater is one of the most attractive
oil plays in the world, and we expect to continue to be a long-term, significant player in the
basin.”
In 2013, LLOG anticipates drilling up to 10
gross deepwater wells, with much of the capital
spend directed at the Delta House project and
associated subsea systems. LLOG total net capital in deepwater projects in 2013 will top $600
million.
Says Fowler, “We’re able to drill a lot more
rigs (up to 12,000 feet of water), even though
only four currently operate at water depths of
7,500 feet or greater.
“That’s huge,” says Cook. “Everything ordered and under construction now are ultradeepwater drillships, as opposed to
semisubmersibles. That’s the trend going forward.”
he rig profile change began pre-Macondo, driven by the move into and challenges of the Lower Tertiary reservoir.
After Macondo, however, there was rushed incentive to bring in bigger rigs with newer
equipment, she says. “They are higher spec—
it’s not so much about them being ultradeep,
but the capability of adding a second BOP
(blowout preventer) and higher crane capacity.”
Paul Hillegeist, Quest Offshore president and
co-founder, dubs the new builds Lamborghinis.
“Operators want the latest and greatest not only
for safety, but for efficiencies. They feel they
need the best of the best for these challenging
$150-million wells.”
These new rigs with expanded capabilities
are leading to higher costs. The average day
rate of rigs working in the Gulf presently is
$491,000. “That’s more than anywhere else in
the world,” says Cook. “We’re seeing leadingedge day rates over $600,000.”
Four operators now account for over half of
the rig fleet, according to Quest Offshore: BP
Plc, Shell Oil, Chevron and Anadarko
Petroleum. Additional operators with rig contracts include two supermajors, two national oil
companies and six independents.
T
prospects and pursue additional opportunities
that we would not be able to pursue if we were
using all LLOG funds. I don’t feel any capital
constraints right now.”
Counting rigs
If rig count at the time of Macondo is a measure, present-day 38 deepwater floaters top the
33 in April 2010. And there is no plateau in
sight: Quest Offshore anticipates some 60 floating rigs operating in the deepwater by 2016—a
doubling since Macondo.
Besides the Macondo stoppage, the preceding financial crisis and drop in oil and gas
prices stunted basin activity as well. Now,
Brent crude prices near $100 motivate operators to develop deepwater oil targets.
“The Gulf of Mexico is rich with opportunity,” says Leslie Cook, Quest Offshore senior
research consultant. “With oil projects in the
Lower Tertiary and deeper waters, operators
know the potential for good returns on their investments, but these reservoirs are challenging
and they need the type of rigs that can safely
drill the wells.”
Slower permitting times also push the rig
count up, as more rigs are needed to drill the
same number of wells.
Not only are more rigs coming in, the makeup of the fleet is changing. For the first time,
90% of the rig fleet is rated as ultra-deepwater
New, deeper frontier
Houston-based Cobalt International Energy
Inc. in November celebrated its first operated
discovery in the deepwater Gulf at North Platte
#1, a prospect targeting the so-called Inboard
Lower Tertiary trend on Garden Banks Block
959. The prospect, located in 4,400 feet of
water and drilled to a total depth of 34,500 feet,
has a marquee gross resource potential of some
400- to 800 million BOE with more than 2 billion BOE of gross potential in Cobalt’s offsetting inventory.
“It is a large and significant opportunity,”
says James Painter, Cobalt executive vice presi-
Left, a technician
starts a burner
on LLOG’s Who
Dat production
platform. Top,
employees
monitor controls
on the platform.
Above, Paul
Hillegeist, Quest
Offshore
Resources Inc.
president and cofounder, says
operators feel
they need the
“best of the best
(rigs) for these
challenging $150million wells.”
dent, Gulf of Mexico. The net pay is 350 feet.
“Most majors would be happy to have that
large of a discovery.”
Started in 2005 with private-equity backing,
the now $10-billion publically traded Cobalt
was formed with such whale-size prospects in
mind. The founders, veterans of internationalfocused majors, homed in on the 2006-2008
federal lease sales for prospects that would
“make the needle move for a major,” as many
prime leases were expiring en masse.
