Press Release

New Discoveries Worldwide Driving Deepwater E&P Activity and Demand for Semisubmersibles and Drillships


September 5th, 2012

Global Information Inc. would like to present a new market research report, "Deepwater Activity Statistics - New Discoveries Worldwide Driving Deepwater E&P Activity and Demand for Semisubmersibles and Drillships" by GBI Research.

Until the early 1990s, offshore exploration and drilling in deepwater areas was considered an economically unattractive option for the production of hydrocarbons from offshore reserves. The higher development costs of drilling, the lack of heavy-duty equipment, technological limitations, and high project risks were key issues that made deepwater projects commercially unviable.

However, with recent advancements in offshore drilling technology, offshore rigs such as advanced semisubmersibles and enterprise-class drillships have been developed which are capable of drilling in ultra-deep water depths; water depths exceeding 5000 feet. Some drillships possess water depth capabilities of up to 12,000 feet. This technological advancement has help exploration and production companies to venture into deepwater and ultra-deepwater basins. Even governments across different countries have been encouraging deepwater and ultra-deepwater E&P activity through conducive policies, taxation systems, and concessions in order to achive maximum possible energy self-reliance.

Successful Deepwater Discoveries Worldwide are Expected to Drive Businesses of Deepwater Exploration Players and Drilling Contractors

An observed trend is a shift towards an increase in deepwater and ultra-deepwater exploration and drilling, as more and more international as well as NOCs are successfully venturing into deepwater and remote area exploration to discover fresh hydrocarbon reserves. It should also be noted that offshore technology advancements encourage deepwater drilling which lead to the enhanced efficiency of offshore operations and subsequent reductions in operational costs are likely to boost ambitious plans by International Oil Companies (IOCs) and National Oil Companies (NOCs) to drill in remote offshore areas in search of fresh reserves of oil and gas. The introduction of sixth generation enterprise-class drillships that are capable of drilling in water depths of up to 12,000 feet, and specialized jackup segments such as premium-class, ultra-premium-class and harsh-environment jackups, are examples of the recent technological advancements in the offshore drilling sector. For instance, deepwater Brazil, offshore West Africa, offshore Angola, offshore Australia, the Krishna Godavari deepwater basin on the eastern coast of India, and the US Gulf of Mexico are all proving to be hotbeds in terms of offshore drilling activity and expenditure, especially in deepwater offshore areas. As a result, deepwater activity is expected to grow substantially in the period 2012 - 2016, and is likely to witness aggressive steps by E&P companies worldwide seeking to drill for fresh hydrocarbon reserves in deeper waters.

With the decline of available resources in onshore areas, there has been a marked shift towards increased offshore exploration. Initially, offshore exploration was mainly in shallow waters. However, in recent years, with the near-complete exploitation of shallow water resources worldwide, companies have begun drilling deeper in the oceans. There have been deepwater discoveries in various regions of Australia and China, and there has been increased activity in the deepwater areas of these countries. The increase in demand for natural gas and other factors have been responsible for companies reaching previously unreachable areas. Sub-salt reserves, which are typically petroleum reserves thousands of meters below layers of sand, rocks and salt, contain huge reserves of oil. For example, recent sub-salt discoveries have transformed Brazil into a country with one of the highest potential investment acreages globally. Tupi Field, which was discovered in November 2007, was the largest discovery in the Americas since 1970. It has estimated recoverable reserves of 5-8 billion barrels. This discovery in the sub-salt layer, which extends from the State of Espirito Santo to the State of Santa, is considered to be one of the most attractive exploration acreages worldwide. It will increase Brazils recoverable reserves of crude oil by 50%, which will significantly increase the revenues of the countrys oil and gas industries. Geological similarities between the sub-salt areas in Angola and Brazil have increased the hopes of finding huge sub-salt reserves in the continental shelf areas of Angola. Such initiatives in other regions such as Asia-Pacific could mean major offshore discoveries there as well. For instance, in October 2011, Cairn Lanka, a fully-owned subsidiary of Cairn India, made a successful discovery of natural gas in the offshore Mannar Basin off the coast of Sri Lanka. This is the first successful offshore exploratory drilling project for hydrocarbons in Sri Lanka. This fresh hydrocarbon reserve is a deepwater basin, with a water depth of around 4,442ft, and further drilling is expected to intensify in the region to confirm and exploit the commercial viability of the reserve. Similarly, the UK-based oil exploration company Tullow Oil made a successful fresh discovery of oil off the coast of Ghana, in the Jubilee oil field, in early October 2011. In the same month, in the South East Asian country of Vietnam, offshore drilling successfully yielded commercial oil production levels in the Chim Sao project in offshore Vietnam. Upcoming countries in terms of offshore exploration and production activity such as Vietnam are supported by their respective governments in oil and gas exploration, with financially attractive investment policies being introduced and the oil and gas markets of these countries being opened up to IOCs. These aggressive steps are being taken to meet those countries growing energy demands and fuel their economic growth.

