By BRETT CLANTON, HOUSTON CHRONICLE
The Houston Chronicle
December 5, 2010
Exclusively in your print edition
After dual setbacks of a recession and the BP spill, the oil and gas industry is seeing signs of a global rebound in deep-water drilling, even as the outlook remains cloudy in the Gulf of Mexico.
The optimism comes from the convergence of several bullish trends, including continued strength in crude oil prices, renewed growth in global energy demand and ongoing exploration success in both established and emerging deep-water basins around the world.
Many projects delayed by this year's six-month ban on deep-water drilling in the Gulf are also ready to move forward.
No one is predicting a sudden surge in deep-water activity, a prospect that is all but impossible given equipment constraints and years-long lead times required for projects.
But industry officials and analysts are cautiously predicting business will increase in 2011, and say the long-term outlook remains bright for deep-water oil and gas exploration and production - a forecast that could be good news for Houston, a major global hub for the business.
"In contrast to the regulatory uncertainty that hangs over the Gulf of Mexico, the commitment to the deep water remains strong outside the United States," said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates and Pulitzer Prize-winning author of The Prize, an oil industry history. "If anything, it is only getting stronger."
In recent years, oil and gas companies have pushed farther into deep-water areas as higher commodity prices created greater incentive to explore, improved drilling and imaging technology put new fields in play and opportunities on land become more scarce.
Deep-water production, which didn't even exist before 1989, has surged since. By 2008, when crude prices reached a record $147 a barrel, more oil and gas was discovered in deep water than in onshore and shallow-water exploration combined.
But the deadly BP accident this year painfully underscored potential dangers of deep-water drilling and gave critics ammunition to advocate for greater regulation. Now, industry fears reform efforts will lead to a big rise in operational and insurance costs, making the U.S. Gulf a less attractive place to invest.
"The continuing unclear regulatory environment will likely delay any chance of returning to normal in the U.S. for quite some time," Louis Raspino, CEO of Houston-based offshore drilling contractor Pride International, said during a quarterly earnings conference call last month.
Active rigs at 6-year low
This year, the number of active deep-water floating rigs worldwide fell to its lowest point since 2004, according to ODS-Petrodata.
The decline came as still-weak economic conditions forced companies to scale back exploration spending around the world, and a government-imposed moratorium on deep-water drilling in the Gulf of Mexico brought activity to a standstill.
The ban was in response to BP's Macondo well blowout April 20 that killed 11 workers and caused the nation's worst oil spill. And though the ban was lifted Oct. 12, Interior Department regulators have not yet approved any permits for wells affected by it. Delays have come as officials wade through new offshore safety and environmental rules imposed after the accident.
Producers have all but given up on winning permits before year end. A top Shell official last week even expressed doubt about hitting a company goal of resuming work in the deep-water Gulf by the first quarter of next year. Meantime, at least five of the 33 deep-water rigs working when the moratorium began have left the Gulf.
Adding more salt in the wound for industry, the White House on Wednesday reversed itself on a plan, announced in March, to open more U.S. waters to offshore drilling.
The Interior Department said the decision to keep prohibiting drilling along the Atlantic Coast and in the eastern Gulf would give regulators more time to strengthen offshore safety requirements.
Yet, despite the move, industry officials say they see a wealth of opportunity with prospects before them today in the Gulf and around the world. That's due to continued success in deep-water hot spots including Brazil and West Africa, as well as in emerging offshore areas including Indonesia, the Black Sea, India and eastern Africa.
Confidence slowly rising
Through October, the industry had announced 23 deep-water oil and gas discoveries, one fewer than at the same point a year ago, according to Quest Offshore Resources in Sugar Land.
And companies plan to drill 40 additional prospects outside the U.S. Gulf by the end of the year, firm analyst Matt Pickard said.
In November alone, Anadarko Petroleum Corp. announced three deep-water discoveries, in Brazil, West Africa and Mozambique. "We've had an excellent run of success," said Bob Daniels, senior vice president of worldwide exploration at Anadarko, which is based in The Woodlands.
Yet, perhaps in a sign of lingering cautiousness, the company plans to hold exploration spending at roughly 25 percent of its 2011 capital budget, Daniels said.
Oil company customers are slowly growing more confident, helping "move the market in the right direction," Terry Bonno, vice president of marketing at Transocean, the world's largest offshore drilling contractor, said last month in a conference call.
Likewise, ODS-Petrodata expects the pace of deep-water rig chartering should accelerate in the next 12 months.
The ongoing fallout from the BP oil spill, however, could mean fewer of those rigs will be working in the Gulf of Mexico.
brett.clanton@chron.com
GOING DEEP
Industry experts say the oil and gas industry is beginning to see signs of a global rebound in deep-water drilling:
23 The number of deep-water oil and gas discoveries announced by the industry through the end of October, one fewer than at the same point a year ago.
40 The number of additional deep-water oil and gas prospects outside the U.S. Gulf that companies plan to drill by the end of the year.
3 The number of deep-water discoveries - in Brazil, West Africa and Mozambique - announced in November alone by Woodlands-based Anadarko Petroleum Corp.
