ANALYSIS - Global oils plumb new depths for offshore crude
Date: 10-Oct-02
Country: UK
Author: Sujata Rao
About 60 billion barrels of oil equivalent (boe) are proven to lie under the world's seabeds - mostly in waters off the Gulf of Mexico, Brazil and West Africa - and seismic studies show the possible presence of another 40 billion.
Oil equivalent includes oil and gas and analysts estimate that two-thirds of the deepwater reserves comprise crude oil.
"Deepwater oil is the growth play in the oil industry," said a recent Deutsche Bank report. "We believe deepwater is the lowest risk and best-returning growth play available to global oils."
The report predicted deepwater output will total eight million boe per day by 2010, twice current volumes and three times higher than the industry growth average.
The report said deepwater would be a key driver of non-OPEC growth, having added significant new reserves outside of the Organisation of Petroleum Exporting Countries. "This oil is very attractive because it is mostly in places accessible to big oil companies - Angola and the Gulf of Mexico - without the constraints and instability of Middle East oil or the transportation problems of the Caspian (in central Asia)," said Andy Latham, upstream consultant at Wood Mackenzie.
Deepwater oilfields also for the most part are an extension of existing offshore sites, reducing exploration risks.
In recent weeks, China and New Zealand are among countries which have issued tenders for virgin deepwater blocks.
DRILLING DEEPER IS NOW CHEAPER
Deepwater exploration and production has come a long way since the Gulf of Mexico discoveries of the 1970s. Production was then viable only when oil prices were high.
But with better technology, Deutsche Bank estimates average development costs have halved from the 1980s to less than $4 per barrel which is in line with conventional onshore costs in non-Gulf states.
And last year Unocal broke the three-kilometre barrier (1.864 miles) at a well in the Gulf of Mexico.
"The barrier to most deepwater developments was technology. That has now come off," said an executive with an oil major.
Morever, offshore oil technology has evolved from large concrete platforms to slick floating production systems from where oil tankers take crude direct to the market.
There is now also a much shorter time lag between discovery and commercial production.
Once production starts, ramp-up to peak output now takes just four to six months, according to Deutsche Bank.
ExxonMobil aims to spend $25 billion, or a quarter of capital earmarked for upstream, on deepwater exploration and production this decade.
Shell said last month a new technique called floating oil and natural gas (Fong) would allow it to cheaply exploit deepwater fields with a high gas-to-oil ratio.
Fran Lohr, Shell vice president of business development told a conference in Rio de Janeiro that Fong was a product of Shell's efforts to go "ever deeper and cheaper." Brazil's Petrobras is the largest potential deepwater player with over 10 billion barrels in proven reserves, according to Wood Mackenzie.
BP appears best positioned of the international majors, with deepwater reserves of about 5.8 billion barrels of oil while ExxonMobil is second with 3.8 billion barrels.
CANNOT RIVAL MIDDLE EAST RESERVES
Analysts say however that even the largest deepwater fields cannot have the cost advantage of producing conventional oil on land in countries such as Libya and Iraq, though taxation structures are usually more attractive than in most OPEC states.
And overall deepwater reserves are smaller. This means deepwater oil is not an alternative but only a short to medium term non-OPEC solution to world supply.
Proven oil reserves in Saudi Arabia alone are pegged at 260 billion barrels while Iraqi proven reserves are over 113 billion. OPEC produces about 24 million barrels a day.
"Deepwater oil reserves are in no way in the same league as those in the Middle East," said David Finlayson, director at upstream consult
