With no less than 62 E&A wells planned on the UK Continental Shelf for this year, coupled with the possibility of the most aggressive development drilling programme for some years, 2011 appears to be shaping up nicely for the drilling community.
Moreover, rig contract awards in January were the highest in any single month since January 2006, according to Ian Burdis, senior VP of well management division at AGR Petroleum Services.
In AGR’s latest assessment of the North Sea rig market, Burdis says drilling activity levels should be similar to 2007. However, the balance of the company’s drilling portfolio has changed dramatically, from being heavily weighted towards the North Sea at that time to favouring overseas activity this year.
The company had 27 well projects in 2007, then 32 in 2008, before plummeting to just four the year following, and only three UK projects last year.
“That meant 2010 was not very good for us domestically,” Burdis told Energy. “However, we were very busy in the Falkland Islands and west Africa.
“The complexion of what we’re doing is changing. We’ve got contracts for deepwater work off west Africa. In the Falklands we have extensions to our current contracts, plus a deepwater campaign with another rig going down there later this year for Borders & Southern. And we are working to aggregate a programme for the UK.
“We’re potentially looking at a good 2011. A few dominoes need to fall and I think we’re well placed to see that happen.
“But of the 15 wells we have budgeted four are in the North Falklands Basin, two in the South Falklands Basin and two are offshore Guinea, leaving seven left to fall into place for the UK.
“This means that just short of half of our business this year looks like being in the UK. Compare this to 2007, when 90% of the business was from the UK.
“Today, we have a bigger footprint and a more diverse portfolio, so we’re not so dependent on the vagaries of a single market.
“What we have gone through in the last four or five months is our heaviest workload of competitive tendering activity ever.
“However, the UK domestic opportunities now are more limited with smaller programmes.
“There appears to be a bit more rig availability, so I think the client base is looking at it from the perspective that they don’t need to rush and that they have time to evaluate the pros and cons of the various well management companies who could run their programmes.
“The problem is that the smaller programmes mean that we’re back to the one well for operator A, one for operator B, one for operator C, a well test for operator D and then operator A might come back in with one scenario.
“There is a lack of solid blocks from mid-caps and new-entrant-type exploration & production companies.”
So is this because AGR faces more competition, enabling operators to play one competitor off against another? In part, perhaps.
There are companies like XCD that have emerged on to the market; NRG too. They’re doing well management in West Africa. ADTI has picked up Vanco work in West Africa, which was tendered to UK as well as US companies. ADTI also have Encore and Xcite.
Burdis: “Encore and its partners have approached us on two occasions so far to provide them with an alternative to turnkey.
“However, ADTI is the only one prepared to offer that service. The first opportunity discussed with Encore was for the current Catcher appraisal programme that’s going on now.
“But they elected to go back to turnkey for whatever reason. Then they came to the market for an exploration programme away from Catcher. That hasn’t happened as it was suspended because they did not achieve partner alignment.
“I think there are still three leading players in the UK non-turnkey market: ourselves, Senergy and SPD.
“Overall, in terms of the most active companies, it’s still ourselves and ADTI.”
Despite the need to boost the UK part of the current AGR Petroleum Services contracts book, Burdis appears reasonably happy with the 2011 programme to date.
“From this office (Aberdeen) we’re budgeting 15 projects. That’s 15 wells and includes what we’re doing in the Falklands,” he said.
Indeed the Falklands programme has been a significant success for AGR, if not always for the operators of the wells drilled since Desire Petroleum kicked off last year.
The original commitment was with Desire on its own – three wells originally with options.
“Rig owner Diamond, Desire and ourselves brokered a deal to do the rig move. Another Falklands participant, Rockhopper, came in on the back of that,” said Burdis.
Rockhopper hit pay dirt with its Sea Lion discovery, and the rig Ocean Guardian is currently drilling an appraisal.
Desire has so far struggled to make a credible find. Another partnership, Falklands Oil & Gas (FOGL) with BHP, also used the Guardian to drill a well that turned out to be a duster.
Burdis: “I understand that BHP has a commitment well that the Falklands Government is encouraging them to drill before the end of this year. FOGL is also interested in drilling a well this year south of the Falklands in deeper waters which the Ocean Guardian cannot handle.
“Borders & Southern has contracted the deepwater rig Eirik Raude and gets it once Tullow has finished with it (in Africa). So it should become available from October and we’ll manage the drilling for Borders and Southern.”
That programme is for two wells plus options for two. All told, AGR could still be managing one or both of the rigs into next year – a big step from the original commitment of a few months – subject to satisfactory negotiations along the way with the various parties.
And there’s another possible entrant for the Falklands. Argos Resources is interested in drilling, but the company won’t be in a position to do anything with it until September because it’s shooting seismic at the moment that will be used to inform potential drilling locations.
