Bright spots in the offshore gloom
When prices recover, a wealth of offshore opportunity awaits
In the midst of a price slump which has harmed the viability of projects around the world, it can be difficult to appreciate the potential for upside. However, look hard (and longer-term) and it can be found. Here are the bright patches that should be on the radar.
TRY to forget the Petrobras scandal and Brazil's political meltdown, for the moment. International oil companies remain wedded to highly prospective offshore oil and gas reserves estimated at up to 100bn barrels of oil equivalent. Shell (thanks to BG), Total, ExxonMobil, BP and others are pushing ahead with projects. And it's not just because abandoning them could result in hefty fines. Oil production from Brazil's pre-salt averaged 874,000 b/d in February 2016, according to Petrobras. That figure could roughly double by 2020 − depending on investment levels − according to sources.
GAS reserves offshore Mozambique and Tanzania total more than 200 trillion cubic feet. Domestic markets will hope to benefit from some of this. Mozambique looks primed to build the region's first liquefied natural gas-export terminal by around 2020, and a Tanzanian project could follow a couple of years later - by which point, ideally, the global glut of supply will have been absorbed. ExxonMobil could be the next international oil company (IOC) to enter the market, rumoured to be eyeing a stake in Eni's Area 4 of Mozambique, where a floating project is planned, though a completion date is yet to have been circulated. The March announcement by Dubai's Dodsal of Tanzania's largest onshore gas find - estimated at 2.7 trillion cf - will spur more drilling. Rovuma's reserves are likely to keep growing, its corporate scene heat up, and a new LNG powerhouse off East Africa should emerge in the middle of the next decade.
EGYPT's Zohr and Israel's Leviathan gas discoveries - estimated at 30 trillion cf and 19 trillion cf respectively - are enough on their own to keep interest piqued in this play. Cyprus recently launched a fresh offshore licensing round for acreage near to (though separate from) the Zohr formation. Development will depend on regional cooperation over how to exploit the gas - and in Israel's case, the resolution of internal political disputes.
THE EASING of Western sanctions could provide opportunities for services firms and possibly IOCs in a country eager to develop its offshore, as well as onshore, oil and gas reserves. Some estimate offshore oil and gas production could expand by over 5% a year over the medium-term. However, the speed with which foreign firms can be lured back in the present global business environment remains to be seen. South Pars, the giant gasfield Iran shares with Qatar (where it is called the North Field) should at last start to get the investment and development that Iran's share, estimated at over 400 trillion cf of proven reserves, demands.
EAGERNESS to boost reserves and tardiness in agreeing onshore concession terms with IOCs are among reasons the emirate is turning to its offshore acreage. Austria's OMV recently joined Adnoc and Occidental Petroleum in the hunt for offshore hydrocarbons. Others may follow, potentially helping to cement their strategic positions in the country. Offshore output accounts for roughly 40% of the emirate's current total oil production of 2.8 million b/d and is forecast to rise to around about 50% by 2018, when total production could be 3.5m b/d.
THE KUWAIT Oil Company (KOC) said in September it would start offshore exploration within two years, as the country seeks to boost production - regardless of low oil prices. The target is to find an extra 0.7m b/d in total from both offshore and onshore areas. IOCs will need to navigate through some political opposition.
TOTAL's Laggan-Tormore gas project is finally up and running west of Shetland. Now the UK government, faced with declines from mature North Sea fields, wants more exploration in new acreage. This year's 29th licensing round includes frontier blocks around Shetland and way out west into the Rockall Basin in the Atlantic. Don't expect a wave of drilling anytime soon - this is definitely a play to revisit when oil prices have recovered.
NOW under the political control of Aung San Suu Kyi's political party, Myanmar could open up substantially to foreign firms. IOCs won't want to miss out on an under-explored play that some believe could become a major producing province, despite relatively modest current reserve estimates of around 10 trillion cf of gas and 50m barrels of oil. In its favour is the country's proximity to the key demand growth centres in Asia.
