The Peaking Of Offshore Oil And Gas Is The - PDF by ihd16607


									The Peaking Of Offshore Oil And Gas:
         Is The Party Over?
 Or Just Beginning To Get Exciting?

              Offshore Technology Conference
              Offshore Technology Conference
                      Houston, Texas
                       Houston, Texas
                       April 30, 2007
                        April 30, 2007
              Matthew R. Simmons, Chairman
              Matthew R. Simmons, Chairman
            Simmons and Company International
            Simmons and Company International
We Celebrate 148 Years Of The Oil Era

           1859:      Col. Drake strikes oil in Pennsylvania.
           1899:      Vaseline is oil’s primary product.
           1901:      Spindletop is first giant oil discovery.
           1909:      Persia finds Black Gold.
           1920:      Los Angeles Basin discovery creates
                      biggest oil find ever.
           1926-1930: Permian Basin and East Texas oilfields

   Through 1930’s, no one had any idea
       what to do with so much oil!
                                           SIMMONS and COMPANY
70 Years Ago, Drilling Teams Began Unlocking
               Middle East Oil

 Drilling teams actively scouted
 for oil sites in Kuwait, Iraq and
 Saudi Arabia.
 1938: Pay day begins:
  –Burgan discovered
  –Damman Dome discovery
 1941: Abqaiq discovery in
 Saudi Arabia confirms giant
 oilfields in the Middle East.
                                     SIMMONS and COMPANY
              60 Years Ago
   Exploration Resumes In Middle East

Ghawar discovered in 1948.
Safaniyah discovered in 1951.
Rumalia discovered in 1951.
Iran’s giant oilfields discovered
in 1936 to 1961.
1967: Shaybah is last super
giant onshore Middle East find.

                                    SIMMONS and COMPANY
We Now Celebrate 60 Years Of Offshore Oil

  1947: Kerr-McGee goes offshore
  beyond piers and begins era of
  offshore oil and gas.
  Prior “Ocean Energy” came from piers
  into Southern California and Lake
  The jack-up rig allowed steady growth
  in drilling up to 100-150 foot water
  Beyond 100 feet, death through
  “bends” made any further water depth
  activity very risky.                    SIMMONS and COMPANY
          40 Years Ago, We Found
        The Last 3 Great Oil Frontiers

1967: Samotlar in Siberia
opened a vast new oil region.
1968: ARCO discovered North
Slope’s Prudhoe Bay.
1969: Phillips found Ekofisk.
1975: Pemex found Cantarell.
Siberian oil and gas, North
Slope, North Sea and Bay of
Campeche became last major
regional discoveries.
                                  SIMMONS and COMPANY
We Celebrate “40 years” Of Deepwater Oil

 By 1967-1969, California
 Divers (aka Oceaneering)
 pioneered use of mixed gas for
 – Hyperbaric diving chambers soon
   allowed man to safely explore oil
   to far greater depths
 – 1973/1974: Oceaneering
   exhibited Jim Suit with GE’s
   robotic arm
 – 1974-1975: 1,000 feet test dives
   were underway
                                       SIMMONS and COMPANY
Offshore Drilling Technology Advances
   Kept Pace With Diving Advances

         Drillships and semis created ability to drill
         beyond 150 feet water depths.
         1977: Offshore Company (Transocean
         today) launched first two deep-water
         400-450 foot jack-up rigs extended shallow
         water reach.
         Subsea well systems led to offshore
         satellite fields.
         1993: Real deepwater/ultra deepwater

                                     SIMMONS and COMPANY
As OTC Approached Its 10 Year Birthday,
       Onshore Crude Peaked

 America’s oil peaked in 1970 but
 until it was clear North Slope did
 not have 5 – 10 Prudhoe Bays,
 peaking was disputed.
 This ended the Tulsa Oil Show
 and propelled the OTC into
 By 1977, offshore oil grew from
 zero in “late 1920s” to 7 million
 barrels per day.
 1979 - 1980 saw global peak of onshore production of   ≈ 55 million
 barrels per day.

