US GOM: Rig market stalls development
Despite a rush to build new vessels, a lack of ultra-deep-water drilling units will hinder GOM development for at least four years, writes Anne Feltus
SIGNIFICANT discoveries and technological advances have lowered the cost of exploiting reserves and fuelled interest in the US Gulf of Mexico's (GOM) ultra-deep waters. In recent years, tracts in waters at least 2,000 metres deep have attracted around a fifth of successful bids at US Minerals Management Service (MMS) lease sales.
The number of wells drilled in water depths ranging from 1,500 to 2,300 metres has nearly doubled in the last two years, says the MMS – in mid-2007 a record 15 rigs were operating in water depths of at least 1,500 metres. And the pace of activity in deep offshore US waters could pick up further if Congress lifts a 27-year-old ban on drilling off most of the country's coast.
But oil companies face a formidable obstacle as they attempt to progress with projects: a shortage of rigs capable of ultra-deep-water drilling that has persisted since 2006. Tight market conditions, not only in the GOM, but also in deep-water provinces such as India, Brazil and Mexico, has intensified competition for drilling vessels to the point that almost every available rig is leased. Although shipyards worldwide are swamped with orders for newbuilds, the shortage is expected to last for several more years.
Record-setting day rates
Demand for ultra-deep-water drilling rigs has driven day rates to all-time highs. At the start of the summer, for example, Transocean, the world's largest offshore drilling contractor, signed three lucrative leases. In July, Eni signed a five-year contract for the firm's Deepwater Pathfinder drillship to operate primarily in the GOM at a record day rate of $0.65m. Eni also booked the Transocean Marianas for a two-year contract in the GOM at $0.57m/d; previously, the deep-water semisubmersible had been rented to BP at a rate of $446,000/d.
Then, in June, Transocean renewed its contract with BP for the semisubmersible GSF Development Driller 1, to work in the GOM for five more years at a day rate of about $0.58m. These levels are around three times higher than those seen in 2007 says Terry Bonno, Transocean's marketing and planning vice-president. And Bonno predicts that availability will remain limited in 2009 and 2010. "We would not be surprised to see day rates continue to rise, " he says.
Rising demand and resulting high day rates have brought a new drilling contractor to the GOM. In July, Norwegian Seadrill Management's ultra-deep-water semisubmersible West Sirius was delivered to the region from Singapore's Jurong Shipyard and began operations for ATP, which is subleasing the rig from Devon Energy. Devon has a six-year, $469,000/d contract for the $390m, sixth-generation rig.
Both Transocean's Deepwater Pathfinder and Seadrill's West Sirius rank among less than a few dozen vessels worldwide equipped to drill in the GOM's newest energy frontier: waters up to 3,048 metres deep. Available rigs in this category have been scarce since 2004, when Brazil's Petrobras began an ambitious ultra-deep-water-rig leasing programme. Motivated in part by the late-2007 Tupi discovery, in the Santos basin, Petrobras has reportedly locked in about 75% of the global ultra-deep-water rig fleet with contracts and extensions totalling up to 20 years. It also has contracts on several vessels under construction.
Newbuilds on order
Demand for ultra-deep-water drilling vessels has stimulated a rig-building boom. At the Offshore Technology Conference in Houston in May, MMS director Randall Luthi said more than a dozen new rigs capable of drilling in 3,048 metres of water are expected to move into the GOM during the next few years.
In the past three years, Transocean has ordered 10 new ultra-deep-water units for delivery between early 2009 and the end of 2010. Three of the four enhanced versions of the company's existing Enterprise-Class drillships – being built by Daewoo Shipbuilding and Marine Engineering in South Korea – are destined for the GOM. StatoilHydro has signed a four-year contract on one of them, the $0.62bn, dynamically positioned, dual-activity Discoverer Americas, commencing in 2009.
Chevron has agreed to five-year leases on two others, the $0.65bn Discoverer Clear Leader and Discoverer Inspiration, beginning in 2009 and 2010, respectively. These twin vessels are designed to operate in waters up to 3,048 metres deep and can be upgraded to work in 3,658 metre-deep seas – well beyond the previous water-depth drilling record of 3,051 metres set five years ago by Transocean's Discoverer Deep Seas.
The drillships will play an essential role in the development of Chevron's assets in the Lower Tertiary Wilcox trend, which could hold as much as 15bn barrels of oil in water depths between 1,500 and 3,000 metres. Chevron has made six discoveries in the formation and plans to assess the potential of at least 30 more prospects.
Transocean is not the only drilling company with ultra-deep-water units scheduled to leave construction yards for the GOM. In August, Ensco International selected Singapore's Keppel Fels to build the $0.56bn Ensco 8506 semisubmersible, designed for development drilling in water depths of up to 2,600 metres. The rig will work under contract with Anadarko and Eni from the second half of 2012. Ensco has three other Ensco 8500 Series semisubmersibles on order from Keppel Fels that will head for the GOM between early 2009 and third-quarter 2010.
Pride International, one of the world's largest offshore drilling companies, laid the foundation for establishing its first foothold in the ultra-deep-water GOM when it signed a five-year, $0.98bn contract with BP for a $0.73bn drillship; the contract will begin in 2010. The unnamed vessel, under construction at Samsung Heavy Industries Geoje shipyard, South Korea, will be capable of drilling in water depths of almost 3,700 metres.
Petrobras, too, has a number of deep water and ultra-deep-water rigs under construction, some of which will end up in the GOM, where the company has built a portfolio of more than 330 tracts and has participated in several significant discoveries. But just as Petrobras' leasing efforts have tightened the supply of existing premium rigs, its ambitious newbuild programme is also hindering competitors' rig-construction plans.
According to Kevin Robert, Pride International's senior vice-president, marketing and business development: "Petrobras' programme to build a large number of rigs at shipyards in Brazil between 2013 to 2017 is likely to affect the availability of components needed to build new rigs for other clients."
That is bad news for companies that want to bring deep-water discoveries on stream in the GOM in short order. Even with the record number of newbuildings coming out of the shipyards, it is unlikely that the supply of ultra-deep-water drilling rigs will catch up with the demand for at least four more years.