Despite the precipitous decline in oil prices over the past several months, the US Gulf of Mexico is expected to remain a strong market in both the near and long-term. Several major projects are in the development phase, such as Hess’ Stampede field and Anadarko’s Heidelberg field. Furthermore, a number of new deepwater discoveries were made last year, including Shell’s Kaikias, Rydberg and Gettysburg West successes and Chevron’s Guadalupe find. Rydberg and Gettysburg West are located in the Appomattox development area, which Shell recently confirmed as now having total resource potential of over 700 million bbls.
Meanwhile, Chevron has included the Guadalupe discovery in its collaboration project with BP and ConocoPhillips. The trio has agreed to work together on the exploration and appraisal phases of 24 leases in the northwest part of the Keathley Canyon area and will also evaluate the potential for using a centralised production facility. Guadalupe is one of the discoveries being considered for potential inclusion, should the plan for a centralised facility move forward.
Offshore drilling rig market
Within the offshore drilling rig market, the US Gulf of Mexico has been trending towards deeper waters for the past several years. This is reflected in operators’ rig choices and the makeup of the region’s rig fleet. Looking back to 2005, the floating rig supply averaged 37 units, made up of 31 semisubmersibles and six drillships. Fast forward to 2015, and the supply has grown by nearly 59% to a current year-to-date average of 63 units, comprised of 24 semis and 39 drillships.
The preference for drillships over semis in the Gulf of Mexico will be maintained, as another six drillships are currently scheduled to commence mobilisation from other regions sometime this year, while only one will be leaving. No semis are scheduled to be added to the region in 2015; however, two units already in the area have upcoming contracts in place in other regions, and will depart later this year.
While the overall trend is one of continued growth, the outlook for the next couple of years is not entirely rosy. Rigs due to roll off contract in 2015 are increasingly unlikely to find work here again this year. The number of operators looking to secure rig time in 2015 has dropped considerably, and these are only sourcing rigs for one- or two-well opportunities. With so many rigs around the world seeking work, including some recently delivered newbuilds and others that are nearing the end of construction, competition for any drilling project with a near-term start is expected to be intense. At present, the US Gulf has 12 floating rigs that are either cold stacked and not being actively marketed for work, or hot stacked, which means idle and actively seeking work.
Contracted utilisation has dropped from 100% in January 2014 – meaning all marketed rigs in the region had a contract in place – to 90% in January 2015. In general, rig contractors aim to keep marketed utilisation above 85% within their own fleets when times start getting tough. To give some additional perspective to those numbers, the total supply in January 2014 averaged 51.6 units, while the marketed count averaged 45.6. Turning to January of this year, the total supply had grown to an average of 63.5 for the month, with the marketed supply averaging 57.4. This shows that over the course of the year, a net 12 floating rigs were added to the fleet.
Prioritising existing production
Once a discovery is made, the project moves into the development phase. This year there is a decline in large-scale developments in the US Gulf of Mexico. Previous projects such as Jack/St. Malo, Lucius and Tubular Bells have begun production and now operators seem more interested in boosting production from already installed production facilities. This is bringing about a spate of subsea tie-backs in both new and old fields. With several large projects from the past few years either recently online or nearing first production, combined with the current state of the market, one can see considerable thought being put into the next round of large projects before operators reach a final investment decision (FID).
One project that recently reached FID is Hess’ Stampede project. Made up of the Knotty Head field in Green Canyon Block 512 and the Pony field in Green Canyon 468, Hess has decided for a TLP-based development scheme. Contracting activity for the project ramped up throughout 2014. Modec was awarded a pre-sanction engineering, procurement, construction, and management contract for the hull and mooring systems and then sub-contracted out the hull construction to Samsung. Topsides for the TLP have been awarded to Kiewit Offshore Services. Production from the project is anticipated to begin during the first half of 2018.
Hess has also chartered two ultra-deepwater rigs for the programme. The operator signed multi-year contracts for Diamond Offshore newbuild drillships Ocean BlackLion and Ocean BlackRhino. Ocean BlackLion, which has a four-year contract, is due for delivery from Hyundai Heavy Industries in the second quarter of this year. Following commissioning, mobilisation and acceptance testing, operations are expected to begin in the fourth quarter. Meanwhile, Ocean BlackRhino, which was delivered from the same shipyard late last year, is currently on its way to the US Gulf. However, it will first undertake a previously-scheduled programme with Murphy Oil before commencing operations with Hess under a three-year charter in the fourth quarter of 2016.
Also beginning to pick up steam is Anadarko’s Heidelberg project. The spar hull arrived in the US Gulf in November 2014 after transiting from Technip’s fabrication yard in Pori, Finland. Offshore construction is underway as installation of flowlines, export lines, and suction piles has commenced. The Heidelberg field comprises of Green Canyon Blocks 859, 860 and 903, and sits in a depth of about 1646 msw (5400 fsw). Anadarko currently has semi ENSCO 8506 conducting additional exploration drilling work in the field. This rig is contracted to Anadarko until July and is unlikely to have its contract renewed. In addition, newbuild drillship Rowan Resolute is also performing exploration work in the Heidelberg field. Operations under the ultra-deepwater rig’s three-year maiden charter began in October 2014.
