New exploration focusing on Latin America, India, Faroes, Caspian

The world is full of offshore basins that have not been drilled for oil and gas, over 200 by various counts. Many of these have oil potential with significant structures, dipiric features, faults, and thick sediment packages. But new basins and regions are not the only frontiers the industry needs to explore. Other frontiers besides geographic location include water depths, technology, politics, economics, and even psychological ones.

After 20 years of fairly conservative expansion in international theaters, the industry earlier in the 1990s began to push out of traditional areas. Increased water depth capability made much of that possible, but it was also new seismic interpretation and drilling technologies that allowed operators to take on greater geographic risk. Before that, the North Sea and Gulf of Mexico were so rewarding in terms of exploration and required such large development investments that oil and gas producers simply weren't motivated to look elsewhere.

Geographic targets

The year 1999 and early 2000 have produced new priorities as producers pulled back on investments in Russia and China, yet were reluctant to return to traditional theaters of activity (North Sea, Gulf of Mexico). In addition to deepwater, that exploration interest has shifted to entirely new areas:

• Northeast South America: Guyana, Suriname, and even Northeast Brazil have been getting a great deal of attention from the majors - certainly in terms of seismic. Exxon, Eni, and Shell have all signed concessions in areas off Guyana and Suriname. Other smaller companies such as CGX Energy have identified giant turbidite fan targets similar to those in massive discoveries off West Africa and Brazil. While Brazil is not traditionally considered a frontier, for all non-Petrobras operators, it is new territory with new challenges for those who took advantage of the country's first licensing round.
• Caspian Sea: The Azerbaijan and Iran sectors of the Caspian Sea are interesting, led by AIOC's Shah Deniz discovery off Azerbaijan. Iran, however, represents a new frontier in the Caspian Sea. The country has joined its neighbors in the search for reserves, and should see a stronger influx of operators interested in a mostly untouched province.
• Faroe Islands: Oil and gas producers have long been after the untouched deepwater of the Faroe Islands - now they will get their chance. The country opened its first licensing round and the offshore territory boasts potential greater than many of the more mature North Sea fields. This new area could bring some much-needed life to a maturing, much as what deepwater meant to the mature Gulf of Mexico.
• India: India has opened its doors with a more liberal licensing regime than in past years. While the first round of bids were not strong, the country is pushing its unexplored deepwater areas as a primary attractant. State-owned ONGC notched the first deepwater discovery last year in the Krishna-Godavari basin.
• Australia: Like India, the deeper waters off Australia are being used to re-interest oil and gas producers. WAPET made the first deepwater discovery off Australia last year, but the remainder of deepwater areas have yet to be surveyed and drilled.

In addition to those featured, many more countries now are offering producers attractive new packages. This is especially true of the smaller countries of West Africa, where a great deal of frontier work has been undertaken over the past five years. New petroleum regions require diverse studies upfront to support management decisions, and challenge corporate flexibility to adapt to new cultures and business practices.

Depth frontier

The petroleum industry has announced new discoveries in deepwater with incredibly rapidity - a process made possible by the earlier work of Petrobras and Shell. Today, a score of independents have joined virtually all of the major producers in developing expertise in certain deepwater basins all over the world. Technology is leveling the playing field for almost all operators in deepwater.

Every incremental step into greater water depth opens more potential area, not just in the region when the technology is being pushed, but around the globe. Offshore is the one segment of the oil industry that is actually expanding the potential territory for its operations.

Borehole depth is another frontier area. Most newly opened basins have shallow anomalies tested first. As they are developed, drilling moves to deeper and older reservoirs. These deeper zones offer more challenging pressure and temperature environments.

Technology

Technology is a primary driver in the offshore petroleum business. Companies continue to press this frontier and push the limits at all stages of offshore operations, with the result that costs are dropping for depth increments, and productivity is increased in terms of capital and operating expenditures.

New technical tools come in all shapes and forms. New software and viewing systems are producing synergies between the geoscience and engineering professions. This frontier is overcoming long nurtured boundaries, which is bringing greater efficiency and decision-making to each project. The

latest round of drilling vessel newbuilds has produced semisubmersibles and drillships that can drill in water depths exceeding 10,000 ft. Control systems on the drilling floor allow faster and safer make and break cycles on drillstring joints.

Operations in deeper water test the frontiers of pressure control at the mudline, as well

as riser and wellhead systems. Dual gradient drilling fluid systems and riserless operations are being studied as operators maneuver to prevent the inevitable cost increases associated with deepwater work. Incremental advances are moving the industry closer to a truly "smart" well.

A true frontier achievement would be cost-efficient gas-to-liquid conversion technologies, since frontiers rarely are located near infrastructure or even suitable markets. Stranded gas would no longer be stranded, but would be judged by normal commercial threshholds of minimum reserves in mature theaters. As these cost-efficient processes and systems are marinized, the frontier envelope will grow even faster.

Political

New government-to-government and government-to-industry relationships cut both ways. Political relationships have squeezed off opportunities (Iran and Iraq), and opened others (Russia and China). More political opportunities will develop in the future (some in the Middle East), old ones may re-emerge as technology grants a new lease on the area, and a few will close when local conditions become too onerous and unprofitable. Oil and gas producers are building in flexibility to move budgets and expertise into new areas, when political conditions allow.

This means that companies must be looking beyond their current interests, supporting basin studies and other research in areas that are not yet open or economic. This is "seed money" that will return many-fold the relatively small investments in professional labor and equipment required to evaluate potential. Unfortunately, during weak economic cycles, this early expenditure is the first thing chopped from budgets.

Economic

Economic hurdles and technology advance appear to be inversely related. Each technical advance lowers economic thresholds and opens new frontiers for development. The economic frontiers have opened markedly over the last few years as new sensing, drilling, and production technologies entered routine use. Dropping drilling costs, more improved flow rates, and more efficient ways of extracting crude from reservoirs continue to lower the economic bar for marginal oil projects.

The mental or psychological challenges pose the toughest frontier to conquer. The fear of plunging oil prices, despite fairly strong fundamentals and a strong OPEC position, illustrates the psychological barriers that must be overcome.