Archives for posts with tag: discoveries

While offshore production activity in Myanmar began in 1998, deepwater E&P in the country is arguably still nascent. However, recent deepwater gas discoveries off Myanmar seem to have bolstered the confidence of oil companies sufficiently for them to start planning deepwater drilling campaigns, in spite of weaker energy prices. Could these first steps be indicative of Myanmar’s deepwater E&P potential?

For the full version of this article, please go to Offshore Intelligence Network.

Advertisements

As a result of weaker oil prices and E&P spending cuts, offshore exploration is severely challenged. This is reflected in the fact that discoveries are down 47% y-o-y on an annualised basis so far in 2016, global rig utilisation has dropped 22 percentage points to 73% in two years, and 29% of seismic units are inactive. But it is also reflected in a perhaps less prominent element of exploration, namely, block awards.

Block Basics

The basic framework for offshore exploration is provided by blocks. Blocks are areas in which specific oil companies (the licensees) have set E&P rights and obligations with respect to one another and the host country over a specified period. As at April 2016, oil companies hold 10,968 offshore blocks (with an average area of 996 km2) globally. As a general rule, each block will have an operator company, but also several more companies with equity in the block. This allows oil companies to spread the risks of E&P.

Blocks may be awarded to oil companies on a one-off basis but are usually awarded through well-publicised, semi-regular licensing rounds, for example Norway’s ongoing ‘23rd Licensing Round’. Indeed, at present eight offshore rounds are in progress, covering 55 blocks. However, oil company uptake is looking lacklustre and it is expected that, given low levels of interest, a very small percentage of these will be awarded. Just 102 offshore blocks have been awarded so far in 2016, down 38% y-o-y on an annualised basis on a poor 2015. By way of comparison, 1,162 offshore blocks were awarded in 2013.

Acreage Accumulation

In part, this situation reflects reduced E&P spending (exploration budgets are relatively easy to cut). But it also reflects something of a block ‘asset bubble’ in the 2010 to 2014 period, in which 5.99 million km2 of offshore acreage was awarded. Supported by a high and stable oil price, many oil companies stocked up on frontier acreage, engaging in bidding wars for key blocks, driving up prices. For example, in a battle for a 8.5% share in Area 1 off Mozambique in 2012, the block was implicitly valued at c.$14 billion (and East Africa was just one of several frontiers opened up in this period). Oil companies thus acquired a great deal of relatively costly offshore acreage in a short period.

Exploration Excesses

On the plus side, the exploration boom of 2010 to 2014 yielded 765 offshore discoveries, including many large finds that are likely to drive future offshore production growth. However, block oversupply, analogous to that in segments of the offshore fleet, built up. As the two graphs show, the peak of the latest block awards cycle coincided with a 2013 peak in ordering of rigs (117 units) and seismic capacity (104 streamers). Just as there is a supply-demand imbalance in the seismic and rig markets, so too is there in blocks. Oil companies are now sitting on a backlog of unexplored blocks, with fewer incentives to bid for new acreage (though strategic investment in Iran or deepwater Mexico might still happen).

So licensing reflects the broader exploration situation, with block awards and vessel contracting showing similar trends. This being the case, a future rise in block awards could perhaps presage a general recovery in exploration. In gauging exploration sentiment then, upcoming licensing rounds could well be worth monitoring.

OIMT201604

OIM08In 1947, the first offshore oil discovery was drilled out of sight of land. Albeit only 29km away from the Louisiana coastline, and in water depths of just 4.3m, this achievement began an new era of offshore oil production. The movement of offshore operations into deeper and more remote regions has been previously documented by Clarkson Research, and as this trend continues we take a look at how the industry has prepared for this development.

Deeper and Darker

The Graph of the Month shows the trend in the characteristics of all known offshore oilfields against their year of discovery. As the more accessible fields became less available and less productive, companies moved further offshore and into deeper waters. In 1970 the average distance from shore of known oilfields stood at 60km, with the average water depth being 54m. By 2013 the average distance to shore had more than doubled to 134km, and the average water depth was 15 times deeper at an impressive 876m.

As well as increasing average water depths and distance to shore, many newly discovered fields are also in areas designated as harsh environments. Vessels operating in these frontier regions may face adverse weather conditions, longer periods of deployment and greater demand for capacity in order to maximise their efficiency.

