Deepwater Oil Exploration

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Top Contributors Jay Related Articles Transocean (RIG) ChevronTexaco (CVX) Brazilian Petroleum Corporation (PBR) Diamond Offshore Drilling (DO) Trico Marine Services (TRMA)/Bulls

Oil exploration and production (E&P) companies are drilling further out into the sea, deeper under the ocean floor (1000+ feet)^[1] to tap into the pockets of oil and natural gas. Though deepwater was once prohibitively expensive, high oil prices make the economics of deepwater drilling economically feasible. Factors affecting this E&P frontier include:

• Strong worldwide demand for energy, especially from burgeoning economies like China bolster the increasing price for oil and, to a lesser extent, natural gas
• Traditional oil producing basins have matured, particularly on land, and exploration & production companies have started to look for new reserves in challenging, deepwater environments off the Coast of Africa and in the deepwater Gulf of Mexico (beyond the Continental Shelf)

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[edit] Companies that Win from Deepwater Exploration

• 2H Offshore specialises in the design, supply, and monitoring of deepwater risers as part of the parent group Acteon. 2H act as engineering consultants to the major oil and gas companies, with offices worldwide.

• Transocean (RIG), as the name implies, is the biggest U.S. provider of rigs, platforms and services for offshore drilling. The company acquired Santa Fe International (GSF) in late November 2007, creating the second largest oilfield services company overall, behind only Schlumberger N.V. (SLB) (based on market capitalization). Given that GSF also specializes in offshore drilling, the company in effect doubled down on deepwater drilling.

• Oceaneering International (OII) derives about 90% of its revenue from the oil and natural gas sector. The company provides engineering services and products such as remotely operated vehicles (or ROVs such as submarines), tubes, umbilicals that connect the equipment underwater to the rig, valves and similar products. Most of its products focus on deepwater applications. Fiscal year 2006 revenues amounted to $1.28 billion.

• Brazilian Petroleum Corporation (PBR) is the national oil company of Brazil, enjoying a virtual monopoly of all petroleum exploration and production in the country. In November 2007, the company announced the discovery of the Tupi oilfield, the biggest discovery in the last 20 years worldwide. Estimates from geological studies claim reserves in the range of 5 to 8 billion BOE. To put this in perspective, this field alone increases Brazil's hydrocarbon reserves by nearly 50%. One complication is that the oil is beneath 2000 to 3000 meters of water, making its retrieval a complex and likely expensive deepwater project. ^[3] As of May, 2008, Petrobras had contracted 80% of the world's deepwater rigs, driving dayrates up for the rest of the industry as remaining oil majors like Exxon Mobil and BP compete for the other 20%.^[4]

• Trico Marine Services (TRMA) is a small company (~$500 million market capitalization as of November 2007). The company rents boats to transport equipment to offshore rigs, charging $20-25,000 per day for its vessels. The company will benefit from the growth of deepwater rigs, which are further out (i.e., higher overall rates). The company has a strong competitive moat in that not many vessels in the world are equipped to erect and maintain offshore drilling facilities.

• ChevronTexaco (CVX) acquired Unocal to get exposure to its Gulf of Mexico holdings. The company also partnered with MIT to develop ultra-deepwater drilling technology, to allow the company to search for oil at depths never before considered.

• Diamond Offshore Drilling (DO) is a leader in the offshore drilling industry. DO owns one of the largest drilling fleets in the world, a total of 44 ships, including 30 semisubmersibles, 14 jack-ups and one drillship. DO contracts these rigs to “operators”, or oil companies to find new oil or gas deposits, or to prepare existing deposits for production.

• HESS is an oil and gas company, that specializes in deepwater drilling. It derives almost 2/3 of its production from the US.

[edit] Companies that Lose from Deepwater Exploration

• Rowan Companies is an offshore drilling contractor that operates only in shallow waters. As such, the company does not have the deepwater capabilities, meaning it cannot compete effectively in regions (like the Gulf of Mexico) where shallow production is slowing and deepwater production is increasing, causing its dayrates to lag behind the rest of the industry.

• Hercules Offshore (HERO) is an offshore drilling contractor operating in shallow waters only.

[edit] The Gulf of Mexico

The Gulf of Mexico (GOM) is the biggest opportunity for deepwater drilling near the continental United States. Deepwater drilling started accounting for the majority of GOM production starting around 2000-2001. Based on geological surveys to date, deepwater will account for nearly three-fourths of all production in this region in 2007-2008.

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[edit] Alternative Energy Sources Become More Attractive, Too

While increasing oil prices will make deepwater an attractive option for oil and gas explorers and producers, it also makes alternative energy sources more economically viable. Everything from renewable sources such as solar and wind to newer technologies such as cleaner-burning coal and hybrid and fuel cells could steal overall share of the worldwide demand for energy.

[edit] References

1. ↑ U.S. Department of the Interior, Minerals Management Sercice, Gulf of Mexico OCS Region, 2004
2. ↑ U.S. Department of the Interior, Minerals Management Sercice, Gulf of Mexico OCS Region, 2004, p. 3
3. ↑ The Oil Drum: Tupi, The New Kid in Town, November 22, 2007
4. ↑ Bloomberg.com: "Petrobras Hires 80% of Deepwater Rigs, Inflates Rents (Update1)"
5. ↑ U.S. Department of the Interior, Minerals Management Sercice, Gulf of Mexico OCS Region, 2004, p. 12