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Bloomberg: Deep-Water Drilling Investment to Rise to $18 Billion by 2011

By Dinakar Sethuraman

April 4 (Bloomberg) — Exxon Mobil Corp., Royal Dutch Shell Plc and other oil companies may increase spending on exploration in deep water 44 percent to $18 billion by 2011, a report by Douglas-Westwood Ltd. said.

Drilling expenditure in shallow water, depths less than 400 feet, are likely to decline slightly from $46 billion last year, the U.K.-based consultant said in a report dated March 30, titled The World Offshore Drilling Spend Forecast 2007-11. Companies spent $12 billion on deep water exploration last year from a total of $58 billion on offshore drilling .

“Increases in deep water drilling spends relative to shallow water remain substantial,” said Michael R. Smith, who wrote the report for Douglas-Westwood.

Explorers are pushing further offshore as technology improves and fields onshore and in shallow water run dry. Oil companies are expected to boost exploration spending by 9 percent worldwide this year, according to Lehman Brothers Holdings Inc.

West Africa, Brazil, Barents Sea, Gulf of Mexico and the eastern Mediterranean are areas where deep water drilling will be concentrated, the report said. Traditional exploration areas in shallower waters may attract less capital.

Rigs made up a third of the offshore drilling costs in 2006 and well engineering accounted for 39 percent, the report said.

Rigs are the biggest single cost and their share of total drilling expenditure has grown substantially as rig rates climbed and wells became difficult to drill, the report said.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at [email protected] .

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