“The leases were turning and available, and
Above, the first
of two daily
safety meetings
on the Noble
Amos Runner rig
in the Gulf of
Mexico.
you could put together large positions.” The
team has since compiled 245 deepwater blocks,
75% operated, Painter says.
The company, with deepwater prospects in
West Africa as well, put its sights on the
emerging Inboard Lower Tertiary trend, a deep
subsurface formation under a thicker salt cap
than the Outboard portion of the formation. The
advent of digital seismic processing brought the
rock into focus.
“The trends we’re looking at now are beneath two to four miles of salt. The imaging
was not there to visualize it previously,” says
Painter. “All of a sudden, you were able to see
the structures and that the basins were deeper.”
And they liked what they saw—a higher rock
quality than in the existing Outboard producers
and high-quality oil and gas. “Having that confirmed at North Platte was important to us,”
Painter says. Cobalt holds a 60% interest with
partner Total E&P USA Inc. holding the remainder.
The North Platte discovery, however, experienced a two-year delay, as the rig was dropping
anchor when the drilling moratorium following
the Macondo tragedy was implemented. Cobalt
BROTHER, SPARE A RIG?
on’t look now, but the post-Macondo
Gulf of Mexico rig rush has drillers
posting sold out signs for floaters. “If
you’re an E&P needing a rig, you’ll either be
searching for a sublet opportunity, or waiting
until later in 2013 to secure a contract, likely
at a higher rate than the current market,” observed Global Hunter Securities analysts
Brian Uhlmer and Jeff Spittel, in a December research report.
The GHS analysts peg the rig backlog at
or above last cycle’s levels. The floater
backlog is 1,690 rig months, the highest on
D
Facing page: The
drilling deck of
the Noble Amos
Runner receives
a cleaning before
the next phase of
drilling. Below,
the floating rig
count could rise
significantly
through 2015 and
beyond.
Historical & Forecasted U.S. Gulf Floating Rig Count
60
Floating Rigs
50
40
30
20
10
Source: IHS Petrodata; International Strategy & Investment Group data
2015E
2014E
2013E
2011
2012E
2010
2009
2008
2007
2006
2005
2004
2003
2002
2000
2001
1999
1998
1997
1996
1995
0
record, compared with 1,626 in 2008. Measured on a per-rig basis, “that equates to
nearly four years of contracted backlog per
floater.” Only three rigs sit idle, and those
are older rigs not likely to re-enter the floater
market.
Ten additional floater rigs, including eight
newbuilds, are contracted to enter the deepwater Gulf of Mexico by second-quarter
2014. “Over the next 18 months, the Gulf of
Mexico floater market rig count will increase
by 23%,” they predict.
Jud Bailey, an analyst for International
Strategy & Investment Group, doesn’t see
the count stopping there. “We forecast the
deepwater rig count in the Gulf of Mexico to
grow from approximately 36 floating rigs
today to approximately 50 rigs by mid-2014,
and as many as 60 or more by the 2015-2017
time frame,” he said in a December report.
“In our view, while an increase in deepwater activity is widely expected, the magnitude of the increase is underappreciated.”
This leaves E&Ps-come-lately begging for
more. The scarcity has motivated contractors
to demand multiyear contracts.
“Given the tightness of the deepwater rig
market,” said Bailey, “operators have already contracted many of the rigs that will
likely go to work in the Gulf of Mexico
through 2014, and remain in active dialogue
about procuring additional rigs to begin
work in 2015 and beyond.”
released the rig as it was contracted for a single
project, and spent the interim re-studying seismic
and high-grading its vast portfolio of prospects.
“We stockpiled prospects,” Painter says.
When its new-build Ensco 8503 rig came out of
the yard before drilling had resumed, Cobalt
contracted it to French Guiana for six months.
Now the 8503 is drilling exclusively for Cobalt.
o date, Cobalt reports no production in
the Gulf of Mexico or in West Africa.
