The global financial crisis has, without question, taken its toll on upstream investment.
In its April report, the IEA notes: “Analysts’ spending surveys now envisage upstream spending to be down significantly in 2009, by around 15-20%. Most agree that, while many majors and large NOCs will keep spending stable on the whole, independents and smaller oil companies will slash it most.”
North America is singled out as a region that is suffering a big hit, as evidenced by the active land-rig count crashing from more than 1,700 this time last year to 975 last month. That places the tally just short of the slide to 972 rigs in 2003.
Offshore drilling campaigns have been curtailed in some instances, too, though as far as can be ascertained, deepwater remains unaffected, largely because contracts are multi-year and punitive to get out of.
As a result, it is likely that the flow of deepwater finds will continue relatively unabated. An excellent example is the recently announced Buckskin find led by Chevron.
On February 5, Chevron said Buckskin had been located 71km (44 miles) west of its 2004 Jack discovery – both in the Lower Tertiary.
The Buckskin-1 well encountered more than 90m (300ft-plus) of net pay. More tests are being conducted on data gathered from the discovery well and additional work at the prospect, located in Keathley Canyon block 872, will be needed to determine the extent and commercial viability of the discovery.
George Kirkland, Chevron executive vice-president global upstream and gas, said at the time: “This is a very significant discovery in the Lower Tertiary trend, where Chevron is the largest leaseholder. Continuing our success at the Jack well, Buckskin reinforces the trend’s potential to provide the US with important new energy supplies.”
It is too early to say, but might the US possess ultra-deepwater trends just as rich and potentially prolific as the pre-salt discoveries offshore Brazil?
Anadarko has made the Shenandoah and Heidelberg discoveries. Both were also announced in February.
First out of the can was Heidelberg, which was drilled on Green Canyon block 859 and encountered more than 60m (200ft) of net oil pay in several high-quality Miocene sands.
“The Heidelberg discovery further validates our geologic understanding of the subsalt Miocene trend,” said Bob Daniels, a senior VP with Anadarko.
“The well encountered the same-age sands and reservoir characteristics similar to the previously announced Caesar/Tonga discoveries.
“Since 2005, we have drilled seven successful exploration wells in this Middle-Miocene trend, each targeting resources of more than 100million barrels.”
That same week, Anadarko revealed a second deepwater find – Shenandoah, on Walker Ridge block 52. This encountered net oil pay approaching 100m (300ft) in the Wilcox formation.
“This has been a remarkable week, with back-to-back deepwater discoveries in the Gulf of Mexico,” said Daniels.
“Initial data indicates the Shenandoah discovery has reservoir properties that appear to be of much higher quality than industry has seen previously in the emerging Lower-Tertiary play.”
Appraisal of both discoveries is the next step.
And the latest find to reach GoM headlines is Apache’s Ewing Banks 998 #1 discovery, which test-flowed 4,254 barrels of oil and 5.4million cu ft of gas per day. The well will be connected to existing facilities using a subsea tie-back, with first production expected during the first quarter of 2010.
Apache has completed eight wells at Ewing Banks 826 and increased production from 700 barrels per day in 2007 to a current rate of 5,300 barrels and 12.9million cu ft per day.
This find typifies the bread-and-butter nature of much GoM exploration and appraisal drilling.
Like the North Sea, deepwater GoM projects routinely face production constraints, not least the impact of weather events, maintenance programmes and failure to achieve anticipated production targets.
As was pointed out on Oil Drum recently: “If it’s assumed that a 20% decline rate is applied to GoM production, then production additions of 200,000bpd are required every year just to keep GoM output constant.
“2008 total GoM capacity additions might be as high as 360,000bpd. However, 2008 production additions are probably closer to 250,000bpd, on an annual basis.
“Similarly, 2009 GoM capacity additions might be 270,000bpd, of which about 200,000bpd will probably be production additions for 2009.”
Since 2003, oil discoveries have not been sufficient to replace reserves lost to production. However, might the Lower Tertiary trend generate enough large discoveries to turn the tide of decline? Time and a lot more drilling may yet prove the pessimists wrong.