A Closer Look at Worldwide Deepwater Drilling

Given that oil prices remain constructive, we may see some tightening for deepwater rig fixtures in the coming months. Crude futures averaged nearly $103 for the month of March. That is up nearly 15 percent from February's average of $90 per barrel.

While there is some slack created by uncertainties in the Middle East and North African markets, the bottom line is that the current price environment creates ample operator-incentive to increase budgets in any region where drilling is feasible.

Currently, there are 206 rigs under contract out of a total supply of 261 floaters, which amounts to 78 percent utilization across the globe. Even though utilization has not been ideal, dayrates for floaters are beginning to improve.

However, we note that there is some bifurcation as drillships and rigs capable of working in the deepest environments pull the average up. In the past year average dayrates for drillships have climbed from $390k/day to approximately $430k/day. Conversely, semisubmersible dayrates have held steady at approximately $360k/day.

Over the past five years, drillships have commanded a 6 percent premium relative to dayrates for semisubmersibles. During March 2010, the disparity between the two mirrored the 6 percent average. Since then, the gap has widened and is currently at a 23 percent premium. Standby rates, for rigs waiting on location in the Gulf of Mexico, are exacerbating the situation. Nine of the twelve rigs waiting on location in the GOM are semisubmersibles.

While the overall mix of floaters favors semisubmersibles, which account for three-quarters of the fleet, the mix among ultra-deepwater assets is more equitable. Of the 92 rigs capable of operating in water depths of 7,500' or greater, the mix is 55 (semis) to 45 percent (drillships).

In the next three years we expect 60 newbuild ultra-deepwater rigs to enter the market. Considering that only 20 of these newbuilds are semisubmersibles, the mix will have reversed itself to favoring drillships (53%/47%) by the end of 2013.

Oil Clears $110

The recent surge in oil futures showed no sign of abating Thursday as the commodity ended the day at $110.30 a barrel.

The $1.47 day-on-day gain followed a report by NATO that Libyan forces loyal to Colonel Gaddafi have attacked the Sarir oil field, resulting in a fire at one or more oil facilities nearby. Earlier Gaddafi had blamed NATO coalition forces with setting the fire, but the mission's commander denied the accusation.

"We have never conducted strike operations in this area because his forces were not threatening civilian population centers from there," said Lieutenant General Charles Bouchard, Commander of NATO's Operation Unified Protector, in a written statement. "The only one responsible for this fire is the Gaddafi regime and we know he wants to disrupt oil getting to Tobruk," where terminal and port facilities are located.

Also providing a boost for crude oil was a report by the U.S. Labor Department showing a decrease in first-time jobless claims for the week ending April 2. According to the agency, the advance figure for seasonally adjusted initial claims for unemployment insurance fell 2.5 percent week-on-week to 382,000. For the same period last year, the number of claimants was 472,000.

The price of May crude fluctuated from $108.23 to $110.26 Thursday.

Moderating temperatures throughout the eastern half of the U.S. contributed to a nine-cent drop in natural gas futures Thursday. Natural gas for May delivery settled at $4.06 per thousand cubic feet after trading within a range from $4.03 to $4.16.

May gasoline held flat at $3.19 a gallon Thursday. It peaked at $3.20 and bottomed out at $3.16

Onshore Oil Helps Fill Gap from Gulf

A spill-related slowdown in the Gulf of Mexico could cut into oil production from the offshore basin for several years. But a number of emerging oil fields onshore, once thought out of reach, are helping the U.S. fill in the gap in the meantime.

Oil and gas companies, using techniques mastered in recent years to produce natural gas from shales and other dense rocks, are now having success extracting big quantities of oil from tight rock formations stretching from Texas to North Dakota.

Amid steadily high oil prices and a U.S. market saturated with low-price shale gas, they've had ample incentive to try.

In 2010, when an offshore disaster dominated the news, rising output from such fields -- including North Dakota's Bakken Shale and the Eagle Ford Shale play in South Texas -- quietly helped domestic crude oil production rise for the second year in a row, after years of declines.

Production also rose in the Gulf, where several new pro-jects ramped up output. (A federal moratorium on deep-water drilling, which lasted for five months after the Deepwater Horizon accident, did not apply to producing platforms.)

Bigger contributions from U.S. onshore fields arrive at a good time. Due largely to moratorium-related delays, oil production in the Gulf will fall by 240,000 barrels per day this year and another 200,000 barrels per day in 2012, the U.S. Energy Information Administration forecast last month. Higher production from onshore fields will help offset the declines.

"That's sort of the silver lining," said Bob Fryklund, vice president of research at IHS-Cambridge Energy Research Associates.