Building for Tomorrow

In response to these more challenging requirements, the offshore industry has already altered its contracting preferences. One example of this is the trend in newbuild contracting of PSV vessels. Large PSV (>4,000 dwt) newbuild contracting in 2012 was almost 5 times higher than the number of contracts in 2009. In comparison small PSV (<3,000 dwt) newbuild contracting has decreased by 14% in the same period. The average deadweight of PSV contracted increased by almost 60% between 1990 and 2012, from 2,500 dwt to 4,000 dwt.

Another example of the offshore industry’s response to the increased water depths of newly discovered fields can be seen in the volume of newbuild orders for drillships. At present the number of drillships on the orderbook stands at 80, which is 88% of the current active fleet. In comparison to this the orderbook for Jack-Up rigs capable of drilling up to 300ft is just 13 units, a mere 4% of the existing fleet, highlighting the move from low specification, shallow water drilling units towards higher specification, deep water rigs.

Further Preparations

Whilst newbuilding of higher specification units has increased, some exceptions do remain. For example, ordering of ice class vessels has slowed in recent years despite an increase in Arctic exploration. Whilst this is still a developing sector which could fuel medium-term contracting demand, it is understandable that the recent focus of contracting has been on units intended for warmer waters. This is where the majority of deep water discoveries have occurred, and is the reason the offshore industry is gearing up for remote drilling accordingly.

201306-OIMTHistorically offshore oil and gas production has been concentrated in regions like North America and NW Europe, which together account for 52% of world active offshore fields. However, to supply growing demand and offset decline in mature fields, offshore oil and gas companies are today exploring prospects in previously untouched regions, basins and plays: hydrocarbon frontiers.

New Frontiers

The Graph of the Month illustrates the emergence of 4 such offshore frontier regions since 2008. The South Atlantic Margin, including Brazil and conjugate pre-salt basins in West Africa (Gabon, Congo, Angola and north Namibia) is the most established of the new frontiers, accounting for 13 discoveries back in 2008, rising to a peak of 27 in 2011. The Levantine Basin in the eastern Mediterranean, apportioned between Israel, Cyprus and soon Lebanon, has seen 2 discoveries in each of 2011, 2012 and 2013-to-date, though following gas finds like Leviathan and Aphrodite, explosive growth is likely.

The Equatorial Margin frontier, including French Guiana, Liberia, Sierra Leone, Ivory Coast and Ghana, mostly consists of cretaceous fan plays. The region has exhibited a rapid growth in exploration activity, with 10 discoveries in 2011 and 11 in 2012, compared to just 2 in 2008. The East African offshore frontier (Mozambique, Tanzania and Kenya) began to emerge in 2010 and 2011, with significant discoveries like the Prosperidade and Mamba gas-rich turbidite sand complexes giving impetus to exploration such that discoveries in 2012 increased by 150% year-on-year to 10. In total, the 4 frontiers in 2008 accounted for 16 discoveries, or 10% of global offshore finds; in 2012 their 46 discoveries represented 33% of world offshore finds.

Plumbing the Depths

The main thing these frontiers have in common is water depth. The mean water depth of discoveries made in these areas since start 2008 is 1,489m. Of the 173 discoveries, 86 (49.7%) were made in ultra-deep waters of more than 1,500m. These areas account for 59.7% of global ultra-deep finds in the period. Moreover, there has been a clear trend upwards since 2010. The mean water depth on a yearly basis has risen from 1,000m to 1,609m in 2012, with 2013 on track to roughly equal 2012. The only area of those featured with a significant number of shallow water discoveries is the South Atlantic Margin, with 40 (36.7%) finds in less than 500m, mostly minor Brazilian fields. East Africa, where exactly 50% of discoveries have been ultra-deep, has the highest mean water depth for discoveries in the period, at 1,533m.

Mapping the Future

Global demand for hydrocarbons continues to grow: oil demand rose 45% in non-OECD countries 2002-12, reaching 43.6m bpd. Given this trend, the evidently favourable geology and the advancing state of deepwater technology, the exploration and development potential of these 4 offshore frontiers augurs well for not only pioneering E&P companies, the majors and national oil companies who have started to work the frontiers, but also shipyards and owners of high-spec units capable of operating in ultra-deep waters.