EXPLORATION in both countries will benefit if their long-running maritime border dispute can be resolved. In Ghana, Tullow Oil is pushing ahead with its Greater Jubilee project, albeit with reduced capex, while exploration opportunities continue to crop up in this maturing, mainly, gas play. In March, an Eni-led group was awarded an exploration licence for acreage in Ghana's Tano basin. The country's oil and gas production have been around 102,000 b/d and 120m cf/d respectively, but with fresh exploration scheduled and new reserves coming onstream.
NO SHORTAGE of dry wells has been drilled over the years, but things are changing. In March, Cairn Energy raised its reserve estimate for an area drilled with ConocoPhillips by 20%, to 385m barrels. Kosmos said in January it made a gas find that raised its resource estimate for the Greater Tortue structure, which stretches into Mauritania, to 17 trillion cf.
Gulf of Mexico
PRODUCTION is forecast to keep rising, hitting a record 1.91m b/d by end-2017, according to the Energy Information Administration. While restricting offshore lease sales elsewhere, US authorities have offered fresh GoM exploration leases recently, reflecting a strategic urge to keep the industry ticking along through tough times in an area that still accounts for 17% of US domestic crude production. When Mexico's own waters start to see investment, the long-term outlook for the region will be bright.
Technologies for low spenders
SLASHED oil-company budgets have led to a severe stripping back of research programmes. A couple of years ago, the quest was to drill deeper. Now the question is: what technology will cut costs and make our existing set up work better?
A shortage of technological innovators there is not. But companies that might have been prepared to take the first-mover risk of investing in inventions are happier sitting on their hands for now, hoping others will step into the breach. Some academic institutions report a sharp decline in project funding from cautious hydrocarbons firms.
Today, the industry talks more about using big data to better inform analysis and the introduction of equipment and techniques to try to cut labour costs, rather than, say, costly high-pressure, high-temperature drilling developments.
One example of hardware that works in today's business climate are remotely operated aerial vehicles - drones - which are increasingly being used to inspect infrastructure, rather than sending out a team by helicopter or boat, or using abseiling crew to do rig inspections. Majors like Shell now routinely use drones laden with sensors to check hard-to-reach spots, such as flare stacks or the underside of oil rigs. This not only reduces risks and costs, but is less disruptive to rig operations, given the threat to human safety is reduced. Drones can also be used to check for pipeline leaks.
The perceived benefits are such that it made sense for Bristow Group, which supplies helicopters to the offshore oil industry, in February to invest $4.2m in Sky-Futures, a provider of drone inspection-data services for the global industry. By oil-sector standards, it's a modest investment, but it indicates the direction of travel.
Implementing big data solutions doesn't necessarily come cheap. But if they can help interpret the huge amount of information now being fed from well sensors and remote surveys to give a better picture of what's happening below the seafloor, then they can save millions by making it easier to fine tune drilling or reduce the number of dry wells. Wider use of sensors and improved data interpretation are also helping the industry keep track of vessel and supply movements.
Repsol has been working on improved data interpretation for several years and has claimed success in locating productive wells in Brazil's pre-salt as a result. Its latest project is a venture with IBM to use cognitive computing in the oil sector - effectively a means of enabling staff to better interpret a vast amount of data from multiple sources to judge the merit of potential oilfield acquisitions and help reservoir optimisation. Following pilots in 2016, the firms hope to have a product in place by end-2017.
A lot of big data-driven technology has been familiar to other industries for several years - notably aerospace and logistics, where cost-savings have long been an issue. Now oil firms are going through the same sort of decision-making processes and adopting similar ideas.
One sector where research activity is, predictably, still notable is decommissioning, a growth industry. Scotland's University of Dundee, for example, said in March it was conducting research on recovery of subsea structures on behalf of Xodus, a UK-based subsea contractor, with backing from Scotland's Oil & Gas Innovation Centre. Ian Lewis