With prices high and steady, supply lines shaky, and storage levels near dangerously low levels, why isn't there more boom? This is the question on everyone's lips at this year's Offshore Technology Conference. While opinions vary, experts offer a handful of reasons why fewer holes are being drilled.
Too much money chasing too few prospects
While the Gulf of Mexico is far from the "Dead Sea" predicted 20 years ago, the fact remains that there are very few on-shelf plays that have not been explored. Improved seismic data and reprocessing techniques produce an uncomfortably level playing field. As a result, independent operators all seem to go after the same properties come lease time. While only one company can emerge victorious, the premium paid for the access to these prospects can be frustratingly high.
There continues to be great interest in deep-shelf gas prospects, but this is still a niche play. El Paso seems to be leading the charge to deep gas, but even they are quick to admit that the high pressures and narrow frac gradients encountered in these wells make them expensive and challenging to drill. There is going to be quite a learning curve for new entrants to this market, and there are still questions about how well the logging equipment will work in the great temperatures and depths of these wells. Recent royalty relief should spur interest in this area, but it will still take time to blossom.
Better technology means fewer dry holes, fewer wells
There's an old joke about the new oilfield accountant who tells his boss he could substantially improve the company's earnings if they would stop drilling dry holes. In a sense this preposterous suggestion is becoming a reality. A portion of any drilling program is set aside to accommodate the inevitable dry hole. If it takes fewer wells to make a find, then it follows that fewer total wells will be drilled. In addition, other technology components in this process further reduce the number of wells needed. Improved completion techniques and better reservoir management mean a field can produce faster and more efficiently from fewer total wells.
Innovations in the actual drilling process have also shortened the time it takes to drill a well. A new generation of drilling rigs comes equipped with automated rig floors, iron rough necks, and dual derrick systems. Synthetic drilling muds, expandable tubulars, and drilling with casing make it faster, safer, and easier to drill offshore. While this is great news for the operator, it means a drilling rig under contract is not needed for as many days as it might have been in the past.
Deepwater drilled out?
While the shelf may be considered drilled out at conventional depths, deepwater has its own headaches. These wells are extremely expensive and challenging to drill. In many cases, the rig and crew are working near the technical limit of sensing technology. Many of the prospects are remote from existing infrastructure. This puts a lot of pressure on the operator to either make a major find or hold off drilling. Because these drilling programs are so expensive, choices must be made, and only a select few deepwater wells are drilled. In the case of an independent operator, a handful of dry holes in deepwater can quickly eat up the drilling budget.
Balance sheet integrity
At the same time, the overall number of operators itself has shrunk, by as much as 25% in the last six years alone. Remaining operators are focusing an inordinate amount of attention on balance sheet integrity. They are very careful how they spend money and are subject to new rules and unprecedented scrutiny. Combine that with shareholder demands for consistent profits despite market fluctuations, and it really is remarkable anyone is willing to take the risk of drilling a new offshore well. So, will there be a turn-around in drilling activity? Look at the stock of reserves. At the end of the day, that will drive an increase in drilling. The aforementioned efficiencies may hurt utilization rates in the short term, but improved finding costs mean improved profits, which, with any luck, will find their way back into the market.
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