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 By: By: 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 discovered. Through 1930’s, no one had any idea what to do with so much oil! SIMMONS and COMPANY INTERNATIONAL 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 INTERNATIONAL 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 INTERNATIONAL 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 Maracaibo. The jack-up rig allowed steady growth in drilling up to 100-150 foot water depths. Beyond 100 feet, death through “bends” made any further water depth activity very risky. SIMMONS and COMPANY INTERNATIONAL 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 INTERNATIONAL We Celebrate “40 years” Of Deepwater Oil By 1967-1969, California Divers (aka Oceaneering) pioneered use of mixed gas for diving: – 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 INTERNATIONAL 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 drillships. 400-450 foot jack-up rigs extended shallow water reach. Subsea well systems led to offshore satellite fields. 1993: Real deepwater/ultra deepwater begins. SIMMONS and COMPANY INTERNATIONAL 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 prominence. 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 INTERNATIONAL 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 INTERNATIONAL 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 INTERNATIONAL 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 INTERNATIONAL 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 INTERNATIONAL 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 day. SIMMONS and COMPANY INTERNATIONAL 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 INTERNATIONAL 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 INTERNATIONAL Many Old Rigs Have Been Refurbished Industry has tried to cope with keeping the fleet “new”: – 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 INTERNATIONAL “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 INTERNATIONAL Rust Never Stops…One Can Only Slow It Down Part 2 SIMMONS and COMPANY INTERNATIONAL 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 “stretched” 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 INTERNATIONAL 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 decline. Lake Maracaibo is “a mess”. Niger Delta is a rust belt of decay. The North Sea is in steep decline. SIMMONS and COMPANY INTERNATIONAL 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 grown. January 2007 is off 1 MB/D. Peak came when Cantarell peaked. Odds of getting back to this level are long-shots. SIMMONS and COMPANY INTERNATIONAL 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 accelerate. 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 INTERNATIONAL Oil Field Technology Created Rapid Production Declines Giddings Field - Austin Chalk Production 50,000 45,000 Average Daily Barrels of Oil Equivalent 40,000 35,000 30,000 25,000 20,000 The Vertical Well Horizontal Drilling 15,000 Era Water-Frac Era 10,000 Horizontal Drilling & Water Fracs 5,000 0 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 INTERNATIONAL 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 technology. Without more rigs, advances cannot work. A technological solution to Peak Oil is a myth. SIMMONS and COMPANY INTERNATIONAL 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 oil? The Questions Are Easy to Ask The Answers Are Hard to Grasp SIMMONS and COMPANY INTERNATIONAL 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” efficiency. The industry must rebuild its infrastructure asset base. 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 INTERNATIONAL What Is Ocean Energy? Waves Aqua Biofuels Currents Ocean Geothermal Tides Vent and seep energy Ocean Thermal Energy Unknown mysteries Conversion 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 INTERNATIONAL SIMMONS & COMPANY INTERNATIONAL Investment Bankers to the nergy Industry For information and/or copies regarding this presentation, please contact us at (713) 236-9999 or email@example.com This presentation will also be available on our website www.simmonsco-intl.com within seven business days.
Pages to are hidden for
"The Peaking Of Offshore Oil And Gas Is The - PDF"Please download to view full document