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Great Discovery! Now What?

Session Eyes Deepwater Challenges

Deepwater exploration is grabbing all the headlines around the world as international companies plumb the depths of the oceans, but what really happens after the big announcements of huge discoveries?

Indeed, successful exploration is just one piece of the puzzle that must be solved before reserves from deepwater fields can be added to the world markets.

AAPG will be addressing the challenges facing deepwater operations all around the globe at its annual meeting this month in Houston. An executive session titled "Business Challenges Facing Deepwater Development," scheduled for Monday, March 11, will look at the risks, rewards and obstacles involved — from a variety of perspectives — in bringing deepwater finds on line.

"If you look at what's happening worldwide in terms of exploration, you see that the industry in the last 10 years has committed to deepwater plays," said Carlos A. Dengo, area manager for the United States and Mexico for ExxonMobil Exploration in Houston.

"So, there's a number of very large projects worldwide that are in the initial phases of development and these projects present major challenges to the industry," he continued. "Many are in water depths that are pushing the limits of technology."

These emerging development programs are a big reason why the Houston 2002 technical program committee decided to bring together some of the key players in deepwater development to discuss the challenges they are facing as the industry embarks on a period of significant investment in deepwater projects.

Finding the Experts

Dengo, along with Erik Mason, area manager of western Gulf of Mexico exploration for Shell Offshore, will co-chair this session.

The vision for the session, according to Mason, is to look at how different companies in different regions around the world are proceeding on major deepwater developments.

"We wanted to include all the important deepwater provinces around the world — the Gulf of Mexico, Brazil, offshore West Africa — as well as emerging deepwater plays like the Caspian Sea off Azerbaijan," he said. "We have asked company officials to discuss the stumbling blocks they are encountering in these large developments, and how they are overcoming those problems."

In addition to covering the major deepwater provinces, Dengo and Mason have assembled a list of speakers that combines private industry as well as state oil companies.

"It's important to remember that state oil companies are playing a significant role in deepwater exploration and development," Dengo said, "and we wanted to hear about the challenges from their perspective."

The experts who will be speaking in the session include:

  • Dave Blackwood, vice president of deepwater development with BP, will discuss "Crazy Horse Field Development, U.S. Gulf of Mexico."

Image Caption

The world's first truss spar on its way to the Nansen Field, a Kerr-McGee operation that demonstrates commitment to the deepwater Gulf of Mexico.
Photo courtesy of Kerr-McGee

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Deepwater exploration is grabbing all the headlines around the world as international companies plumb the depths of the oceans, but what really happens after the big announcements of huge discoveries?

Indeed, successful exploration is just one piece of the puzzle that must be solved before reserves from deepwater fields can be added to the world markets.

AAPG will be addressing the challenges facing deepwater operations all around the globe at its annual meeting this month in Houston. An executive session titled "Business Challenges Facing Deepwater Development," scheduled for Monday, March 11, will look at the risks, rewards and obstacles involved — from a variety of perspectives — in bringing deepwater finds on line.

"If you look at what's happening worldwide in terms of exploration, you see that the industry in the last 10 years has committed to deepwater plays," said Carlos A. Dengo, area manager for the United States and Mexico for ExxonMobil Exploration in Houston.

"So, there's a number of very large projects worldwide that are in the initial phases of development and these projects present major challenges to the industry," he continued. "Many are in water depths that are pushing the limits of technology."

These emerging development programs are a big reason why the Houston 2002 technical program committee decided to bring together some of the key players in deepwater development to discuss the challenges they are facing as the industry embarks on a period of significant investment in deepwater projects.

Finding the Experts

Dengo, along with Erik Mason, area manager of western Gulf of Mexico exploration for Shell Offshore, will co-chair this session.

The vision for the session, according to Mason, is to look at how different companies in different regions around the world are proceeding on major deepwater developments.

"We wanted to include all the important deepwater provinces around the world — the Gulf of Mexico, Brazil, offshore West Africa — as well as emerging deepwater plays like the Caspian Sea off Azerbaijan," he said. "We have asked company officials to discuss the stumbling blocks they are encountering in these large developments, and how they are overcoming those problems."

In addition to covering the major deepwater provinces, Dengo and Mason have assembled a list of speakers that combines private industry as well as state oil companies.

"It's important to remember that state oil companies are playing a significant role in deepwater exploration and development," Dengo said, "and we wanted to hear about the challenges from their perspective."

The experts who will be speaking in the session include:

  • Dave Blackwood, vice president of deepwater development with BP, will discuss "Crazy Horse Field Development, U.S. Gulf of Mexico."

    "Crazy Horse is perhaps the most significant discovery ever in the deepwater Gulf of Mexico," Dengo said. "It opened up a new frontier for the industry in the Gulf and showed us all that you can still find important resources in a basin that conventional wisdom held was mature.

    "The Crazy Horse development presents some technical challenges, not the least of which is water depth considerations, and Dave Blackwood will address those challenges."

