High commodity prices will drive oil and natural gas industry spending in the offshore to a total of $380 billion between now and 2012, a 60% jump from the previous five-year period, Douglas-Westwood Ltd. reported last week.
The UK-based energy researcher issued its findings in the "World Offshore Drilling Spend Forecast 2008-2012." By 2012, the global drilling market "will be worth an estimated $80 billion, more than doubling since 2003," the report said.
Data derived from Douglas-Westwood's Energyfiles Global Database found that nearly 18,000 offshore wells have been drilled in the past five years. In the short term, offshore drilling will be "generally stable, but with a peak in 2010 and a slight dip in 2011," said Michael R. Smith, who manages the firm's database and helped write the report. Offshore drilling by 2012 ultimately will equal "a little over 20,000 [wells] for the period, representing a rise of 13%," he said.
North America's offshore drilling trails only the Asian offshore, and Western Europe is in third place, and "these areas are expected to continue to see higher drilling levels, although average numbers will decline significantly offshore Western Europe," Smith said.
The real growth story continues to be the move into deep waters, the report said. Douglas-Westwood found that in 2007, nearly $50 billion was spent on shallow water drilling compared with $18 billion in deepwater. By 2012, deepwater expenditures are expected to increase by more than 40%, while shallow water drilling will have risen by only 6%.
"Despite today's political environment there are still lots of offshore opportunities," said Smith. "Even with OPEC, activity is now increasing. Nigeria, Indonesia and Angola, the three OPEC countries with deepwater potential, are promoting outside investment [in their] basins. And countries around the Persian Gulf are drilling many more shallow water wells, as well as encouraging foreign companies to develop their huge gas reserves."
In the future, shallow water development spending is expected to be generally flat, "although [it] will show modest gains after 2010," said Smith. Some areas already are increasing on a global basis, he said. "But deepwater development drilling is increasing rapidly in all regions where fields have been discovered, supported by many ultra-deepwater projects now proceeding, especially in West Africa, Brazil and the Gulf of Mexico."
Spending for rigs has increased, but that's not where all of the money is going, said the report. Douglas-Westwood estimated that 37% of spending last year was billed by rig contractors, with just about 20% earmarked for support. Another 6% of spending was directed toward geoscience and the rest of the money was spent on well engineering.
"As the industry probes more complex geology, spending on anything related to longer and more tortuous well paths is expected to grow disproportionately to other technologies," Smith noted.
Still, obtaining offshore rigs is not cheap. Douglas-Westwood's Steve Robertson explained that "with oil prices more than quadrupling over the past five years, drilling rig utilization has reached close to 100% and maximum dayrates have soared from $225,000 to more than $520,000." A future offshore rig contract was recently obtained "at $637,000 for a large generation deepwater rig," he said.
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