BEYOND THE HORIZON Beyond deepwater

Deepwater has been a source of controversy within the oil industry for many years. Today, a rather large consensus recognizes that there are important potential reserves in deepwater, that the industry has the technology to recover oil and gas there, and that money can be made in deepwater.

Deepwater has been a source of controversy within the oil industry for many years. Today, a rather large consensus recognizes that there are important potential reserves in deepwater, that the industry has the technology to recover oil and gas there, and that money can be made in deepwater.

The question is where and how to play the game? The problem has moved from the technical circle to the geopolitical and strategic arena. This prompts two thoughts. (1) Oil companies go into deepwater as a rational strategic choice, not an act of faith. On what criteria can this choice be made? What are the features which dictate a deepwater business strategy? (2) With deepwater exploitation, have we not reached the ultimate frontier - the last area it is possible to go?

In developing a deepwater business strategy, in my opinion, the key word is access - access to the technology, to the reserves, and to the market. Access to technology is no longer a problem. By favoring common research and development projects, alliances, and partnering, the industry has drastically accelerated the diffusion of the technology.

Should a company need a piece of technology to complete a business strategy, access is there, either through an alliance with the right service/supply companies or a partnership with the right operator.

Apart from some countries (Mexico, Brazil) where deepwater exploitation is still a state monopoly (but for how long?), practically all countries with deepwater basins have developed a licensing policy. They also have established a rather favorable taxation system to reverse declining production, or to attract foreign investments.

It is at the access level that the strategy planner faces the first choice. Should a company invest in an area where the deepwater basin is a continuation of or adjacent to a mature basin, or select a virgin area?

In the first case, a good infrastructure exists, offering a full range of cost effective development solutions and easy access to markets. The drawbacks are that large deepwater fields have already been discovered by the companies who pioneered exploitation there, and using existing infrastructure requires access that may consume potential profits.

In the second case, the chances of finding a medium-to-giant size field are higher, but the lack of experience offshore and the absence of offshore infrastructure renders access to the market much more hazardous and possibly out of reach.

For a medium-to-small size operating company, the strategic choice rests with joining the pack or playing the lone wolf. In deepwater, I don't think the choice is there. The lone wolf can have access to reserves, but not to the technology, and more importantly, not to the market. Companies that are comfortable in a pack, that have a talent for negotiating position and obtaining respect from other players, are suited to deepwater. Without these abilities, medium-to-small operators should remain in shallow water or onshore.

Contemplating what has been achieved since Colonel Drake struck oil in Pennsylvania, one gets the feeling that we have erected our drilling and production rigs everywhere on this planet. Onshore, we have drilled wells in the burning sands of Africa, in the frozen loneliness of the great North, in the swamps of Asia, under California towns, and even under Paris. Offshore, waves, gale winds, hurricanes, and now abyssal depths have not stopped our epic quest for oil and gas.

The only place we have not been to and will probably never go is the Antarctic, and except for moving glaciers, it is not for technical reasons. I dare say we have explored what has been offered us in three dimensions of space. Deepwater is the last frontier and the ultimate territory to challenge our skills.

Where could we go now? We could be tempted by the frozen oceans of methane floating in space, but the market is really too far away. We have to make a move in another dimension, a fourth dimension I would characterize by the words "global economy." The term "global" refers to an economy where profitability is evaluated not only in monetary and capital terms, but also in terms of impact on our social tissue and ecological environment. In fact, in this fourth dimension, it is not the economy which is global, but an environment I am tempted to call a socio-ecological environment.

When we realize that protecting the environment was good engineering practice, we were just exploring the margins of this fourth dimension. It was still a time where the idea of unrestricted progress was making the rule.

Tomorrow, it may be that this socio-ecological environment will tell what progress is acceptable. Engineers educated to a rational approach to problems will soon have to deal with a new partner, one accustomed to a more emotional approach. This is a new challenge, and another story.

Jean-Francois Giannesini
President, Nomad S.A.

This page reflects viewpoints on the political, economic, technological, and enviromental issues that will shape the future of our industry.Offshore Magazine invites you to share your thoughts. Send your manuscript to Beyond the Horizon, Offshore Magazine, Box 1941, Huston Tx 77251 USA. Manuscripts will not be returned.

Copyright 1996 Offshore. All Rights Reserved.

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