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Boom in Offshore Spending Forecast to 2012

The frenzied search to find and develop new oil and natural gas supplies in ever more demanding areas, driven into high gear by escalating prices, will lead to a boom in capital and operational spending in the world's offshore regions, according to Douglas-Westwood Ltd. and Energyfiles.

The UK-based energy researchers estimated that from now until 2012 offshore capital spending worldwide would jump to $840 billion, well ahead of the $550 billion that was spent in the past five years. Operational spending in the offshore regions is forecast to increase to $715 billion through 2012 from $390 billion in the past five years. The forecast estimates are compiled by region and type of activity in Douglas-Westwood's and Energyfiles' "World Offshore Oil & Gas Production and Spend Forecast 2008-2012."

Offshore oil and natural gas production has risen rapidly in the past 10 years, and capital and operational spending is "responsible for the lion's share of spending in the upstream oil and gas sector," the authors said.

Using Energyfiles' global databases, the data indicate that oil output is expected to reach 30 million b/d in 2008, up 22% since 2000. Gas production has risen to 988 billion cubic meters/year, which is 55% higher than in 2000. Continued steady increases in oil production and escalating gas production up to 2012, "albeit hampered by extraordinary increases in costs," is forecast to drive industry offshore annual spending to more than $350 billion in 2012 from $250 billion in 2007.

"To attain such growth the industry will have to look and spend in every far-flung part of the world, but it is not only rising production that is driving spending," said Energyfiles' Michael R. Smith, the report's main author. "Costs have risen hugely in the last few years on the back of higher energy prices, and, of course, allied to the need to exploit much more expensive environments.

"Where a decade ago fixed platform developments in the North Sea, the shallow waters of the Gulf of Mexico and the relatively benign environments of the South China Sea attracted much of the spending, now billions are directed at expensive deepwater and deep reservoir environments -- usually using complex subsea solutions, remote gas developments and subsea wells that scavenge for satellite accumulations in the traditional areas."

The only "significant exceptions," Smith said, are the "low-cost" Persian Gulf and "moderate-cost" Caspian Sea. In the Persian Gulf region, OPEC countries are "dramatically" increasing their spending as they struggle to increase oil capacity and strengthen global liquefied natural gas "for which demand is rocketing."

Deepwater production additions are increasing in all regions where such prospects exist, the report noted. In particular, additions in West Africa have shown considerable growth. Meanwhile, shallow water additions are up only in the Middle East and in a "scattering of countries elsewhere," especially those with new marketed gas production.

"Deep water is also one of the few remaining situations offering potential for major oil discoveries," said Douglas-Westwood's Steve Robertson, head of oil & gas. "This is particularly important for the major international oil companies as their shallow water reserves deplete and the major onshore reserves are increasingly controlled by national oil companies. In the 1970s the oil majors controlled 80% of the world's oil reserves, but nowadays the 80% in controlled by state companies."

Smith added, "Whatever the reason for the high oil price right now -- and there are many related to both above and below-ground circumstances -- the end product is one of large profits and slowing oil demand in the developed world. But spending will just keep on going up because of the much more expensive developments that must be exploited. What's more, most of these high-technology sectors of the offshore industry will continue to be equipment and people resource-constrained."

Even with exceptional growth, "companies need to remain selective in the areas in which they concentrate and the services they offer and develop," said Smith. "When times are good, future direction often gets lost in the excitement of apparently ever-increasing profits. But with cash available, this is the very time when properly thought-out and focused strategies can be most effective."

More information on the report is available from publications@dw-1.com.

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