First production is expected from the
Anadarko-operated Heidelberg project in 2016,
in which Cobalt is a 9.375% partner, and
Shenandoah, also operated by Anadarko with
Cobalt in at 20%, projected to potentially come
online as early as 2017.
Going forward, the impetus is on operated
discoveries. “Not only do we have the discovery at North Platte, but we have four or five
other opportunities in that area,” says Painter.
“It’s a core area now that we’ve proven the Inboard Lower Tertiary works, and that this structure has oil in it.”
With one rig, Cobalt will follow North Platte
in 2013 with the Ardennes prospect, forecast to
spud in February, targeting both Inboard Lower
T
Leasing Spending, Majors vs. Independents
$2.5
The world’s largest offshore operator by production, Statoil SA has identified North America as its growth engine, with the deepwater
Gulf of Mexico the foundation of a portfolio including onshore U.S. shale plays and Canadian
oil-sands and offshore assets. Having made its
entry into the Gulf just eight short years ago,
the company today participates in half of the
top 10 deepwater developments: Tahiti, Caesar
Tonga, Jack, St. Malo and Big Foot. Now it
wants to operate.
“The one thing we’re missing is the operated
development,” says Jason Nye, Statoil senior
vice president of U.S. offshore. “We’re working toward that and have built a strong team to
prepare for that.”
With 40 years of international offshore experience and as a veteran of the Norwegian Continental Shelf, Statoil is looking to a Paleogene
prospect known as Logan to be its first operated
field. Located in the far southwestern corner of
Walker Ridge, Logan is projected to hold 1- to
Leasing Received, Majors vs. Independents
Independent
Major/National
Independent
Major/National
Lease Count
500
$1.5
$1.0
$0.5
400
300
200
100
0
2006
2007
2008
2009
Source: Quest Offshore Resources; BOEM
2010
2011
2012
Top, a fire safety
worker at the
ready as a
helicopter lifts
off from the
Noble Amos
Runner (seen
facing page) in
the deepwater
Gulf of Mexico.
Mission to operate
600
$2.0
$ Billions
Tertiary and Miocene with a 500-million-barrel
unrisked potential, then the Aegean prospect, a
three-way structural closure in Keathley
Canyon 163 also aimed at the Inboard Lower
Tertiary. “We’re circling the area with our
drilling the remainder of the year.”
These wells cost between $170 million and
$200 million gross, and take about six months
to drill at depths approaching 36,000 feet. Between the Gulf of Mexico and Africa, Cobalt
expects to spend $750- to $900 million in 2013.
Eleven additional operated Gulf prospects
await in 2014-2016. Depending on results, a
second rig could be contracted for appraisal
work, likely to begin in 2014.
Anticipation grows at Cobalt, as the next 18
months will be the most exciting in the company’s history, Painter says. “We’ve got a
group of wells to be drilled that any major
would love to have two or three of, yet we’re
going to drill seven or eight between the Gulf
of Mexico and Africa. It’s what we built Cobalt
for—we’ve had success, but 2013 should be a
banner year.”
0
2006
2007
2008
2009
Source: Quest Offshore Resources; BOEM
2010
2011
2012
Far left, the most
recent lease sale
in the Gulf
exhibits a
reversal in
spending, with
the majors vastly
outspending
independents.
But the latter still
outpace the
majors on total
blocks leased.
Above, James
Painter, Cobalt
International
Energy Inc.
executive vice
president, Gulf of
Mexico, says the
company’s North
Platte #1
deepwater
discovery on
Garden Banks
Block 959 is a
“large and
significant
opportunity.”
Facing page:
Whether funding
development or
exploratory
drilling, Miocene
or Lower Tertiary
targets, capex is
flooding into the
deepwater Gulf.
2 billion barrels of oil in place. An appraisal
well will be drilled in first-quarter 2013.
If successful, Logan will be fast tracked to
beat a 2015 lease expiry. “We’re excited because it’s our first operated development.