As shallow water resources decrease, deep and ultra-deep sub-salt areas will play an increasing role in offshore oil and gas production. As the exploration and production activity moves into deeper water depths, the market for the services of deepwater drilling contractors, especially major and technically strong companies, will witness strong growth.

There has been a trend of increasing demand for offshore rigs operating in deepwater and ultra-deepwater environments worldwide. This has led to offshore day rates for drillships and semisubmersibles steadily rising, as they represent a major contribution to deepwater and ultra-deepwater rig deployment and activity. This, in turn, is also expected to drive the number of new-build drillship and semisubmersible construction orders made to offshore rig construction shipyards by offshore drilling contractors worldwide.

Stringent Policies by Regulatory Bodies in Context to Drilling Equipment are Expected to Better Deepwater Drilling Operations in Terms of Safety

A new proposal for making Blow-Out Preventer ( BOP) technology more safe and effective with regard to application to deepwater and ultra-deepwater rigs is expected to be approved as a mandatory regulatory norm by the US Bureau of Ocean Energy Management, Regulation, and Enforcement (USBOEMRE) by September 2012, according to the US Department of the Interior. The new regulations are expected to propel BOP technology development towards achieving safer BOP design, which would enable BOPs to completely seal off an offshore well in case of emergency. The proposal is also expected to impose regulations associated with quality of maintenance services, training of personnel, and subsea sensing technology. The US Department of Interior aims to set international standards for blow-out preventer management through the regulation.

In September 2011, the Bureau of Ocean Energy Management, Regulation and Enforcement (USBOEMRE) declared that the US government would soon be launching a detailed procedure designed to strengthen the standards which govern offshore well design and also the emergency equipment that is used to protect the operations structure. Enhanced drilling safety for the operating crew as well as environmental protection were the prime objectives of this task. In October 2011, the newly formed offshore regulatory body of the United States, Bureau of Safety and Environmental Enforcement issued stringent sanctions against oil supermajor BP Plc and the major stakeholders involved in the 2010 Deepwater Horizon rig accident and the subsequent loss of life and environmental damage that occurred as a result of the oil spill.

BP Plc, which was the operator and owner of the Macando well which ruptured to cause the disaster, was imposed with extremely severe penal sanctions - with reasons ranging from the failure of those concerned to protect environmental and human health and safety, and also for its operational failure in the form of its poor well control which caused the accident. Additionally, both Deepwater Horizon rig manager Transocean Ltd., which was responsible for the maintenance of the rigs blowout preventer, and the oilfield services major Halliburton, which was responsible for well cementing operations at the Macando site, are expected to continue paying substantial penalties. Transocean, for instance, has booked $1.2 billion for a loss contingency at the end of the first quarter of 2012. For Q2 2012, Transocean has confirmed an additional liability contingency of $750m. Halliburton is also expected to adjust its loss contingency in the coming quarters of 2012 and 2013, as part of settlement negotiations pertaining to the Deepwater Horizon incident, which took place in the US Gulf of Mexico, and involved oil supermajor BP as well as Transocean. The Deepwater Horizon incident in the US Gulf of Mexico involving the oil supermajor BP and Transocean, the worlds leading offshore drilling contractor, has provoked countries in the European region to impose stricter regulations for offshore drilling. Norway, the worlds second largest gas exporter and sixth largest oil exporter, has already put in some strict safety and operational requirements. Superior technologies are necessary to help identify leaks on subsea installations, while working expenses are expected to rise further where waters are deep and oil installations are remote.

Global Deepwater Drilling Expenditure is Expected to Rise Steadily with Increasing Deepwater E&P Activity Worldwide

With increased exploration and production in deepwater offshore regions worldwide, the global deepwater drilling expenditure is expected to rise steadily until 2016. The below statistics represent historical and projected figures concerned with deepwater drilling expenditure for the period 2000-2016 are given below.

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