So, if Rockhopper and Desire are able to keep the Ocean Guardian running through until September, then Argos is likely to come in and do two wells on the back of that.
In essence, AGR can therefore look forward to the possibility of two further rig years of work in the Falklands in a success case.
Burdis: “Alternatively, it could be two wells for Borders & Southern and we finish with the Guardian in July, or anything in between. Either way it’s a lot longer than the original three wells.”
The Falklands work was pivotal last year as it accounted for 60% of AGR’s new well work.
Burdis insisted that AGR’s strategy had not changed with regard to the North Sea. It was the indifferent level of E&A activity that offered fewer opportunities for well management contractors.
However, he said the company had started looking further afield with greater determination; cultivating national oil companies like CNOOC, Adnoc and suchlike. But this takes time.
“We’ve opened a new office in Abu Dhabi; we were previously in the Dubai Free Zone, so couldn’t actually work within the UAE. That was set up as an international office.
“We’re making some inroads with the Chinese too. We’ve got a piece of work ongoing in our Houston and Perth offices; working together on some HP/HT (high pressure/high temperature) projects onshore China. But this office (Aberdeen) has predominantly been looking at the Falklands, UK and West Africa.”
Turning to the Norwegian sector, which is covered by AGR’s offices in Oslo and Stavanger, Burdis said this had been fairly steady with one rig, Bredford Dolphin, on a multiyear contract.
“We have a (new) programme with the Maersk Guardian – up to five wells in Norwegian waters for later this year. That’s for Lundin and Faroe Petroleum. And we have the well management part of the Borgland Dolphin consortium, which was put together by Nexen. That’s Nexen, with OMV, Det Norske and BP.
“Borgland is pretty much a replacement for the Bredford; the Maersk Guardian is incremental. This means a slight increase in terms of activity in Norway.”
Back to the UK sector and Burdis currently sees 27 opportunities, primarily with independents of the size likely to engage well management contractors.
“What we’ve been able to see, for example, is that there is sufficient demand out west of Shetland for another deepwater campaign, but there isn’t a rig to do it.
“The (drillship) Stena Carron is on the Lagavulin Prospect and Total and Eni have the only other deepwater rig out there, and that’s going to get tied up on the Laggan-Tormore development for a long time.
“But between Hess and Chevron and DONG and OMV there’s a need for a rig. Valiant has a deepwater requirement too. But there’s no rig capacity to do that.
“Also, west of Shetland, Faroe, Hurricane and Chrysaor have requirements that could mature; we’re engaged in discussion.
“This is the cat-herding part of the business where we try to get the operators lined up. If you look at the demand profile and put it onto a timeline, what the UK industry wants is 27 rigs in July.
“But life’s not like that. We’ll end up with the ones we’ve got, or fewer.
“Overall, there’s sufficient spare semi-submersible capacity to get probably four more rigs active that are not currently working. The jack-up side of the business had previously been significantly inactive, so there are lots of stacked jack-ups.
“Of course, 27 in July is what the operators would like because they don’t like the bad weather, the problem being that you can’t contract a rig for one slot and expect them to come out to play.
“The cat herding part of it is to get operator A, who wants to go in July, to go in April. Somebody has to go in May and someone else in June, then somebody gets to go in July. Basically the trick is to arrange them into a string of operators who can live with the available capacity.
“The former Arctic II and the Arctic IV are being reactivated in Poland. We have a letter intend in with one and SPD have a letter in for the other. They’ll both be coming out May/June. We would hope to build a minimum seven-well programme with the Arctic II (now WilPhoenix).
“That will be the core of our UK activity for this year.”
Burdis added that demand for semi-submersible rigs for the current season was up 27% from January last year for the UKCS; however, jack-up demand is down 6% at the moment. Norway is about 5% up for semis.
He said too that day-rates had eased from $260-385,000 in 2010 for a semi-submersible, compared with a figures of between $240-260,000 this year.
“The market has softened a little. It’s a reasonable rate for the rigs, but if they don’t get that sort of figure then fleet owners will leave units stacked. The Sedco 712, for example, is stacked in the Cromarty Firth, has been for quite some time, and there’s no sign of that being reactivated.”
As for the impacts from last year’s Macondo disaster in the US Gulf of Mexico, Burdis said: “The international impact has been relatively small. The UK Government and Oil & Gas UK has done an independent assessment of the regulations and pronounced them sufficiently robust.
“Overall, the fallout of Macondo doesn’t look as if it’s going to have a major impact here. Clearly small operators that are less well resourced are cautious. They’ve all heard about Macondo and are worried. It has probably pushed insurance up a bit and increased the deductibles for that insurance: we’ve been quoted increases of about 12.5% from last year. Considering Macondo, that’s pretty reasonable, I think.”
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