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Deepwater Spending Forecast to Surge in Next Five Years

Despite declining well numbers in many offshore regions around the world, drilling services will continue to attract a "flood" of cash, with deepwater expenditures -- especially in West Africa and the Gulf of Mexico -- nearly doubling in the next five years, according to Douglas-Westwood Ltd.'s latest worldwide offshore drilling forecast.

Michael R. Smith, who authored "World Offshore Drilling Spend Forecast 2006-2010" for the UK-based consulting firm, said a lack of places to drill in shallow water is moving more operators to the deepwater. But deepwater exploratory drilling, which grew rapidly until 2001, "has been rather flat due to a shortage of new areas to exploit" with available technologies. By the end of the decade, Smith said new technologies will move more operations to deepwater, and the money will follow.

The shallow-water decline is driven by a "global shortage of opportunities," Smith said. "There is no reason why the international oil industry, beyond the limited ambitions of national oil companies, would put capital into expensive, technologically demanding deepwater projects, if cheaper, conventional shallow-water ones could offer the same profitability. This is not a government-driven shortage resulting from poor investment terms... There are simply fewer and smaller undiscovered or undeveloped oil and gas fields in shallow waters."

In North America, Smith told NGI "just over 4,600 wells were drilled offshore...from 2001 to 2005, " with 93% in the Gulf of Mexico. About 2,800 exploratory development wells are forecast for the Gulf of Mexico over the next five years, with around 18% in deep water. "North America attracts the highest volume of drilling spending in the world. All forms of spending are increasing, but deepwater development is leading growth, forecast to more than double over the next five years."

Worldwide, Smith estimated that $160 billion was spent on shallow-water drilling from 2000 to 2005, representing 83% of all drilling expenditures. Another $33 billion was spent on deepwater drilling in that time period. The report estimated that more than $195 billion will be spent in the next five years on shallow-water prospects while deepwater drilling will almost double to about $65 billion.

Increases in deepwater spending relative to shallow water drilling will be substantial, according to the report. Shallow-water spending has increased "almost solely because of rising prices and rising unit costs," while deepwater expenditures "reflect a real increase in activity, especially after 2007. This is of global importance to rig contractors and associated drilling services. From a mere 2% of global expenditure in 1991, almost all located in Brazil, the deepwater share had increased to 19% by 2001 and is forecast to reach nearly 30% by 2010."

To learn more about the spending forecast, visit www.dw-1.com, or contact Smith at www.energyfiles.com.

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