How long that disruption in the Gulf will last remains an open question. Though the deep-water moratorium was lifted in October, regulators so far have approved just nine permits for deep-water drilling activities that were covered by the ban. As a result, projects representing 400,000 barrels per day of production over the next five years are being pushed back from their original start dates, Fryklund said.

Rising output from onshore fields, however, could help keep total U.S. oil output flat or possibly higher in 2011 and over the next several years, he said.

Complex rock

Onshore fields, both old and new, are yielding more oil with the help of technology advances in drilling and production methods that have made complex rock formations more accessible and lowered development costs.

"Geologists have known that oil was there for years," said David Kirsch, industry analyst with PFC Energy. "It was just a question of how to get it out. It's a combination of project economics and technology coming together to make it viable."

The Bakken shale, for instance, could hold more than 4 billion barrels of undiscovered, technically recoverable oil -- a 25-fold increase over what could be recovered in 1995, according to the U.S. Geological Survey. Other emerging U.S. oil fields include the Granite Wash, from North Texas into Oklahoma .

In addition, advanced drilling and extraction methods are boosting production in mature fields such as the Permian Basin in West Texas.

Greg Garland, ConocoPhillips' senior vice president of exploration and production for the Americas, recently said the company's Permian properties increased output last year -- by 5,000 barrels per day -- for the first time since 1972. "Horizontal drilling, these advanced fracturing techniques, are literally breathing new life into some of these old fields," he said.

In 2009, domestic oil production rose for the first time since 1991 as increases from deep-water fields in the Gulf and tight oil plays onshore like the Bakken overshadowed declines elsewhere.

Output hit 5.36 million barrels a day, up from 4.95 million barrels a day the year before, according to Energy Department figures. Last year, the trend continued, with production climbing to 5.51 million barrels per day.

Reduced imports

The gains have helped reduce U.S. oil imports, though the nation remains a long way from energy independence as Americans consume more than 18 million barrels of petroleum products a day.

The Obama administration has cited the production gains in answer to oil companies' complaints over the past year that the drilling ban and permitting delays in the Gulf have brought the U.S. oil and gas industry to its knees.

But critics say the administration is unfairly taking credit for rising production and falling imports when offshore projects coming onstream now were launched before President Barack Obama took office. And onshore gains are chiefly due to tight rock oil plays located on private and state lands, not federal.

by  Brett Clanton

|

Houston Chronicle

BOP

A blowout preventer (BOP) is a large valve at the top of an oil drilling well that may be closed by the drilling crew. By closing this valve (usually operated remotely via hydraulic actuators), the crew can avoid overpressure from fluids entering the wellbore and threatening the rig. By closing the BOP, the drilling crew usually regains control of the reservoir, preventing explosive pressure release, and procedures can then be initiated to increase the mud density until it is possible to open the BOP and retain pressure control. "Mud" is a term familiar to those of us who work consistently in offshore settings or on vessels. Mud refers to the drilling fluid used in drilling operations. The invention and use of BOPs were instrumental in the end of oil gushers, which were dangerous and costly.

BOPs come in a variety of styles, sizes and pressure ratings. BOPs are critically important to the safety of the crew, the rig and the wellbore itself. Therefore, they must be inspected, tested and refurbished at regular intervals. Experts must assess risks at each individual location of a BOP to determine when and how the device should be repaired or changed out. Local practice and well type also contribute to the overall decisions regarding safe practices with BOPs. Of course, as maritime lawyers know, there are also legal requirements for BOP testing and maintenance. This testing can range from daily function testing on critical wells to monthly or less frequent testing on wells thought to have low probability of well control problems.

The drilling crew that works with BOPs and operate the offshore drilling rig typically consists of roustabouts, roughnecks, floorhands, lead tong operators, motormen, derrickmen, assistant drillers, and the driller. Since drilling rigs operate around the clock, there are at least two crews (twelve hour work shifts called tours, more common when operating offshore), or three crews (eight hour tours, more common onshore).

