Six months after BP’s Macondo well disaster, the deepwater drilling industry is still finding its way forward. While no other countries followed the US and imposed moratoriums on drilling in the deepwater, many, like the European Commission, are reviewing the process in their patch and wondering if they should tighten regulations.
PFC Energy, the consultancy, describes how countries have reacted to the accident in a new report:
Initial responses to the US Gulf of Mexico oil spill varied widely from the Norwegian halt of new deepwater licensing in an environmentally sensitive and contentious area to the UK’s statement that regulations were “fit for purpose”. In the ensuing months, however, a significant number of countries began lengthy processes evaluating their offshore regulations and oversight procedures, which are likely ultimately to result in tougher regulations and more on-site safety inspections… The upcoming changes in multiple offshore regulatory environments will inevitably result in longer time to first oil or gas as well as increased exploration and development cost.
On top of that, Gary Adams, vice-chairman of Oil & Gas for Deloitte, the consultancy, suspects partners on projects are going to apply more scrutiny to operators on deepwater projects. The typical Joint Operator Agreements, he explains, left operators responsible for the final decisions on projects. But in future, he says, these working interest partners will want to apply more pressure to ensure decisions are based on sound quality and safety requirements.
Given the loss of “carte blanche” for operators, a well that in the past might have taken 90 days to drill could very well take 120 days, said Simon Flowers, head of corporate research for Wood Mackenzie, the energy research firm. And these delays will push up drilling costs, given rig day rates of up to $500,000.
While some of the small to middle sized companies might not want – or be able – to cope with these changes, the majors and national oil companies who have the financial backing to stay in the game will do so.
For, as Bernstein Research notes, deepwater exploration barely existed 30 years ago, and yet now it has become the backbone of the global exploration and production industry. Since 2000, deepwater discoveries have accounted for 58 per cent of the cumulative 148bn barrels of oil equivalent discovered.
And companies are not going to rest until they have tapped into those resources. Jonathan Dison, a managing director at Bender Consulting, puts it this way:
There are plenty of places to drill offshore. The majors have got the technology, and they’re getting better and better at it every day. They will go where the oil is.
And, given the royalties to be made by the countries that own the deepwater resources, it seems sure the drillers will continue to be let in. One look at the success of the world’s largest share offering by Petrobras, the Brazilian energy company, last month, to help fund its $224bn investment programme – much of it in deepwater – underscores how much investors believe deepwater drilling still has a future.