We’ve done a lot of front-end loading in anticipation of this appraisal well being successful,”
says Nye.
Heretofore, Statoil has built its presence via
nonoperated positions. Gulf of Mexico production stands at 32,000 barrels of oil per day,
down from 50,000 following a 2012 sale. Most
of that comes out of a 25% interest in the
Chevron-operated Tahiti Field, “a fantastic
field” that has produced a gross 100 million
barrels in 33 months, and Caesar Tonga
(23.55%), which came online in 2012.
Three sanctioned projects—the combined
Jack/St. Malo fields, and Big Foot, all Chevron
operated—are coming online in 2014. Julia and
Heidelberg are scheduled to be on production
in 2016.
tatoil anticipates leveraging its technological lessons learned offshore Norway to the
deepwater Gulf. In particular, the Paleogene play (also called the Lower Tertiary or
Wilcox) poses geological challenges in that it
tends to be deeper, less permeable and contains
dead oil void of gas, creating lifting challenges.
“We’re actually sanctioning these projects
with recovery factors less than 10%,” says Nye,
compared with Miocene recoveries of 40%.
“There is little natural drive.” Using techniques
such as water or gas injection, and multiphase
pumps on the seabed, “we think we can significantly increase recovery factors in these emerging Paleogene reservoirs to north of 20%,
essentially doubling recovery.”
He points to Jack/St. Malo, estimated to contain 5 billion barrels in place. “If you take that
from 10% to 20%, you just added 500 million
barrels. That significantly improves the economics and commerciality of these reservoirs.
Developing the technology is something we’re
quite good at, and is money well spent. Half a
billion barrels tends to be quite valuable.”
The Miocene and other plays can benefit as
well, he says. The Tahiti development is currently being water injected with 50,000 barrels
of water per day, the first Gulf of Mexico field
to see enhanced recovery techniques applied.
“Our view is we’re leaving a lot of resources
behind.” Even with added costs, “both here in
the Gulf of Mexico and back in Norway, these
tend to be very robust projects.”
Logan, if sanctioned, is likely to be developed from the outset to apply gas injection as a
second-phase development.
An emerging play that has captured Statoil’s
attention is the Norphlet. An extension of the
onshore play by the same name, Statoil has acquired 50 deepwater blocks on the eastern edge
of the Central Gulf. “If we’re right, it could be
quite large.” The Demon Star exploration well
is scheduled to drill in the next two years.
Statoil’s mission, he says, is to be a leading
S
Gulf operator with targeted production of more
than 120,000 barrels a day by the end of the
decade, perhaps much higher. The company is
directing more than $10 billion capex here to
reach that goal.
Two sixth-generation rigs are presently under
long-term contract, though sharing time. The
TransOcean Discoverer Americas just finished
drilling Candy Bars, a Statoil-operated,
Miocene discovery well, but it is being deployed to Africa for a four-well project. The
Maersk Developer is returning from another
operator to drill the Logan appraisal, and two
drill-ready prospects picked up in the most re-
cent lease sale, Thorvald and Martin.
“We’ll be rig short real quick with just a little
exploration success. We’ll need a third rig or
bring back Discoverer Americas for development drilling.”
tatoil ranks as the sixth-largest leaseholder
in the deepwater Gulf with $10 billion invested to date. “We’ve built up a healthy
portfolio,” says Nye. “Our path to operated development is through the drillbit. We plan to be
here for the long haul.”
Whether development or exploratory drilling,
Miocene or Lower Tertiary targeted, operators
and capex are washing into the deepwater Gulf
S
of Mexico.
“The U.S. Gulf of Mexico is at a pivotal period in its history,” says Quest Offshore’s Hillegeist. “The new order post-Macondo is
projected to see meaningfully larger capital
projects led by major oil companies’ appetites
for higher impact reserves.” Additionally, he
says, “expect action from a few select, highly
focused large independents that have significant
leverage seeking to expand proven recoverable
reserves through expanded infrastructure investments in the region.
“We affirm sight of a rising wave—get
ready.” 䡺