Nearly $25 billion will be devoted to deepwater development every year between 2008 and 2012, and the North American region will account for more than 25% of the spending, according to a study by energy consultant Douglas-Westwood Ltd. The study confirmed some of the findings from the Minerals Management Service’s Gulf of Mexico (GOM) Lease Sale 205 held earlier this month (see NGI, Oct. 8).
The GOM lease sale secured the largest total revenue for lease sales since 1983, capturing nearly $3 billion in high bids, which was more than every single central GOM lease sale this decade combined and the most since 1983 ($3.4 billion). Nearly 40% of the bid tracts were located in ultra-deep waters of more than 5,000 feet, and the deepwater leases provided more than half of total revenues.
In its study, “The World Deepwater Market Report 2008-2012,” the UK-based firm said the deepwater oil and natural gas industry is set for continued growth, with more than 30% growth worldwide between 2008 and 2012 compared with the previous five years.
“Deepwater oil production currently accounts for almost 15% of total offshore production, but over the next few years its share relative to shallow water output will grow — accounting for around 20% of offshore production by 2011,” said Managing Director John Westwood.
Africa is forecast to be the leading development area for deepwater expenditures, accounting for about 40% of total spending. In Latin America, Brazil’s offshore waters will dominate, with national operator Petrobras pioneering the use of innovative technology to achieve production from “tremendous water depths,” said the consultant. Overall, the Latin American region will account for almost 20% of world deepwater development spending over the next four years.
“The North America region is expected to account for over 25% of deepwater development capex [capital spending] over the 2008-2012 period,” said Westwood. “With a few notable exceptions, deepwater fields in the U.S. Gulf of Mexico tend to be smaller than those in other deepwater ‘hotspots’ such as Brazil or West Africa. The region’s extensive offshore infrastructure and the relative proximity of supply and service centers have a significant influence on E&P [exploration and production] activity, turning otherwise marginal prospects into viable commercial propositions. These factors also mean that project lead times tend to be shorter than in other regions.”
The consultant noted that North America’s deepwater “saw a great deal of activity over the 2003-2007 period, including the completion of 192 subsea wells and 86 surface-completed wells. A total of 17 deepwater platform installations were completed and 6,725 kilometers (km) of pipelines were laid. This activity required some $26.6 billion of capital expenditures to complete.”
Over the 2008-2012 period, Douglas-Westwood anticipates “a good level of activity will be maintained” in the GOM. “Although there is a large reduction in total pipeline lengths installed (from 6,725 km to 3,677 km), increases in the cost of deepwater pipeline installation, as well as some larger diameter installations, in the Gulf of Mexico will compensate for this — with capex only reducing from $8.7 billion to $8.1 billion.
“This will form a large part of $27.4 billion capex for the forecast period — a 3% increase on capex for 2003-2007,” according to the study. “The deepwater floating production sector is, however, expected to be a growth area, with 19 units expected to be installed over the period, requiring a spend of some $6.4 billion.”
The “Golden Triangle” of deepwater — Africa, the GOM and the Brazilian areas — still will account for 84% of deepwater spending, “but the rapid emergence of Asia as a significant deepwater region should not be overlooked,” the study noted. “Indonesia, Malaysia and India all have development prospects on screen for the 2008-2012 period and the region should account for 10% of deepwater capex during this time.”
Raymond James & Associates energy analysts J. Marshall Adkins and Collin Gerry said deepwater bids in the GOM lease sale earlier this month were up more than 300% at $4.3 million. “Since 2003, we have seen a steady increase in the value paid for deepwater blocks, especially this year when the price tag took off. The primary driver here is the market’s belief in the sustainability of higher oil prices.”
Another possible reason for the huge growth in GOM deepwater spending may relate to Chevron Corp.’s “well publicized success in the deepwater arena last year through its Jack well discovery,” said the analysts (see NGI, Sept. 11, 2006). “This event proved that 1) the industry had the technology to go after ultra deepwater fields and 2) the hydrocarbon payout potential exists. As a result, bidding activity on deepwater leases exploded this year.”
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