On the horizon, a large-scale development is expected for Anadarko’s Shenandoah discovery in the Walker Ridge area. Appraisal operations are still ongoing on the field as Anadarko, along with co-owners ConocoPhillips, Cobalt and Marathon continue to evaluate the extent of the resource. Diamond Offshore drillship Ocean BlackHawk drilled the recent 003 appraisal well, which turned up dry, but this comes after very promising results at the 002 well. The 002 well found more than 1000 ft of net oil pay and no water contact. The so-called ‘mini-basin’ is expected to be developed via a spar facility and associated subsea installations.
As for future drilling plans for the field, Anadarko is reportedly seeking a drillship with a 20k BOP stack and has invited several drilling rig contractors to bid on the job. Interested rig contractors are understood to be in discussions with various shipyards regarding possible construction options. If the project goes forward, rig delivery would likely be in 2019, at the earliest.
Subsea tie-back projects
A number of notable subsea tie-backs are also progressing in the US Gulf of Mexico. Subsea tie-backs are attractive in that they often represent lower cost development solutions, which can utilise existing production facilities. If the production facility has extra capacity, operators will work to use it to its full potential. Subsea tie-backs are also great options for field development given their quick discovery-to-production time frames. Notable subsea tie-backs that are set to ramp up this year are Noble’s Big Bend and Dantzler fields in Mississippi Canyon Blocks 698 and 782, respectively. The operator recently signed a Production Handling Agreement with SBM Offshore to host the tie-backs at the Thunder Hawk semisubmersible production platform in Mississippi Canyon Block 736. Big Bend is expected to start production in the fourth quarter of 2015, while Dantzler is expected to begin in late 2015. EMAS AMC’s newbuild derrick pipelay vessel Lewek Constellation is set to begin pipelay operations for the projects later this year along with Noble’s Gunflint project in Mississippi Canyon Blocks 904, 948, 949, 992 and 993.
Drillship Atwood Advantage recently conducted completion work on a couple of wells in the Dantzler field. Next up, the rig will move to the Gunflint field for additional development work. Noble recently indicated that first production from Big Bend is expected in the fourth quarter of 2015, to be followed by Dantzler by the end of the year, then Gunflint in mid-2016. Atwood Advantage is firmly committed to Noble until April 2017.
Another notable subsea tie-back being constructed in the US Gulf of Mexico is Deep Gulf Energy’s Kodiak field in Mississippi Canyon Blocks 771 and 727. Originally discovered by BP in 2008, the discovery well logged 500 net ft of hydrocarbon bearing sands in Middle and Lower Miocene reservoirs. Production from the tie-back development is expected to begin during the first half of 2016. Deep Gulf Energy awarded Technip an engineering, procurement, installation and construction contract in September of 2014 covering the project management, fabrication and installation of over 7.5 miles (12 km) of reeled pipeline and risers, and installation of a 6.8 mile (11 km) umbilical with associated terminations and flying leads. The contractor is expected to utilise its Deep Blue pipelay vessel to undertake the installation scope. Development drilling is currently ongoing using semi Noble Danny Adkins, which Deep Gulf has under contract until June. Kodiak is planned to be tied into the Devil’s Tower spar facility in Mississippi Canyon Block 773.
In an attempt to increase production from already producing fields, operators are also planning and carrying out subsea expansion projects. At least half a dozen expansions of already proven fields are scheduled to come on stream this year. Given oil is currently priced at around US$50/bbl for WTI, expanding on already proven reserves is a very smart move. Two such expansions belong to operator BHP Billiton – Shenzi and Neptune. Newbuild Transocean drillship Deepwater Invictus began a three-year programme with BHP Billiton in mid-2014 and has already conducted development work on both projects.
Shenzi has already undergone frequent additional work in order to boost production via water injection and expansion on the field’s northern portion. The new Shenzi expansion consists of seven water injectors being added as well as five development wells. These are expected to come online between now and 2019. The Neptune expansion is a single-well subsea tie-back to the Neptune TLP.
Another upcoming project is the Shell-operated Phase Two expansion on the Coulomb field in Mississippi Canyon Block 657. Coulomb is being developed via subsea wells tied back to the Na Kika semisubmersible production facility. Shell is currently planning a two-well expansion tied into existing subsea infrastructure. The FID for the project was announced late in the fourth quarter of 2014, and production is anticipated to begin in the latter part of the third quarter of this year.
These are just a few of the deepwater projects scheduled to move forward in the US Gulf of Mexico over the next few years. While some have been delayed until commodity prices rise to acceptable levels, most are proceeding due to the long-term nature of both the development process and the length of time a field is expected to produce. As technology improves, enabling production from challenging reservoirs, and shallower resources are depleted, deepwater projects should be expected to remain a priority over the long term.
This article originally appeared in the April 2015 issue of Oilfield Technology.
Adapted for online by David Bizley