The shift in exploration and production (E&P) focus to the offshore is one of the petroleum industry's most significant trends to emerge in the last decade. This shift is characterized by international licensing activity.
In 1984, nearly 75% of the acreage awarded for E&P purposes lay onshore, whereas 3% lay in onshore blocks that extended offshore, and 22% of awarded acreage lay offshore. By mid-2001, onshore acreage awards had shrunk to 42%, and offshore acreage awards topped 53%. This 2.5-fold increase in the proportion of offshore acreage awards reflects the industry's quest to invest in progressively deeper waters.
International annual license awards 1981-2001 show the percent distribution between onshore and offshore. North America is excluded.
Technology, successful efforts, and risk aversion have driven industry's transition into deeper waters. The ease of acquiring widespread, high-quality 3D seismic has been a key technology driver. Between 1991 and 2000, acquisition of international 3D marine seismic (as tracked in IHS Energy Group databases) increased 12-fold, from 15,000 sq km to 170,000 sq km. Acquisition of 2D marine seismic declined by 60% (from 1.3 million line-km to 500,000 line-km), during the same period. Expansion of 3D marine seismic contributed to improving offshore exploration success.
New field wildcats
The success rate for offshore new field wildcat (NFW) drilling appreciated during the decade, averaging 26.3% from 1991 from 1995, and 33.6% from 1996 through 2000. The success rate for NFW drilling peaked during the decade at 37% in 2000. Excluding 1991, when the super-giant South Pars gas field was discovered offshore Iran, both the average hydrocarbons discovered per-NFW drilled, and the average field discovery size also increased during the decade.
Annual offshore discoveries by region 1991-2001. Reserves represented as million BOE (MMboe).
Hydrocarbons discovered per-NFW increased from an average of 14 million BOE/NFW during 1992 through 1995, to 33.5 million BOE/NFW during 1996 through 2000. The hydrocarbons discovered per-NFW peaked during the decade at 48 million BOE/NFW in 1999.
The average offshore field discovery size was 53 million BOE during 1992 through 1995, and it increased to 98 million BOE during 1996 through 2000. It follows that the percentage of offshore development wells and production volumes has increased as these large discoveries have been brought onstream.
Risk aversion has been a subtle driver in this trend, but political risk has also played a role. To avoid escalating political violence onshore, major international companies shifted their focus to offshore opportunities in Angola, Nigeria, and South America
Another important global trend in offshore data is the shift toward natural gas. Discoveries during the decade yielded 138 billion BOE of natural gas compared to 77.4 billion BOE of oil. If the super-giant South Pars Field is eliminated, gas discoveries still hold the edge.
Correspondingly, global offshore gas produc-tion has increased more rapidly than oil produc-tion. From 1991 through 2000, gas production increased 49%, compared to a 35% increase in oil production.
Regional comparisons of global offshore activity tell another part of the story. With few exceptions, all offshore regions improved their average NFW drilling success, reserves added per-NFW, and average field discovery size during the last decade.
This was determined by comparing averages for the first five years (1991 through 1995) to averages in the last five years (1996 through 2000) of the decade. The leader for the past five years is the Caspian region of the C.I.S., with the 1999 Shah-Deniz gas condensate discovery (5 billion BOE offshore Azerbaijan), and the 2000 Kashagan oil and gas discovery (estimated 10 billion BOE offshore Kazakhstan). Notable exceptions include:
- Middle East, where offshore Iran discoveries (1991 at South Pars Field, with estimated reserves of 95 billion BOE, and 1993 at the G-3 Field, with 3.25 billion BOE) overwhelmed everything else.
- Saharan Africa, where Egyptian offshore success peaked above 70% during 1995 through 1997, and declined to just 29% in 2000.
- Latin America, where Brazilian deepwater success peaked during 1996 with discovery of the Roncador Field, which at 1,900 meters water depth is the second deepest water discovery outside of North America.
Global, annual offshore discovery reserve additions are shown in an accompanying figure. The significant trend of increasing offshore discoveries and the regional exceptions noted above are apparent.
Comparison of the three leading deepwater offshore provinces - Brazil, West Africa, and U.S. Gulf of Mexico (GOM) - reveal interesting contrasts yet attract substantial ind-ustry interest. General comparison show these characteristics:
- The GOM has had the longest history of offshore exploration, has drilled the most wildcats (453), made the earliest discoveries below 2,000 meters water depth, and has yielded the largest deepwater discoveries eight years into the exploration cycle. Through 2000, the GOM also yielded the most discoveries (82) and achieved the smallest average field size (142 million BOE). It also has the least reserves per NFW (26 million BOE, and the least proved plus probable (2P) reserves (11.7 billion BOE), of the three.