  • Johnny Hall, vice president of ExxonMobil Development, will present a paper on "Angola Block 15 Development."

    Block 15 will account for one of the first major deepwater developments to come on production offshore Angola, and ExxonMobil faced technological as well as other challenges in its efforts to bring these reserves to the global market.

  • Rich Sears, vice president of evaluation and development planning for Shell International Exploration and Production, will discuss "Deepwater Nigeria — Big Discoveries, Big Challenges."

    Shell has been a dominant player offshore Nigeria for years and has overcome tremendous obstacles to prove up the massive potential of the deepwater Niger Delta — and then get that production on line.

  • Jose Coutinho Barbosa, director of exploration for Petrobras, the Brazilian state oil company, will present a paper titled "Deepwater Development Challenges in Brazil."

    Mason said it was critical to include Petrobras in the session, because the firm has been a pioneer in deepwater development technology for years. Petrobras has received numerous OTC awards for deepwater technological advancements and is continuing to push the water depth barrier.

    Plus, he added, there is a great deal of interest in opportunities in Brazil since the country was opened to outside investment recently.

  • Hoshbaht Yusufzade, vice president of state oil company SOCAR in Azerbaijan, will discuss "Deepwater Development Challenges, Caspian Sea."

    The Caspian is generating a great deal of attention from state and private companies. This region has some unique development challenges due to its geographic position and what it will take to get production out to world markets.

  • Ian Ashcroft, head of North America Energy for Wood-Mackenzie, a London-based consulting firm, will end the session by discussing "Worldwide Business Challenges Facing Deepwater Development Projects."

    "We felt it was important to get a global perspective from a consultant who is outside the day-to-day operations of the industry and more of an impartial source, Mason said.

    "Wood-Mackenzie has been following deepwater developments for several years," he added, "benchmarking how companies are performing and what kinds of practices are working or not working from a technological, fiscal and political point of view."

Challenges to Success

While each company faces its own unique set of issues in deepwater development, Dengo and Mason identified some of the most critical elements in today's world.

Certainly, the most important challenge for deepwater operators is technology aimed at cost effectively producing fields in extreme water depths.

"I see two or three major technological challenges for the industry," Dengo said:

  • The ability to drill cost effectively.

    "In all of these deepwater environments the cost of drilling continues to be very high, and we need to lower those costs," Dengo said.

    Mason agreed.

    "There is a huge emphasis on cost reduction in the drilling process today," he said. "When you look at a deepwater development that requires 30 to 40 wells, and those wells run $20 to $30 million each, it's easy to see why technology that can reduce that cost is so important."

  • Deeper reservoirs with higher pressure and higher temperatures.

    "These environments, where oil is reservoired in rocks that are very high pressure and high temperature, bring with them a series of challenges relative to systems capable of handling the pressures and metallurgy capable of withstanding extreme temperatures," Dengo said.

    An added consideration in these deeper reservoirs with higher pressures and temperatures is degradation of the rock properties, according to Mason. Technologies will have to be developed to increase production rates and ultimate recoveries from degraded reservoirs.

  • The need to better understand how reservoirs perform in these extreme water depths and subsea depths and under the pressure-temperature conditions encountered.

    "We have a long learning curve ahead of us with regard to how these reservoirs will produce over time," Dengo said. "That's just a function of time and experience, but certainly it's something the industry is working hard to overcome."

Basics Training

In addition to technical issues, the petroleum industry faces geotechnical challenges in the deepwater — companies must combine their knowledge with technology to conduct very large, regional evaluations to determine if a basin is potentially productive.

"Then we can begin focusing on more detailed areas with all the tools at our disposal," Dengo said.

"Deepwater exploration is no different than anywhere else — we have to do fundamentaly sound science because much of our success depends on that solid foundation. From that scientific knowledge we must determine if field size is sufficient and the hydrocarbon system robust enough to justify the enormous investments required in the deepwater."

Mason agreed.

"The basics are fundamental," he said. "We must have a geologic understanding of the subsurface from seafloor all the way to the objective. This understanding can help the development process from best drilling practices all the way through to production.

"There's a lot of research on new drill bits, mud types and drilling fluids, for example, but without a basic knowledge of the whole section those new technologies won't perform at their peak."

The third important arena facing the petroleum industry operating in deepwater provinces is the fiscal and political regimes of host countries.

Of course, this varies around the world.

"For example, the fiscal regime we operate under in the Gulf of Mexico is very different than other parts of the world," Dengo said, "and these issues present challenges to project economics depending on the tax structure, royalty structure and so on.

"One barrel of oil is going to be worth a lot more in the Gulf of Mexico than in Angola simply because of the fiscal regime."

The final, but by no means less important, challenge for deepwater developments is the proximity to infrastructure and markets.

"In the deepwater Gulf of Mexico this is less of an issue," Dengo said. "We have a great deal of infrastructure in place and we are next door to one of the world's largest markets. But if you explore in the Caspian Sea, for example, this is a huge issue. No matter how big the discovery, you have to be able to get it to market economically."

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