Opportunities riding on technology and economic time horizons

Deepwater frontiers will focus on West Africa, Gulf of Mexico and Brazil this year. [12,130 bytes] High-cost frontiers include Subsalt Trends, the Atlantic Margin and Caspian Sea. [11,995 bytes] Research frontiers are aimed at polar seas. [West][30,779 bytes] Research frontiers are aimed at polar seas. [East][41,001 bytes] Worldwide locations of gas hydates in offshore sediments, modified after Makogon, 1997 (see reference). [30,440 bytes]

Deepwater, high-cost, research, and hydrates

Victor Schmidt
International Editor
Frontier exploration is in a squeeze, due to the current low oil-price environment. Fortunately, the time horizons for such projects extend into future higher demand patterns that will create better prices and improve project economics.

The current situation will shift emphasis this year to higher value regions and act to restrain spending in areas of greater risk or longer break-even economics. High-cost regions will see slower development and require very efficient development plans.

Steady investment will be the norm for these areas. Problems will be overcome gradually by technology and organizational efficiencies. With this in mind, let's examine frontier regions by type: deepwater frontiers, high-cost frontiers, and research frontiers including gas hydrates.

Deepwater frontiers

Deepwater has taken the spotlight from subsalt plays over the past year and continues to have the momentum because technical solutions are readily available. The push into deeper water continues to be rewarding for the industry with West Africa, Gulf of Mexico and Brazil leading the way.

Proven technology is the key. The continued investment in drilling and production technology has produced a steady stream of incremental improvements that support the industry's move into deeper more challenging waters. New problems and challenges are gradually being overcome. These solutions expand the operating envelope of the industry and open even more offshore territory for development.

  • West Africa's numerous deepwater discoveries encouraged companies to add new deepwater licenses to their portfolios over the past year. They also undergirded funding of major 3D seismic surveys in the search for additional giant fields like Girassol, offshore Angola. This activity will continue through 1998 as companies evaluate their discoveries and test new prospects. West Africa's mild climate, good support infrastructure, and acceptance of FPSO technology will guarantee further development and investment as well as growing production figures.
  • The US Gulf of Mexico has a significant overhang of deepwater leases that will need testing. Rig availability is the primary constraint. Strong steady activity is expected because of the area's excellent infrastructure, available equipment and direct access to the US market. Industry will likely take this next year to test different riser types in its quest to drill in water beyond 7,500 ft. Royalty relief and longer lease terms assure that the Gulf of Mexico will be a strong region.
  • Brazil has been a deepwater leader and a major contributor in the quest for solutions to drilling and production problems. This year, Brazil's proven oil province will open to the international oil community. Petrobras will keep the larger prospects for their own account, but plenty of smaller projects will be available for other companies to develop. Expect a scramble for licenses and some fast-track development projects. Late 1998 discoveries are possible.

High-cost frontiers

The current low-price environment is slowing certain regions and play types because the expected returns must offset higher costs.

  • Subsalt plays in the Gulf of Mexico and West Africa hold great promise but high interpretation and drilling costs have restrained the initial enthusiasm. The plastic flow characteristics of salt create unique long-term production problems that do not yet have effective solutions. Work continues and the industry will maintain its investment pace but not expand until more is learned.
  • The Atlantic Margin (West of Shetlands, Faroe Islands, Porcupine Basin, etc.) is a highly seasonal operating theater with strong currents, surface winds and the threat of ice. High capacity rigs, current tolerant risers and robust subsea equipment force higher initial costs. Larger fields and very efficient development plans are required to keep lifting costs low. Like the subsalt plays these regions will receive steady attention because their long-term potential is strong and European markets are close.
  • Caspian Sea development is another frontier that suffers from high costs. Actual operations are well within the industry's capability, but costs associated with politics and pipelines will continue to restrain investment. The region's known oil potential demands continued attention but time lines are stretching.

Research frontiers

Newfoundland's Hibernia platform opened this frontier last year and Terra Nova Field will be developed next year. New pipelines are planned to connect this region to North America's gas grid providing access to markets. This region is ripe for further exploration and development. Iceberg protection and arctic technologies must be extended before full exploitation

can begin.

  • Continued progress will open the eastern coast of Canada and the western coast of Greenland. New studies in the Davis Straits have begun and test wells may follow within two years.
  • In a similar vein, the Sakhalin Island projects are moving ahead steadily overcoming arctic production problems. Platform emplacement will take place later this year beginning a long-term pattern of arctic development that could open all of the Sea of Okhotsk (See related story pg. 42).
  • In May, the first test well off the Falkland Islands will begin the drilling campaign in the South Atlantic. Four companies are banding together to test, sequentially, different geologic ideas of the region. Some sharing of results will occur. One semisubmersible, the Borgny Dolphin, is on a three-year contract for the region. Drilling of four wells is scheduled through the first year into 1999. Secondary testing of Argentine waters may develop to complement the Falkland drilling. The industry has high hopes for the South Atlantic as a province with North Sea potential.

Future gas potential

The volume of methane hydrates under the world's oceans is immense, likely exceeding all known conventional hydrocarbon sources. Gas hydrates are a future frontier that is being examined as a new hydrocarbon source.

Long considered a nuisance in drilling operations and pipelines, hydrates may hold a solution to Asia's growing energy needs. Hydrates occur worldwide in deep permafrost areas of the Arctic and in water depths over 300 meters, well within normal operating depths for the offshore industry.

Production technology must be developed to extract the methane and deal with the produced water. There is active research seeking solutions to these problems.

The Japanese National Oil Company (JNOC), Japex, and the Geological Survey of Canada are conducting a research project to evaluate the potential of methane hydrate exploitation as an unconventional energy resource. JNOC conceived the research program with the idea of developing hydrate resources offshore Japan.

The partners are drilling a test hole, Mallik L-18, to a planned depth of 1,140 meters. The well is located on Richards Island in the Mackenzie Delta 150 km from Inuvik, Canada. Planned tests include:

  • Coring over a hydrate interval from 900 to 1,032 meters
  • Geophysical well logs
  • Drill stem tests
JNOC, Japex, GSC and USGS will be conducting scientific studies on the cores.

The project began in 1995 and will culminate with a test well offshore Japan in 1999. This well is to be drilled in either the Nankai Trough or Okhotsk Sea. More complete information is available at GSC's website,http://sts.gsc.nrcan.gc.ca.


Makogon, Y.F., Hydrates of Hydrocarbons, PennWell Publishing Co., p.xxvii, copyright 1997.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.

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