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An in-depth approach to drilling

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Houston Chronicle: An in-depth approach to drilling

May 5, 2008, 10:29PM
OFFSHORE TECHNOLOGY CONFERENCE

Government report says trend toward deep-water work in the Gulf is only going to intensify

By BRETT CLANTON
Copyright 2008 Houston Chronicle

Nonexistent just three decades ago, oil production in the deep waters of the Gulf of Mexico now accounts for nearly three-fourths of the offshore region’s crude output and has become a vital piece of the nation’s energy supply, according to a government report released Monday.

And the region should continue to see strong growth in the years ahead as more projects come on line, the report said.

In 2007, roughly 72 percent of the Gulf’s oil production came from wells drilled in 1,000 feet or more of water, the Minerals Management Service report said.

That’s up from 70 percent the year before and up from slightly more than 61 percent in 2002, according to agency statistics.

The increase has been especially dramatic in recent years, with the number of oil-producing projects doubling to 130 since 2002, said the report by the Interior Department office that regulates the U.S. offshore oil and gas industry.

Another sign of the interest in deep water: 54 percent of all federal leases in the Gulf of Mexico last year were there, the office said.

“As we look at the data, it’s clear that deep-water advancement is occurring in all areas — leasing, drilling and production,” said Randall Luthi, director of the Minerals Management Service, who was in Houston on Monday for the report’s release at the 2008 Offshore Technology Conference at Reliant Park.

With oil prices at record levels and global energy demands rising, oil companies have had more incentive to push into deep-water regions that were once considered too costly to develop.

The trend has helped lure massive investment to the Gulf and revive its status as a global hot spot.

But deep-water regions in the Gulf and in other parts of the world still present major challenges to oil companies. Huge capital investments are required to find and develop deep-water fields, and technology is still being developed that can operate under super-high pressures and temperatures often found in deep-sea rockbeds.

Those challenges are front and center this week at OTC, where more than 65,000 oil and gas industry professionals from around the world have gathered to hear technical presentations, compare notes and get up-close looks at hulking equipment typically found on oil rigs or on the bottom of the seafloor.

The global offshore drilling industry is poised to grow by 50 percent over the next four years, according to a separate report commissioned by Scottish Enterprise, the economic development arm of the Scottish government, and released last week.

More than $305 billion in investment is planned between 2007 and 2011, up from $204 billion between 2002 and 2006, with much of the growth coming from increased activity in deep-water areas in West Africa, Latin America and Gulf of Mexico, the report said.

Such predictions highlight how much the offshore industry has advanced in a relatively short period of time. After all, it wasn’t until 1979 that Shell’s Cognac oil field became the first oil-producing project in the Gulf of Mexico in more than 1,000 feet of water.

Last year, by contrast, 15 deep-water projects came on line in the Gulf, the MMS said.

More than half were part of the Independence Hub project, a natural gas production facility operated by The Woodlands-based Anadarko that ties together several fields, some in more than 8,000 feet of water.

Deep-water projects are increasingly important as America tries to reduce its dependence on foreign oil and its energy needs rise, Luthi said. But he stopped short of saying U.S. oil companies should go further to develop more deep-water resources.

“I would always encourage an aggressive response,” he said.

Growth in deep-water drilling will depend on the ability of oil companies to find skilled professionals, deep-water drilling rigs and on the regulatory and economic climate in the years ahead, said Tony Vaughn, vice president at Oklahoma City-based Devon Energy in charge of Gulf operations.

Even with the challenges, oil production from the Gulf’s deep waters could account for 30 percent of total domestic oil output by 2010, up from about 25 percent today, he said.

With such predictions, it is clear why oil and gas companies and the firms that supply equipment and services to them see opportunity ahead.

Clyde Hewlett, a vice president at Oceaneering International, a Houston-based equipment supplier to the offshore oil and gas industry exhibiting Monday at OTC, keeps looking for signs of a slowdown in the deep-water boom, but they haven’t come.

He points to orders for floating deep-water drilling rigs, which despite being more than $500 million to build, continue to be placed. As Hewlett put it: “People are not out making $500 million decisions if they don’t think the prospects are there.”

VITAL STATISTICS

A government report released at the Offshore Technology Conference Monday said the deep waters of the Gulf of Mexico have become vitally important to the U.S. energy supply.
Here’s why:

• 25 percent of the nation’s domestic oil supply comes from the Gulf’s deep waters. That’s expected to climb to 30 percent by 2010.

• 72 percent of the Gulf’s oil production comes from waters 1,000 feet or deeper.

• Oil-producing projects there have doubled to 130 since 2002.

• 54 percent of all federal leases were in deep waters last year.

Sources: Minerals Management Service; Devon Energy
[email protected]

http://www.chron.com/disp/story.mpl/headline/biz/5756290.html

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