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Deepwater Horizon looks brighter to the east

Oilfield Technology,

The US administration’s reaction to the Deepwater Horizon will undoubtedly result in far reaching implications for the future of deepwater drilling operations within the Gulf of Mexico and beyond. It will take some time before both the share price and reputation of the UK supermajor BP recover from what is now widely considered the worst oil disaster within US waters since the 1989 Exxon Valdez oil spill. However, whilst calls have been made for the withdrawal of BP’s licences, in reality such a reaction may cause such irrefutable damage to the offshore oil and gas industry and, with so much of the US’ potential hydrocarbon production reliant upon Gulf of Mexico operations, have the potential to severely hinder the future growth of the country’s domestic energy sector. That said, the repercussions of the Deepwater Horizon incident, from the perspective of both short term development decisions and longer regulatory consequences, cannot be underestimated.

One immediate implication of the loss of the Deepwater Horizon rig is likely to be a substantial increase in offshore energy related insurance, rising by as much as 50% for those rigs located in the deepest waters. Moreover, the smaller and marginal operators active in the region, many of which are only just seeing their balance sheets recover from the economic downturn, will ultimately have less ability to absorb such increasing costs.

Damaged but not defeated

Whilst the long term implications of the Deepwater Horizon disaster and its consequences for BP operations may be greater than ever before witnessed, if anything is to be learnt from previous incidents it is that the longer term reputation and development plans of the international oil company (IOC) are unlikely to be significantly affected despite the present pessimism. Comparisons can be drawn with the sinking of the Petrobras P-36 semisubmersible in 2001 at the Roncador field, which resulted in 11 fatalities. Whilst the environmental conditions and extreme water depths resulted in the vessel remaining unsalvageable, the inquiry that followed highlighted several major failings leading up to the disaster, including inadequate contingency plans and crew training to deal with such emergency conditions. At the time the operator was widely derided for the incident, however since 2001 Petrobras has not only increased safety standards, but is now considered one of the most influential global deepwater players, with high ambitions for the Brazilian deepwater market, Gulf of Mexico and beyond.

Brazilian giant undeterred

Indeed, the ambitions of Petrobras appear to have been undeterred by BP’s catastrophe, with the operator expected to install as many as 40 units as part of its multiphase development plans for the pre-salt Santos Basin, set to conclude in 2026. However, the development ambitions of Petrobras have not been without difficulties, primarily resulting from the requirement for a large degree of local content to be present throughout the engineering and construction stages of developments.

Whilst operators have continued to bid aggressively for US Gulf of Mexico deepwater prospects, it has been estimated that as much as an additional 30 - 50 billion bbls of oil equivalent lie undiscovered within the deepwaters of Mexico’s sector of the region, an area largely bypassed in the expansion of the global deepwater oil and gas industry. With such vast potential hidden within the country’s waters, the present situation is both unnecessary and concerning. However, with the government decreasing taxation specifically within the deepwater realm and with the US and Mexico seeking an agreement on the transnational deposits within the Western Gap, where Mexico’s ban on sharing oil profits has always prevented any developments taking place, the industry awaits the Mexican territorial waters to soon awaken to the deepwater market.

Activity in Africa

Across the Atlantic off West Africa, the deepwater dominance of Nigeria and Angola looks likely to continue for the foreseeable future. However, with emerging deepwater markets including Ghana and Equatorial Guinea, the deepwater sector is expected to become increasingly diverse across the region going forward.

A more globally diverse market

Beyond the Americas and Africa, deepwater developments are expected to become more globally diverse over the forthcoming period, with projects and exploration activity scheduled within areas not traditionally associated with deepwater development. Indeed, despite Macondo and the popular media linkage between this and deepwater, Infield believes that too much of IOCs future production growth is tied up in deepwater for this market to combust.


Offshore Asia, one of the greatest areas of deepwater potential lies within the South China Sea. Undoubtedly the most ambitious operator with claims to a large proportion of the region is CNOOC. The state operator, with little deepwater experience, is looking towards foreign companies to aid in the achievement of such ambitious targets over the short to medium term, whilst in the meantime significantly increasing research and development investment into deepwater technologies including subsea production systems, pipelay technologies and subsea mooring systems, with as much as US$ 15 billion outlined for the construction of deepwater facilities over the forthcoming decade. Over the longer term deepwater development potential appears promising within the region, with several foreign operators looking to drill deepwater wells this year. However, once again the shockwaves of the Deepwater Horizon catastrophe cannot be ignored, with a delay to the startup of CNOOC’s first deepwater rig expected as a result of a government order to carry out checks on all offshore oil and gas projects.


The Australasian region too, whilst remaining a marginal regional player within the deepwater market in total terms, holds significant growth potential for deepwater gas development. With government commitments centring upon exploration and survey work within the Carnarvon and Browse Basins in the order of US$ 3.7 billion over the forthcoming five years, Western Australia’s deepwater ‘frontier waters’ are becoming an increasingly attractive proposition to both majors and independent operators alike. With environmental concerns already high on the agenda of the development of Australia’s offshore sector, including a particularly firm stance towards environmental protection and drilling regulation, the impact of Deepwater Horizon is likely to be closely observed by Australian authorities.

North Sea

Within the established deeper water regions, such as the UK and Norwegian North Sea, where the potential impact of an incident of Horizon proportions would arguably be the most severe, governments are exercising extreme caution towards future deepwater development. Whilst the UK is to double rig inspections going forward, the Norwegian Energy Ministry has taken the decision to delay drilling activities within the new deepwater licences expected to be issued through the forthcoming 21st licensing round. Indeed, as approximately 40% of the blocks on offer were located within the Norwegian Sea’s deep waters, and with Norway now considered the most secure hydrocarbon source within Europe, the likely implications of a delay to new deepwater drilling activities within the region are awaited with some concern.

Significant consequences for the future

The shockwaves of the Deepwater Horizon incident are being felt across the industry and particularly within the deepwater sector, where more stringent safety regulations and an increasingly restrictive operating environment are likely to result in development and licensing delays. Taking place at a time when the industry is only just recovering from the effects of the global economic downturn, hitting arguably the most vital offshore segment to future hydrocarbon production, the repercussions of the Deepwater Horizon tragedy will undoubtedly significantly weigh upon deepwater development decisions for the foreseeable future.

Author: Catarina Podevyn, Infield Systems Ltd

For the full length article, please see the July issue of Oilfield Technology
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