The search for more oil/gas reserves by E&P Companies will continue in as much as hydrocarbon continues to play a very vital role in our daily life. The depletion of onshore fields over the years has compelled oil companies to focus on shallow-water oil fields and later the ultra-deep water measuring about 5,000ft under very harsh environment. Interestingly, the ultra-deep water projects have been made easier with the advancement in subsea systems such as Remote Operated Vehicle (ROV), Floating Production Storage Offloading (FPSO), Tension Leg Platform, Spars and Compliant Towers.
Today, the World is about 40 years into the deep water era where huge success has been made as a result of advance in technologies such as subsea for exploration and production and the emergence of new concept in deep water complex environment. In the past, deep water projects were considered to be very expensive but the high crude oil prices in 2007 and 2008 made the economics of deep water project feasible. The global deep water project has grown over the past 25 years with increase in discoveries of about 30%-50% annually. In 2010, deep water discoveries amount to about 50% of the proved and probable hydrocarbon reserves.
Looking at the recent trend in deep water exploration and production, it is likely to show case two different trends in the near future. First, a shift to the unexplored arctic frontier of ice bound continental shelves; and re-exploration of the shallow-water with new technology, new images and new ideas. Until now, the ice-bound continental shelf and slope of the artic remains largely unexplored in spite of the fact that about 19 of the World’s rivers discharge into the artic which has formed huge tertiary delta systems. The Artic is perceived as the last pristine part of planet earth with specific technical challenges that need to be surmounted from engineering perspective.
The basic challenge is ice, low temperature and to lesser degree lack of day light for half of the year. As the ice-bound continental shelf (artic) exploration and production debate continues, the trend in the rest of the World will be dominated by three exploration trends as exploration and production companies re-explores the onshore and shallow water regions. Years to come, there will be exploration of frontier basins like Congo, Angola and Namibia; unexplored rock volume of existing basins and exploration for missed and tight play in and around the source rocks which had been previously avoided for reasons of pressure ramps, poor imaging and apparent play limitations.
The pace at which these trends play out is uncertain, however, it will be greatly influenced by some basic fundamental elements such as CAPEX of exploration and production companies, price of crude oil/shale oil, technology, resource quality and geopolitics. Capital expenditure (cost) for deep water project is a critical factor that E&P companies usually put on the table for proper evaluation and scrutiny before taking Final Investment Decision (FID) for deep water project under two distinct scenario – good time and not-too-good time. In good times, when the price of crude oil is stable, management of E&P companies’ often times take decision for exploration and production project without much delay due to sufficient fund but in not-good-time, such as down turn in crude oil price as experienced from June 2014 when crude oil price slumped from $115 to about $45 per barrel the FID could be delayed, put on hold or suffer outright cancellation if there is paucity of fund.
For instance, in Nigeria, about seven deep water projects are awaiting Final investment decision by the IOCs. The projects which are expected to commence in 2020 include Shell’s Bonga Southwest, Bonga North, Aparo, Eni’s Zabazaba-Etan, ExxonMobil Bosi, Satellite Field Development Phase 2, Uge, and Chevron Nsiko.
Technology will no doubt continue to play key role in the future trend of deep water projects considering the challenges which include harsh environment from the sea bed to the sea floor, low temperature, large blocks of ice and huge depth of hydrocarbon deposit. These challenges, however, require sophisticated technology such as subsea boosting and processing, ROV, ice-breaker vessels, FPSO, TLPs, deep water drilling rig, high 3D seismic imaging and hydraulic fracturing.
Geopolitics is another critical element that will determine the future trend of shallow water or deep water exploration and production as various Government in different countries deploy strategies and policies that could enhance the growth and development of its resources at lesser cost. This is evident from the time the US Government decided to increase its reserve growth by re-exploring established traditional producing areas with new technology and perspective by deploying hydraulic fracturing technology in horizontal wells which resulted to the shale gas revolution that increased its oil production.
Meanwhile, there are several critical challenges that is imperative in making decisions for deep water project development. Resource potential uncertainty is one of the key challenges in deep water development. A successful discovery of hydrocarbon can create a lot of excitement but the magnitude of the required investment for the next stage, and the need to maximize synergies for the deployment of infrastructure requires an accurate view of field potential to avoid sub-optimal decisions regarding the dimensions of the required infrastructure.
Availability of drilling rigs is another challenge that could militate against the development of deep water projects. In deep water development, drilling costs can account for over 60% total capital expenditures and deepwater drilling rig is difficult to acquire as there are usually long lead time for placement.
The selection and adoption of a technology concept for deepwater platform such as FPSO, semi-sub or Spar, is one of the most critical decisions during the planning stages of a new development.
Deepwater developments are prone to project delays and cost overruns. These delays and cost escalations during development can erode the economic returns of investments in deepwater opportunities.
Crude oil and natural gas transportation costs can be pretty expensive, particularly when the offshore production platforms are far from the coast with no pipeline infrastructure. The alternatives are FPSOs, tankers which require complex logistics. In some regions, the exposure to weather hazard such as hurricanes affects design considerations for deepwater developments. Since 2005, five major hurricanes have caused significant damages to the offshore development projects and this explains why FPSOs have been largely absent from this region. In view of these challenges confronting deep water development, it is imperative for government, regulators, operators and stakeholders to seek a sustainable solutions to boost and encourage deep water development.
Governments and National Oil Companies (NOC) need to carefully weigh the potential benefits and risks of national content requirements particularly where the use of a local contractor for drilling or other key activities could slow down developments.
The economic attractiveness of investment in deep water is controlled by the tax and royalty scheme of the host country. In many countries, the government recognize the complexities of these activities and implement special fiscal incentives for deep water developments.
Government should avoid delays in issuance of permits and regulatory approvals which often times cause deep water project delays and cost over-runs, these are issues that are more prevalent in emerging deep water regions where regulators are yet to come to terms with the players.
Regulators, operators of deep water projects should consider the environmental risks for deep water operation during planning and budgeting to reduce the relative costs of development and operation. In conclusion, as long as man continues to pursue his insatiable desire for oil/gas, years to come, more hydrocarbon reserves will be discovered in deep water through robust technology, a decline in success rate is inevitable.