Deep-water drilling activity and spend will significantly increase in global markets over the next decade, owing to increased demand for substantial volumes of oil and gas, according to a new study by research and consulting firm Wood Mackenzie.

The study, titled The Future of Global Deepwater Markets, indicates that spending on wells is expected to increase from $43-billion in 2012 to $113-billion in 2022, challenging the industry to keep up with unprecedented growth in the market.

Senior management consultant and author of the study Malcolm Forbes-Cable tells Mining Weekly that, compared with more mature shallow-water and onshore oil and gas reserves, there is more volume to be gained by drilling in deep water, which is why there is a continuing trend of acreage acquisition and deep-water developments among market players.

He adds that accessibility of recoverable oil and gas in the deep-water sector means that it has eclipsed onshore and shallow-water development in recent years in terms of volume and value.

Of the oil- and gasfields that have been discovered in the last decade, 41% can be attributed to deep-water finds, while $351- billion has been generated through sector development. Wood Mackenzie has recorded a 39% increase in deep water and in Arctic net acreage licensed by the 20 leading deep-water players in 2012.

However, this growth has not been without increasing technical and commercial chal- lenges, says Forbes-Cable.

He tells Mining Weekly that one of the key challenges is supply chain management and whether there is enough equipment to service increased demand, with the study reporting that, in terms of rigs, demand is projected to exceed supply by 2016.

Meanwhile, existing rig orders and newly built rigs required to meet demand suggest that rig contractors will need an additional 37 000 workers over the next decade to operate the fleet.

According to Wood Mackenzie, this cannot be met with existing personnel and the historical rate of recruitment, which makes human resources another key uncertainty for the deep-water sector. “It’s going to take some time to develop the experience, expertise and capabilities of newly appointed personnel,” says Forbes-Cable.

He adds that, as stakeholders in a developing sector, deepwater drilling operators further need to develop integrated relationships with the supply chain to encourage long-term investment and to empower operators to have greater control of the costs.

Pre-Macondo Highs
Forbes-Cable’s study indicates that global deep-water drilling activity returned to pre-Macondo highs in 2012, after the sector had taken a dive in 2010. This was a result of the Deepwater Horizon oil spill, in the Gulf of Mexico, on the BP-operated Macondo Prospect – considered to be the largest accidental marine oil spill in the history of the petroleum industry.

The study forecasts bullish growth for the sector, maintaining an overall compound yearly growth rate of 9% over the next decade. Arctic drilling will also start to increase by the end of the decade, but will only represent 3% of the wells drilled out to 2022.

Further, Forbes-Cable believes the number of exploration, appraisal and development wells will increase by 150% – rising from 500 to 1 250 wells each year from 2012 to 2022.

“To meet the forecast well demand, the fleet will require 95 additional deep-water rigs to be constructed between 2016 and 2022, representing $65-billion of investment. This will require the longest period of deepwater rig construction to date, representing a change for the deep-water sector from cyclical to sustained growth,” he says.

Forbes-Cable adds that, while rig contractors need to secure investment, they also need the support of operators to move forward.

“Again, this requires long-term contracts and commitments from operators to take on these rigs for extended periods. While some companies may build speculatively, increased cooperation between rig operators and contractors is needed,” he explains.
Forbes-Cable believes tightness in the deep-water rig market has been driven by an accelerated shift from operators to construct new rigs in the wake of Macondo, which set in motion increased regulation and heightened focus on risk mitigation.

“We’re also moving into deeper waters and harsher subsea conditions, which has created the need to upgrade and renew the deep-water fleet.”

Forbes-Cable tells Mining Weekly that, currently, there are 90 new rigs on order.