- Brazil's offshore discoveries commenced during 1984 and yielded large discoveries early in its deepwater drilling cycle. Faced with economic challenges, Brazil regrouped and re-opened its E&P sector to outside investors. Drilling is underway to assess licenses acquired in recent years; however, regulatory and permitting processes have hampered progress. Through 2000, Brazil had the fewest wildcats (108) and yielded the fewest discoveries (18). However, the country generated the largest average field size (658 million BOE), the second largest reserves per NFW (107 million BOE), and the second largest 2P reserves (11.8 billion BOE) among the three areas.
- West Africa (excluding Nigeria) is the latecomer, yielding its first discoveries in 1994, which were quickly followed by a succession of large discoveries on the shelf and into deepwater below 2,000 meters. Active exploratory drilling and discoveries are being extended along the entire West African continental margin. Through 2000, West Africa yielded 52 discoveries from 141 wildcats. The area generated the most reserves per NFW (120 million BOE) and the largest 2P reserves (16.9 billion BOE). The average field size of West African fields was 325 million BOE.
Global offshore production, with natural gas being the fastest growing component, increased from 8.99 billion BOE in 1991, to 12.5 billion BOE in 2000. Europe, primarily the North Sea, is the world's leading offshore producing region. It increased its dominance during 1991-2000 by increasing liquids production 58% and increasing gas production 77%. Production of liquids in the UK, though, may have peaked during 1999.
Asia-Pacific, Latin America and Sub-Saharan Africa offshore production also increased substantially, while Middle East and North America offshore production increased moderately during the decade.
There were other changes in licensing, seismic activity, and drilling.
- Licensing: By the end of the last decade, international offshore areas under license reached 6.5 million sq km, which represents a 38% increase since 1990. Offshore areas under license in Latin America increased 343%, and offshore areas under license in Sub-Saharan Africa increased 302%. These areas registered the largest gains, reflecting industry interest in successful deepwater plays. Similarly, U.S. GOM deepwater sales during 1996 through 1998 extended the sale average, maximum-leased water depth from 2,814 ft to 4,604 ft, and averaged 20,600 sq km per sale. This represented a 40% gain over the prior record, set in 1989.
- Seismic activity: Sub-Saharan Africa (123,000 sq km) and Latin America (76,000 sq km) recorded the largest amount of international offshore 3D seismic activity during 1999 and 2000. The Asia-Pacific region, which had recorded the largest amount of offshore 3D seismic during 1998, followed closely with 72,000 sq km during the past two years. Mature European offshore areas recorded an enormous decline in 2D surveys, dropping from 611,529 line-km during 1992, to 49,390 line-km during 2000.
- Drilling: International offshore development drilling increased by 44% during the decade, while exploration and appraisal drilling declined by almost 16%. This trend reflects operator focus on lower-risk development projects in order to grow cash flow and profitability.
Virtually all offshore regions recorded growth in development drilling over the decade. Latin America sustained the largest percentage growth in NFW drilling among international regions while European offshore provinces reported the largest decrease, dropping from 214 wildcats during 1990 to 63 during 2000. Following a pattern of large lease sales and success, deepwater GOM wildcat drilling recorded a four-fold increase from 20 wells in 1991 to 81 in 2000.
The data presented here demonstrates the global shift of E&P activities to the offshore provinces. Trends indicate that deepwater offshore activity should continue to expand, particularly along the Atlantic continental margins and into frontier regions such as offshore Greenland with prospective geology.
If terrorist activity persists and risks of Middle East political disruptions increase, substantially more investments could be directed to successful and promising offshore provinces in other, less risky, parts of the world.
The authors wish to thank IHS Energy Group colleagues Jon Green, Michael Dyer, Tim Wise, Laura Hagan, and Melissa Manning for their contributions.
Pete Stark, Vice President, Industry Relations, IHS Energy Group, joined Petroleum Information Corp. (PI) in 1969 and has served in senior management positions in Technical Services, Technical Marketing, and International Opera-tions with PI and its successors, now IHS Energy Group.
Ken Chew, Senior Manager, PI, is working on new information sets in the company analysis domain. He carries out analysis and consultancy based on IHS Energy's international E&P database.