Long slog still lies ahead for offshore drillers, BP executive says.
THE HIGH COST OF OFFSHORE DRILLING PUSHES THE INDUSTRY TO STANDARDIZE
DEEP-WATER drillers, fighting to stay alive in a world of $50 oil, are looking to science to do more than just cut costs, save time and boost oil production. They want to standardize technology.
British oil giant BP has used its supercomputer to detail the subsea earth and identify what now looks like 1 billion barrels of previously hidden oil across four fields in the Gulf of Mexico. The Houston-based oil field services contractor Baker Hughes has a new, more universal tool for deep-sea hydraulic fracturing, announced Monday, that has already saved about 25 days of rig time and $40 million on one well in the Gulf of Mexico, the company said.
And Houston offshore specialist Dril-Quip has adopted aerospace techniques to build a new subsea wellhead — the structure over the oil or gas well — that will take two or three days less to install on the ocean floor. The savings? At least $1.6 million each time, the company says.
“There’s a lot of effort in the industry to standardize designs, standardize materials, to make things less expensive,” said Marcus Smedley, vice president of sales and marketing at Dril-Quip.
Offshore oil companies are preaching a new gospel: The days of bespoke solutions to every single deep-water project are over. They want to start
reusing designs — even the very platforms off which they produce oil — and are looking to technology to fill many needs with one device as a way to increase efficiency and lower the cost of extracting oil.
“With the deep water, all our clients are asking, ‘Where are costs going?’ ” Neal Anderson, chief executive of energy research firm Wood Mackenzie, said in a recent interview. “Is cost deflation going to continue, or not?’ ”
The 2-year-old crash in oil prices stopped U.S. oil exploration. As prices recovered — they settled at $48.84 a barrel on Monday, almost double last year’s low — onshore activity picked up, especially in West Texas’ bustling Permian Basin. And drillers began to make money again, in part by drilling on only their best properties, and in part by leaning on technology to streamline operations.
The offshore industry, however, was more deeply wounded. New deep-water projects can cost $5 billion and take three years before producing regularly. It can cost $100 million just to drill one deep-water exploration well.
And the number of exploration wells had already been dropping, from 2,500 in 1982 to less than 500 last year.
In 2016, operators sanctioned the lowest number of conventional oil projects in more than 70 years and logged the smallest total of new oil discoveries ever recorded by the Paris-based International Energy Agency. Investment fell one-third, from $94 billion in 2013 to $34 billion last year. Meanwhile, investment in U.S. shale grew by $100 billion.
But, over the past few months, offshore companies have begun to say something similar to their onshore brethren: By cutting out everything that isn’t essential, and standardizing designs, they, too, can make money.
The average offshore project shaved costs by 20 percent over three years, according to Wood Mackenzie, adding 5 billion barrels of oil that can be extracted profitably.
The best projects have cut break-even prices from $75 a barrel to $50 a barrel.
Wood Mac analysts say it’s not just contractors reducing rates. New projects are smaller, have fewer wells and are more likely to be connected via pipeline to existing production platforms, eliminating the need to build new ones.
Production companies and services providers alike boast that operations are lean and optimism high.
And nowhere is that more evident than at the Offshore Technology Conference this week, spread across two stadium-sized buildings at NRG Park, home to the National Football League’s Houston Texans, where companies from Houston’s Halliburton to France’s Total will explain how high-tech can save money.
For Dril-Quip, the focus was clear: The company asked how it could create a product that would bring lasting savings to the industry, said Smedley, head of sales.
It’s certainly cheaper to make equipment now, he said. Steel is less expensive, as is labor.
“But how do you make products that achieve a structural change?” he asked. “Steel prices will go back up. You’ll lose those cost savings.”
The price on the new BigBore is about the same as the old one, Smedley said — roughly $1 million. But it’s a simpler well head, with fewer parts to assemble.
The old one took five more trips to the ocean floor to set up correctly. At eight to 10 hours per trip, that meant two to three 24-hour days of work, at about $800,000 a day.
“We should charge a lot more for it,” Smedley joked.