After dual setbacks of a recession and the BP spill, the oil and gas industry is seeing signs of a global rebound in deep-water drilling, even as the outlook remains cloudy in the Gulf of Mexico.
The optimism comes from the convergence of several bullish trends, including continued strength in crude oil prices, renewed growth in global energy demand and ongoing exploration success in both established and emerging deep-water basins around the world.
Many projects delayed by this year's six-month ban on deep-water drilling in the Gulf are also ready to move forward.
No one is predicting a sudden surge in deep-water activity, a prospect that is all but impossible given equipment constraints and years-long lead times required for projects.
But industry officials and analysts are cautiously predicting business will increase in 2011, and say the long-term outlook remains bright for deep-water oil and gas exploration and production - a forecast that could be good news for Houston, a major global hub for the business.
"In contrast to the regulatory uncertainty that hangs over the Gulf of Mexico, the commitment to the deep water remains strong outside the United States," said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates and Pulitzer Prize-winning author of The Prize, an oil industry history. "If anything, it is only getting stronger."
In recent years, oil and gas companies have pushed farther into deep-water areas as higher commodity prices created greater incentive to explore, improved drilling and imaging technology put new fields in play and opportunities on land become more scarce.
Deep-water production, which didn't even exist before 1989, has surged since. By 2008, when crude prices reached a record $147 a barrel, more oil and gas was discovered in deep water than in onshore and shallow-water exploration combined.
But the deadly BP accident this year painfully underscored potential dangers of deep-water drilling and gave critics ammunition to advocate for greater regulation. Now, industry fears reform efforts will lead to a big rise in operational and insurance costs, making the U.S. Gulf a less attractive place to invest.
"The continuing unclear regulatory environment will likely delay any chance of returning to normal in the U.S. for quite some time," Louis Raspino, CEO of Houston-based offshore drilling contractor Pride International, said during a quarterly earnings conference call last month.
Active rigs at 6-year low
This year, the number of active deep-water floating rigs worldwide fell to its lowest point since 2004, according to ODS-Petrodata.
The decline came as still-weak economic conditions forced companies to scale back exploration spending around the world, and a government-imposed moratorium on deep-water drilling in the Gulf of Mexico brought activity to a standstill.
The ban was in response to BP's Macondo well blowout April 20 that killed 11 workers and caused the nation's worst oil spill. And though the ban was lifted Oct. 12, Interior Department regulators have not yet approved any permits for wells affected by it. Delays have come as officials wade through new offshore safety and environmental rules imposed after the accident.
Producers have all but given up on winning permits before year end. A top Shell official last week even expressed doubt about hitting a company goal of resuming work in the deep-water Gulf by the first quarter of next year. Meantime, at least five of the 33 deep-water rigs working when the moratorium began have left the Gulf.
Adding more salt in the wound for industry, the White House on Wednesday reversed itself on a plan, announced in March, to open more U.S. waters to offshore drilling.
The Interior Department said the decision to keep prohibiting drilling along the Atlantic Coast and in the eastern Gulf would give regulators more time to strengthen offshore safety requirements.
Yet, despite the move, industry officials say they see a wealth of opportunity with prospects before them today in the Gulf and around the world. That's due to continued success in deep-water hot spots including Brazil and West Africa, as well as in emerging offshore areas including Indonesia, the Black Sea, India and eastern Africa.
Confidence slowly rising
Through October, the industry had announced 23 deep-water oil and gas discoveries, one fewer than at the same point a year ago, according to Quest Offshore Resources in Sugar Land.
And companies plan to drill 40 additional prospects outside the U.S. Gulf by the end of the year, firm analyst Matt Pickard said.
In November alone, Anadarko Petroleum Corp. announced three deep-water discoveries, in Brazil, West Africa and Mozambique. "We've had an excellent run of success," said Bob Daniels, senior vice president of worldwide exploration at Anadarko, which is based in The Woodlands.
Yet, perhaps in a sign of lingering cautiousness, the company plans to hold exploration spending at roughly 25 percent of its 2011 capital budget, Daniels said.
Oil company customers are slowly growing more confident, helping "move the market in the right direction," Terry Bonno, vice president of marketing at Transocean, the world's largest offshore drilling contractor, said last month in a conference call.
Likewise, ODS-Petrodata expects the pace of deep-water rig chartering should accelerate in the next 12 months.
The ongoing fallout from the BP oil spill, however, could mean fewer of those rigs will be working in the Gulf of Mexico.
brett.clanton@chron.com
GOING DEEP
Industry experts say the oil and gas industry is beginning to see signs of a global rebound in deep-water drilling:
23 The number of deep-water oil and gas discoveries announced by the industry through the end of October, one fewer than at the same point a year ago.
40 The number of additional deep-water oil and gas prospects outside the U.S. Gulf that companies plan to drill by the end of the year.
3 The number of deep-water discoveries - in Brazil, West Africa and Mozambique - announced in November alone by Woodlands-based Anadarko Petroleum Corp.
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