Of the 15,000 offshore wells forecast to be drilled worldwide over the next five years, North American offshore prospects will capture most of the money spent, and more of the wells will be in deep water, according to “The World Offshore Drilling Report,” published Thursday by London-based Douglas-Westwood.

Including both shallow and deepwater wells, producers will spend $189 billion total on nearly 4,500 exploratory wells, costing $75 billion, and 10,500 development wells, expected to cost $114 billion. Spending levels are expected to grow somewhat over the next two years and then decline slightly, stabilizing at about $37 billion a year.

The biggest change in the new forecast is the continuing growth in deepwater drilling, which contrasts with a long-term decline in shallow-water activity.

“In the last decade, reductions in available shallow-water drilling opportunities have been counterbalanced by increasing deepwater activity,” said Michael R. Smith of EnergyFiles Ltd., author of the report. “On average, around 3,000 to 3,200 offshore wells are drilled each year, of which 12% are now in deep waters. These are expected to increase to around 17% of all wells drilled in 2008, with $56 billion (30% of the total) forecast to be spent globally on drilling and completing deepwater wells over the next five years. This is an increase from $37 billion (22% of the total) in the previous five-year period.”

Africa and Latin America saw deepwater drilling expenditure exceeding shallow-water drilling expenditure for the first time in 2003, and the gap will increase in both regions through the forecast period. With the exception of the Middle East, where there is no deepwater activity, all other regions should see some shift from shallow to deep water.

“There will be significant changes in some regions,” said Smith. “North America, at $57 billion, will again have the highest share of the total [spending], increasing (compared to the previous five-year period) by $3.4 billion (6% growth) even though the total number of wells drilled will decline slightly.”

The deepwater and ultra-deepwater rig market is expected to remain at high utilization rates throughout the period, especially for drillships and fifth generation semi-submersible rigs with water depth rated greater 1,500 meters, Smith said. “Water depth capabilities will continue to grow beyond the current drilling record of 3,053 meters.”

In the shallow water, the report noted that the semi-submersible market will be generally weaker, but declines in the Gulf of Mexico and the North Sea will be counterbalanced by a pick-up in demand in West Africa, India and China, at least over the first two years of the five-year period.

“Demand for high-specification jack-ups is likely to remain strong as new gas projects are identified, particularly for Gulf of Mexico deep reservoir gas drilling,” said Smith. “Consequently, most new expenditure on drilling rigs is expected to be directed at upgrades of both jack-ups and floating rigs to allow faster drilling and deeper water and/or deeper reservoir drilling.”

Douglas-Westwood’s report found that drilling levels increased through the 1990s “in an environment of increasing energy demand and stable energy prices linked to improvements in technology.” However, over the next five years, drilling levels will become “opportunity-constrained,” and a slight decline of around 8% is forecast. The numbers of wells drilled and expenditures “may not increase dramatically even if there is real oil price growth.” Also, “better development wells mean fewer will be needed per field.”

The report also suggested “steady, rather than dramatic improvements, to drilling equipment and services” over the next five years. “These will facilitate wells to be drilled in more extreme situations, in greater water depths and reservoir depths, at higher temperatures and pressures and in areas prone to greater hazards. However, no radical new processes are expected to make a major impact on expenditure within the period.”

For more information on the report, visit the web site at www.dw-1.com.

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