OSHA, the federal agency charged with occupational safety, has a web page devoted to safe drilling practices and on this page the agency lists suggestions. They list blowout prevention as a concern and suggest the following to assist with making offshore drilling work safer:

1. Appropriate training for tasks performed, including pressure concepts and calculations, well control procedures, and regulatory information (to name a few).
2. Use of appropriate well control equipment including specification, installation and maintenance.
3. Monitoring and maintaining the mud system because each part of this system must function and be in good repair to maintain well control. This would include properly training crewmembers in monitoring and well control procedures.
4. Testing BOPs
5. Properly maintain the surface control system
6. Wear appropriate personal protective equipment
7. Implement injury awareness training

Fuel For Thought - 6 April 2011

Weekly Newsletter - 6 April 2011 FUEL FOR THOUGHT PEMEX announced the discovery of a new oil field located 10km from the city of Comalcalco... Read more Steel cutting ceremony of newbuild NB293 took place in March 2011... Read more Laidlaw Energy Group acquired a power plant located at the former Polaroid facility ... Read more TAG Oil confirmed the Sidewinder-3 exploration well as a light oil and gas discovery ... Read more Energy News, Careers, Analysis & Technology - 24 / 7 / 365 Zola-1 a hit for Santos Block partner Santos announced the Zola-1 exploration well offshore Western Australia had intersected over 100m of net gas pay sands over a 400m gross interval in the Mungaroo formation. Flaring wastes 5% of world's gas output A new report estimates that flaring of unused gas wastes about 5% of the world's annual production while emitting 400 million metric tonnes of CO2 per year. Ophir chalks up Tanzanian find with Chaza-1 Ophir Energy found gas with its Chaza-1 exploration well offshore Tanzania. Statoil Skrugard wildcat pays off Statoil announced finding between 150 million and 250 million boe of recoverable hydrocarbons at its Skrugard prospect in 370m of water in the Barents Sea. A week to ten days Oil will one day run out, but in this fictional account, the tap's turned off not long in the future, but next month. It's a short story penned for BH by Chris Cleave, the author who won the Somerset Maugham Award. Petrofac working on Majnoon EPS Shell has awarded Petrofac a contract valued at over $240 million to provide engineering, procurement, fabrication and construction management services for a new early production system (EPS) for the Majnoon field in southern Iraq. Fuel your Career in 4 Easy Steps! The OilOnline Energy Career Center is committed to providing you with the best online employment experience within the world of energy. To get started, please Login to the site or Register as a Member. Once you are logged in, you will be able to view Job Postings or Post Your Resume. There is never a charge to register on the site or post your resume. Employers and recruiters are encouraged to register and post their current job openings at no cost during the 30 day free trial period. Send us your comments and suggestions for improvement. We're listening and throughout April will continue to implement the following improvements to the Energy Career Center: The Recruitment Center Resume matching and sorting based on score My saved resume searches Edit my employer profile Employer directory Usability enhancements The Career Center My saved searches Employer directory Usability enhancements Maersk dives into ultra-deep market Maersk Drilling will invest $1.3 billion in two new Samsung Heavy Industries-built ultra-deepwater drillships, the first in the company's fleet. Lundin find at Tellus Lundin Petroleum's Tellus well 16/1-15 offshore Norway found oil in a 50m column, confirming that the discovery is likely a northern extension of the Luno field. Obama's Empty Gasoline Tank All of the President's -- from Richard Nixon to Barack Obama, who has just joined the club -- have wrung their hands and exhorted Americans to use less oil in general and less foreign oil in particular. Total, CNOOC farm-in to Uganda blocks Tullow Oil is selling two-thirds of its interest in three blocks in Uganda, with CNOOC and Total each purchasing one-third interest in each of the blocks. Offshore Engineer EVENTS Deepwater Intervention Forum - "The Next Steps, the New Reality" 16-18 August 2011 - Galveston, Texas www.deepwaterintervention.com - Deepwater Intervention forum will expand into Subsea Technologies allow which will allow for more presentations and exhibitors to participate. In its 7th year, the forum understands the critical needs areas for Subsea Technologies and Intervention tools. Read more Drilling & Completing Trouble Zones - "Challenging Problems, Collaborative Solutions" 25-27 October 2011- Galveston, Texas www.drillingtroublezones.com - Schlumberger has committed to the Title Sponsor for the DCTZ workshop which will focus on all areas of horizontal drilling with problem solving leaders and quantifiable results. Read more Emerging FPSO Forum - "On the Horizon" 20-22 September 2011 - Galveston, Texas www.emergingfpso.com - The following FPSO experts will speak at the Forum Joe Lovett - SBM; Boyd Howell - MODEC; Claude Rouxel - BW Offshore; Alastair Trower - Welaptega; and David Rosenberg - IPA Plus representatives from USCG; BOEMRE; Arctic Securities; Douglas Westwood; Ziff Energy; Helix Read more OilOnline at OTC 2011 2-5 May 2011 - Houston, Texas Update your diary to include a visit with the OilOnline team on booth 4565 at the Offshore Technology Conference, May 2-5, Houston, Texas. We'll be there to answer questions or help you create an account, upload your resume or job openings. We'll have really cool OilOnline branded coffee mugs, wipe cloths, pens and carrier bags so you can transport it all home!

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