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The best time for ultra-deepwater?

Friday, October 16, 2015

A low oil price era could be the best possible time to go ultra-deepwater, if it means drilling costs are cheapest - and there are plenty of possible targets in the North and South Atlantic, said Spectrum's Neil Hodgson.

The best time to drill in the ultra-deepwater could be when there's a low oil price, said Neil Hodgson, executive vice president Mediterranean and Middle East Region with seismic company Spectrum, speaking at the Finding Petroleum May 27 forum, 'Finding Oil in Atlantic Basins.'

Mr Hodgson defines ultra-deepwater as being deeper than 3000m water, about the deepest which has been drilled so far.

With the drop in oil price, oil companies are getting scared about deepwater, and going back to looking at shallower water, where the available targets are much smaller, he said.

But drilling rig day rates might be about to plummet.

Consider that from 2001 to 2005, day rates for drilling rigs were around $150,000 a day, and the oil price was under $50 a barrel.

But in 2005-2006, the oil price went to around $60, and rig rates went up to around $600,000 a day, and stayed high ever since.

The correlation here is simple supply and demand. When the oil price goes up, oil companies get more enthusiastic about drilling, and if there's not enough rigs 'the day rate goes crazy,' he said.

But the same can happen in reverse. 'The last time oil was $50 was in 2005, the rig day rate was $150,000 a day,' he said. 'My contention is, if there's a fall in oil price and there's an oversupply of rigs, it will revert back to that position. Day rates for UDW rigs are already $400,000 a day and declining.'

Studies by Quest Offshore show that for the next four years, supply of drilling rigs will outstrip demand, he said. So 'we can expect day rate to go right back down.'

This means that a well which might cost $200m with high rig costs now costs $50m to $60m. 'Think of the scale of the risk reduction in that one step.'

Since steel, the main variable component in the construction of drilling rigs, is the same price as it was 10 years ago, it doesn't make sense for people to say (today) that they can't drill in deepwater until the price gets [up] to $100/bbl.

The only difference between today and 2005 is that the oil industry has got used to paying a higher rig price, he said.

Can we do it?

Can we drill at ultra-deepwater? We have all seen the charts from oil companies showing how they are drilling in deeper and deeper water, and the different rig designs they have used, and there's no reason to stop at 3000m, he said.

Some companies have been drilling in deeper water longer than others, but it has not taken much time for the late starters to catch up, because most of the expertise in deepwater drilling resides with the driller, not the operator.

As an example, 'Repsol started in drilling in deepwater in 2007, now they've drilled in 2700m of water,' he said. 'Deepwater drilling is not the domain of supermajors, it is the domain of every oil company.'

'The deepest water well in the world is by ONGC offshore West Coast India, 3174m of water in 2013,' he said. 'The reason they could do it is they used a Transocean rig. That's where the equipment, technology and know-how resides.'

Also consider that between 1986 and 2005, a time where the oil price was below $50 the whole time, the maximum drilling depth increased from 2000m to 3000m, a big jump.

Prospectivity

The next question to answer is if there is any prospectivity (ie potential oil and gas) in deepwater.

Mr Hodgson showed a chart of the thickness of sediment in oceans around the world. In much of the Southern Atlantic Ocean, there is between 7 and 9km of sediment.

There is more sediment that hasn't been explored than sediment that has been explored, he said. 'We haven't explored it because we didn't think we could [due to water depths], but we can.'

Source rock has recently been found offshore Namibia, on the West African coast.

There could be a great deal of hydrocarbon source rock in the South Atlantic. Consider that the South Atlantic was previously an enclosed sea, with South America and Africa closer together, bounded to the South by the Falklands Plateau.

It is known by geologists as the Aptian Sea. 'reported as the largest inland sea there's ever been on planet earth,' he said.

As an isolated basin, it could collect a lot of sediment from rivers flowing from the West and East, he said. 'Just like the Black Sea, it's a fantastic place for sinking organic material.'

For oil in the source rock to form, you need about 3 to 4 km of sediment above the source rock, to heat it to the required 100 degrees C. You can map out which areas of the South Atlantic have this thick sediment, he said.

Traps

To have a reservoir, you also need a trap.

Mr Hodgson reported on some research made by an oil major on all of their discoveries, and found that for slope channel systems (such as old riverbeds) you have a chance of success of 1 in 10, and the average resource size is 100 mmbbls.

However for oil discoveries in apron fan sands, the chance of success is 1 in 3 and the average resource size is a billion barrels.

This oil major has 'drilled 100 exploration wells a year for 50 years, so they know what their chances of success are,' he said.

In Uruguay (East coast of South America), there are 'apron fan sands on the basin floor,' he said. 'These are the big plays we are looking for.'

Much of the seismic imagery, shown in terms of time, shows the fans pointing upwards towards land, which means that the oil could migrate up the fan and get lost.

However if you convert time to depth, you see that the dip goes the other way, towards the ocean ridge. 'You've got a perfect stratigraphic trap,' he said. This geometry is formed by plate scale processes creating very large traps.

'These are the biggest prospects you're ever going to see.'

'You can pick any line offshore Uruguay and go from PSTM (post stack time migration) to PSDM (post stack depth migration) and always get the same thing,' he said. 'When we convert it to depth, it all dips up in the seaward direction.'

A similar picture with apron fan sands can be seen from the East Coast of the US, Namibia, and the South Africa Orange Basin, Gabon, Mauritania (site of a recent Kosmos Discovery) and Senegal (site of recent Cairn discovey).

Mr Hodgson concludes that the reservoirs, the low risk traps and the source are all to be found in ultra deepwater and the economic risk profile for exploration is never better than when the oil price is close to $50/bbl. Hodgson says 'We have begun the journey into deep water drilling - but we mustn't stop before we get the prize'.

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