                                                    SIMMONS and COMPANY
      Post 1980: All Growth In Oil Output
           Came From Offshore Oil

   A “trickle” of offshore oil in 1967 became 120%
   of supply growth by 2007:

                              1977          1987       1997         2007
                           --------------- Million B/D (Est.) ---------------
  Offshore Oil Production        7           18         22           28
  % of World Crude Produced 10%              31%        33%          38%

Source: Ivan Sandrea (OPEC) and Rafael Sandrea (IPC)
(Accepted for publication in Oil and Gas Journal, 1Q 2007.   SIMMONS and COMPANY
           A Picture Is Worth 1,000 Words

                                                                                120% of oil
                                                                                supply growth
                                                                                Peak Onshore
                                                                                = 55 MB/D

                                                        Current = 40 MB/D

Source: Ivan Sandrea (OPEC) and Rafael Sandrea (IPC)                  SIMMONS and COMPANY
(Accepted for publication in Oil and Gas Journal, 1Q 2007                   INTERNATIONAL
1977: The Offshore “Miracle” Would Need
              Lots Of Rigs

 At start of 1977, jack-up, semi and drillship fleet
 totaled 307 rigs:
 – Most jack-ups could drill to 100 – 150’ water depths
 – Semis could drill to 300 – 600’
 – Drillships were all too old (only 50% at work)
 Three major markets were: Gulf of Mexico, North
 Sea and Persian Gulf.
 The boom in adding more rigs was about to begin.

                                           SIMMONS and COMPANY
1987: What A Difference A Decade Made

 By 1987, offshore fleet almost doubled in size.
 Biggest growth was jack-ups.
 Drillship fleet shrank.
 Submersibles, platform rigs and barges deemed “obsolete”.

                         Jack-ups           Semis   Drillships
      1977                  162                98        148
      1987                  378               148          35
      Change               +216              + 50        - 12

 Source: Simmons & Company International.
 Petrodata                                            SIMMONS and COMPANY
                This Expansion Bankrupted
                    The Drilling Industry

   Downturn in offshore drilling came 18 months after land
   rig collapse.
   By early 1987, the offshore drilling industry was insolvent.
   Most offshore rig owners disappeared.

                           --------------- January 1987 -------------
                               Total        Working     Utilized
              Jackups          378           163          43%
              Semis            148            64          43%
              Drillships         35           14          40%
                               561           241          43%

Source: Petrodata                                                SIMMONS and COMPANY
By 1997, The Rebound Was Remarkable

 Offshore fleet size shrank (561 rigs dwindled to 420).
 Rigs at work rose from 241 to 397.
 Worldwide rig utilization was 95%.
 “Deepwater” rigs were still a fraction of the fleet:
 – Sonat’s 2 deepwater drillships
 – Handful of “3rd generation semis”
 May 1977: Sonat Offshore announced plans to build first
 new deepwater rig with 5 year contract at $200,000 per

                                               SIMMONS and COMPANY
Three Decades After The Boom Began…

 OTC celebrates its 38th anniversary in 2007.
 Offshore drilling survived.
 Contractors financially prosperous.
 The offshore fleet totals 512 rigs:
                                                      1987    2007
              1987      2007             Jackups       378    333
                                         Semis         148    150
 Jackups       378      333              Drillships     35     35
                                                       561    518
 Semis         148      150
 Drillships     35       35
 Total         561      518

                                   Source: MMS
                                                        SIMMONS and COMPANY
Despite Prosperity, Offshore Fleet Is
        “Long In The Tooth”

Deepwater and ultra-deepwater fleet is “new”:
– 51 4th generation rigs average age ≈ 18.7 years
– 34 ultra-deepwater rigs average age ≈ 9.8 years
Remaining fleet is “extremely mature”:
– 113 mid-water semis are ≈ 27.4 years old
– 406 jack-ups are ≈ 24.3 years old
Industry has limited history of working rigs beyond
25 year useful life.

                                         SIMMONS and COMPANY
Many Old Rigs Have Been Refurbished

  Industry has tried to cope with keeping the fleet
  – Most contractors spent massive funds to refurbish rigs
  – Many old rigs became base for deepwater upgrades
  – The rig floor equipment is far newer
  How long refurbishing can last is a mystery.
  How fast the fleet could be rebuilt is a mystery.

