Since the first Gulf of Mexico oil rig was built in 14 feet of water off Louisiana in 1938, offshore oil and gas companies have drilled deeper and deeper water to search for oil. black gold.
Oil companies use large floating platforms and drill ships to drill under thousands of feet of water, battling high pressure and extreme temperatures. In 2016, Total and Maersk Drilling drilled a well off the coast of Uruguay in over 11,140 feet of water, the equivalent of 11 Chase Towers stacked end to end and the deepest water in which a well has never been drilled.
But the tide is turning for deepwater drilling as offshore companies are crushed by two oil outages in five years and the outlook for crude demand deteriorates with the rise of electric vehicles and policies to combat change. climate. The coronavirus pandemic, which resulted in the worst oil drop in generations, is expected to accelerate the shift from deep to shallow water.
“I wouldn’t be surprised if companies were to abandon deep water because of the long-term risks and the sheer cost of the projects,” said Tom Kellock, director of offshore platform market consulting for IHS Markit. “As the environment becomes more uncertain, we might see a trend towards shallower water.”
A move away from deep-water drilling would have major implications for the offshore industry along the Gulf Coast, which employs tens of thousands of workers. Deep water drilling is generally more complex, time consuming and expensive, requiring three times the cost of its shallow water counterpart. Therefore, a decrease in deepwater drilling would mean smaller investments, shorter projects, and ultimately fewer jobs.
The shift to shallow water began long before the coronavirus pandemic wreaked havoc on the industry. Over the past decade, the share of offshore rigs under contract for deepwater projects around the world has declined, while those under contract for shallow water projects have increased, according to IHS Markit, a company of energy research.
The share of floating platforms used in deep water under contract worldwide fell to 24% this year, compared to 41% in 2012. On the other hand, the share of shallow water platforms under contract in the world grew to 76%, down from 59 percent in 2012.
Shallow water drilling occurs in less than 1,000 feet of water, while deep water drilling occurs in 1,000 to 2,500 feet of water. Offshore production in 2,500 to 12,000 feet of water is known as ultra deep water drilling.
“ Driven by the economy ”
Offshore oil and gas companies have drilled deeper water over the past two decades as older oil reserves in shallow water have depleted and seismic and drilling technology has improved.
The share of oil production from ultra-deep water wells in the Gulf of Mexico increased from 15% in 2000 to 52% in 2017. Last year, the Gulf of Mexico produced a record 2 million barrels of oil per day, just behind the shale. in the USA
Although much more expensive to drill in deep water, the billions of dollars spent up front paid off for oil and gas companies who could expect stable production over decades. When oil prices are high, deepwater production can be very profitable.
However, deepwater production has been challenged in recent years by the shale boom that has sapped resources from offshore projects and recent oil breaks that have put pressure on the sector.
“Deep water is driven by the economy,” said Ed Hirs, an energy economist at the University of Houston. “North of $ 70 a barrel, it made a lot of sense to pursue deep water projects. At $ 40 a barrel, not so much.
By the time oil fell to $ 40 in March, the number of floating platforms under contract worldwide was 131, about half the number at its peak in January 2014, when the price of oil was above $ 100 per barrel. After the pandemic swept across the United States in the spring, that number fell to 102, according to data from IHS Markit.
In contrast, the number of contracted platforms used in shallow water was 354 in March, up from 427 in September 2014. Since March, the number has fallen to 325 platforms, IHS Markit said.
Nonetheless, well-capitalized oil companies, such as Exxon, Chevron and Total, remain bullish on deepwater production, particularly from large untapped reserves off the coasts of South America, Africa and of the eastern Mediterranean. In January, Total called on Maersk Drilling to drill in over 11,900 feet of water, a record depth, off the coasts of Angola and Namibia.
Despite the recent oil crisis, offshore companies continue to drill in deep water. Hess said this month that he discovered oil under more than 6,000 feet of water off Guyana, adding to the 8 billion barrels of oil and gas reserves expected in the region. Apache and its partner Total made an oil discovery this year in 3,281 feet of water off the coast of Suriname.
The future of deep-water drilling, however, like that of the industry as a whole, looks uncertain as countries strive to cut carbon emissions and reduce the use of fossil fuels.
“I think there must be a growing reluctance to invest in long-term projects when you don’t know what the payment amount is,” said Kellock of IHS Markit. “When you start these deep water projects, you have no idea what you’ll earn when you start producing. You can’t cover yourself that far in advance. It is safer to go for a project with a shorter payback time. Who knows how much oil people might want in 30 years. “
“ Much cheaper ”
For now, however, offshore oil and gas companies are struggling to survive the economic fallout from the coronavirus pandemic. They idle offshore platforms, cut spending on new projects and restructure debt.
According to Rystad, a Norwegian energy research firm, offshore spending this year is expected to fall 80% to $ 20 billion, from $ 104 billion in 2019 commitments. At the worst of the 2014-2016 oil crisis, offshore spending fell to $ 38 billion.
According to oil services firm Baker Hughes and research firm Enverus, 15 offshore platforms operate in the Gulf of Mexico, up from 25 a year ago.
Offshore oil and gas companies are increasingly looking for oil in the untapped shallow waters they have passed through for the benefit of deep water projects. Improving seismic technology in shallow water is helping usher in a new wave of shallow water projects.
“Shallow water is significantly less expensive than deep water,” Hirs said with UH. “And now you’re going to get some really good prices on platforms and crews.”
EOG Resources is looking to build new production platforms next year in the shallow waters off Trinidad, where the Houston-based company has been in business for 27 years. EOG predicts that about a fifth of its natural gas production will come from the shallow waters of the shallow Columbus Basin in the Caribbean Sea.
“Production from this drilling campaign will more than offset natural declines from existing wells and provide a growth base for total EOG production in Trinidad,” said Ezra Yacob, executive vice president of exploration and of EOG production.
Talos Energy seeks to produce oil from its Zama and Xaxamani projects in the shallow waters off the coast of the Gulf of Mexico, which are estimated at more than 800 million barrels of oil and gas combined. The Houston offshore company is working with Mexican state oil company Pemex to reach an agreement on how it will jointly develop the projects.
Zama, discovered by a consortium led by Talos in 2017, is the first major discovery in Mexican waters after the country ended its 75-year-old oil monopoly and opened the country to foreign oil and gas investment. Zama’s discovery was made in the section operated by Talos in the Gulf of Mexico, but extends into the neighboring section owned by Pemex. Talos is now caught in the midst of geopolitical tensions as Mexican President Andres Manuel Lopez Obrador seeks to regain control of the country’s oil resources.
Despite the geopolitical challenges, Talos said he was optimistic about the shallow oil outlook off the Mexican coast. Zama is located in approximately 550 feet of water while Xaxamini is only 60 feet of water.
“Shallow oil, similar to what we found years ago as we were developing the Gulf of Mexico in the United States, appears to be all over the contract area not only where we found it, but also in other areas, ”Talos CEO Tim Duncan told investors during his last earnings call in July. “(This geological section) we really believe it’s under-explored and under-exploited here off the coast of Mexico.”