                                            SIMMONS and COMPANY
“Rust Never Stops…It Can Only Slow Down”

  My experience in old marine vessels:
  The Piper:
  – Built in 1986
  – Bought in 1992
  – In water 60 – 70 days/year
  – Maintenance has been extensive
  But, when paint and wood stripped in
  2006/7, rot was extensive (see next slide).

                                     SIMMONS and COMPANY
Rust Never Stops…One Can Only Slow It Down
                  Part 2

                              SIMMONS and COMPANY
         Do We Need A New Fleet?
             If So, How Big?

Since all growth in global oil came
from offshore, we still need to drill
offshore wells:
–   126 new rigs or upgrades are pending
–   First batch will begin arriving in 2008
–   Order book stretches beyond 2011
–   Capacity to build rigs and equipment is
Can the core fleet stretch to 35 or
40 years?
What happens when an old rigs
falls apart?
How much will 500 new rigs cost?
                                              SIMMONS and COMPANY
  Onshore Oil Is In Steady Decline.
Offshore Oil Decline Is Just Beginning

USA’s onshore oil totals ≈ 4.5 MB/D (associated
produced water totals 128 MB/D).
Middle East giant oilfields now in decline:
 – How fast and how steep declines will be are unknown
Mexico’s Cantarell complex is beginning its steep
Lake Maracaibo is “a mess”.
Niger Delta is a rust belt of decay.
The North Sea is in steep decline.

                                              SIMMONS and COMPANY
   Solid Facts Point to World Oil Supply
               Now Peaking

EIA/DOE data shows
global crude supply
reaching peak output in
May 2005 at
74,151, 000 B/D.
Over next 20 months,
declines have steadily
January 2007 is off 1
Peak came when
Cantarell peaked.
Odds of getting back to
this level are long-shots.
                                SIMMONS and COMPANY
    The Only Way to Mitigate Declines Is
           Drilling More Rapidly

Once oilfield peaks and begins to decline, decline
accelerates if well penetration does not soar.
Without growth in world’s rig fleet, production decline will
Cantarell is great case study:
–   40 offshore wells produced 1MB/D from 1981 – 1997
–   When pressures declined, 400 more wells were drilled
–   9 nitrogen injection wells repressured gas cap
–   Production soared to 2.2 MB/D
–   Then, the field began to collapse.

                                                   SIMMONS and COMPANY
                                              Oil Field Technology Created
                                               Rapid Production Declines
                                                                          Giddings Field - Austin Chalk Production


Average Daily Barrels of Oil Equivalent





                                                   The Vertical Well              Horizontal Drilling
                                          15,000         Era                         Water-Frac Era
                                                                                                 Horizontal Drilling &
                                                                                                 Water Fracs

                                                   1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

                                                                                                                                       SIMMONS and COMPANY
Technology Advances Will Be Limited In Scope

   Energy optimists who scoff at Peak Oil assume
   massive technology advances.
   Few R & D efforts are advancing new
   Without more rigs, advances cannot work.
   A technological solution to Peak Oil is a myth.

                                        SIMMONS and COMPANY
Can The Industry Survive Post Peak Oil?

  Will global economy survive post-
  Peak Oil world?
  How high could oil prices go?
  When demand outstrips supply,
  are shortages inevitable?
                                         E      F
  Will the OTC survive Post-Peak
      The Questions Are Easy to Ask
      The Answers Are Hard to Grasp
                                      SIMMONS and COMPANY
There Can Be Life After Oil and Gas Peak

Adjusting to a world using less oil and gas can
be done but not easily or by “free-market”
The industry must rebuild its infrastructure asset
The next generation of ocean energy might not
be hydrocarbon based.
In 2007, ocean energy might be like offshore oil
gas was in 1967.
                                     SIMMONS and COMPANY
      What Is Ocean Energy?

Waves                   Aqua Biofuels
Currents                Ocean Geothermal
Tides                   Vent and seep energy
Ocean Thermal Energy    Unknown mysteries
     Oceans cover 70% of the globe.
    We know 5% of the ocean’s floor.
  This is the last low-hanging energy fruit
                                 SIMMONS and COMPANY

                     Investment                                                   Bankers
                                              to the
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