Global Deepwater Review: Driving deeper growth

June 1, 2014

As Infield Systems prepares for the annual release of its Deep and Ultra-deepwater Market Report to 2018, we look to global development of the deepwater sector and the emerging trends over the forthcoming five years. Looking back over the previous five-year period, offshore investment directed towards deepwater development has increased from 22% of the global total capital expenditure (capex) in 2009 to 48% today; a trend that is expected to continue towards 2018, when over half of offshore capital expenditure is anticipated to be directed towards projects at water depths of 500m and greater.

The extraordinary growth in deep- water development has been driven by projects located at depths of 1500m and greater, with the ultra-deepwater sector expected to comprise 28% of total offshore capex across the 2014- 2018 timeframe; which equates to 57% of total deepwater capex spend during the period. While the ultra- deepwater market will continue to be driven by developments offshore Brazil and the Gulf of Mexico (GOM), Infield Systems expects a further 20 countries to require capital expendi- ture on ultra-deepwater developments during the 2014-2018 timeframe. Such developments include the contin- ued development of the Dhirubhai fields, in addition to the Krishna Godavari development offshore India; Leviathan and Tamar offshore Israel, and a number of ultra-deepwater field developments within the Rovuma Basin offshore Mozambique. Indeed, going forward, Infield Systems expects a significant growth in ultra- deepwater activities outside the cen- tral “deepwater triangle,” with IOCs and leading Independents taking their deep and ultra-deepwater experience from areas such as the GOM and West Africa to emerging development zones and frontier waters where significant deepwater production potential is to be found.

The forthcoming period is expected to see a consolidation among the major deepwater investors, with capex from the top 10 global deepwa- ter operators expected to almost double going forwards to 2018, compared to the previous 2009-2013 timeframe.

Petrobras is anticipated to remain the key investor within the market, holding a forecast 33% share of the deepwater sector and a 49% share of the ultra-deepwater market over the timeframe. Key projects for the NOC are expected to include the multi-phase Franco developments, Lula Central and Alto, and Iracema Sul.

Despite accounting for a significantly smaller proportion of total deepwater spend compared to Petrobras, French IOC Total is anticipated to remain a strong player within the market, with West Africa contining to be the main destination for the operator’s investments, and where the Egina development is expected to demand the highest capital expenditure for the operator.

Chevron is expected to be the third largest investor in deepwater devel- opment globally over the period, with the largest proportion of the US-based IOC’s spend expected to be directed towards Gulf of Mexico projects, driven by the Keathley Canyon-Buckskin and Moccasin developments, in addition to the Walker Ridge-Jack & St Malo hub. On a global level, Chevron’s deepwater activity is expected to remain diverse, with significant spend expected on projects offshore Indonesia, Australia and Angola during the period to 2018.

Latin America

On a regional level, Latin America is expected to remain the leading deepwater region, driven by Petrobras’ highly ambi- tious presalt development plans. The forecast period is also expected to witness an increasing number of foreign and inde- pendent operators entering the market offshore Brazil. The largest spend is expected to be attributable to IOC Shell, with capex expected on six deepwater field develop- ments, whilst Queiroz Galvao, a Brazilian Independent, is also expected to direct significant capex towards deepwater devel- opments, in particular upon the 1554m ultra-deepwater Atlanta field (BS-4).

Infield Systems also anticipates increased levels of spend across other parts of the region; with five deepwater fields expected to enter production offshore Mexico from 2016 onwards. Here, capex demand is expected to be driven by the Lakach and Labay developments at water depths ranging up to 1700m.

Gulf of Mexico

Deepwater development within North America’s GOM is expected to gain in strength over the forthcoming five-year period, led by Shell and Anadarko, while Chevron, BP, and ExxonMobil are also expected to maintain a strong presence within the region. Production from the area is expected to increase substantially, with key developments driving production gains expected to include the ExxonMobil- operated Hadrian North and Shell’s Stones and Appomattox field developments. While the future of GOM production appears positive, significant challenges remain. The GOM is a notoriously capital intensive area of development due to chal- lenging environmental factors. With the increased regulation of activities within the area following Macondo, operators have been forced to carefully examine develop- ment plans in order to ensure economic viability.

Africa

Looking towards the African region, devel- opment offshore West Africa, in particular Angola, is expected to lead deepwater reserve additions entering the market over the forthcoming five years. Indeed, Angola is forecast to account for 70% of the region’s deepwater reserves entering the market over the 2014-2018 period.

The majority of West African reserves lie within depths of between 1000-1499m, with key fields expected to come onstream including Egina, the Maersk-operated Chissonga, and Tullow’s TEN develop- ment offshore Ghana. While West African developments are expected to lead the deepwater market within the region in overall terms, Anadarko’s Prosperidade prospect offshore Mozambique, at a water depth of 1463m, is expected to yield the largest reserves entering production during the period, with Infield Systems currently expecting 2.1 billion boe to enter production before the close of 2018 or early in 2019.

While the deepwater triangle is expected to continue to account for the largest share of overall deepwater capital expenditure over the forthcoming five years, eight of the top 10 most capital intensive deepwater projects globally over the 2014-2018 time- frame are expected to take place outside these traditional strongholds of deepwa- ter development. Such developments are expected to include the ultra-deepwater section of Gazprom’s South Stream pipe- line, running from Dzhubga, Russia, across the Black Sea to Bulgaria, while Statoil’s Aasta Hansteen and Polarled developments are also expected to demand significant capital expenditure during the forthcom- ing four years. Indeed, Aasta Hansteen is currently the deepest development on the Norwegian Continental Shelf at 1274m, while the Polarled line will become Norway’s deepest offshore gas pipeline at 1265m once installation is complete, currently expected before the close of 2015 (see page 72 for more on the Polarled pipeline project).

Australia

Other key deepwater developments expected to take place outside of the deepwater triangle over the forthcoming five years are anticipated to include the Scarborough FLNG FPSO offshore Western Australia, which saw government approval in late 2013. At a forecast water depth of 500m, Scarborough is anticipated to see a final investment decision (FID) by 2015. Once installed, the platform is expected to be larger than that of Shell’s Prelude facility, which is currently under construc- tion in South Korea. Over the forthcoming five years, Infield Systems expects further deepwater projects offshore Australasia to include the Hess-operated Equus project and Woodside’s Laverda FPSO develop- ment at water depths ranging up to 850m.

Asia

Looking towards the diverse Asian region, traditionally viewed as a shallow water area of development, Infield Systems expects an increasing movement into more remote waters in order to exploit deepwater reserves. Currently the region’s deepwater assets are predominantly cen- tred offshore Southeast Asia; in particular offshore Malaysia and India. The Petronas FLNG 2 development on the Rotan field, offshore Malaysia at a water depth of 1140m, is expected to be the most capital intensive project taking place in the region over the 2014-2018 timeframe, whilst in global terms PFLNG2 is anticipated to be the fifth most capital intensive project over the period. The project’s FID took place in January 2014, with the EPIC contract award issued to JGC Corporation and Samsung Heavy Industries, whilst Infield Systems expects installation to take place before the close of 2018. Infield Systems also expects a number of countries to become new entrants within Asia’s deepwater sector, with deepwater fields expected to enter production offshore Philippines, China, Brunei, and Sri Lanka.

Europe

Offshore Europe deepwater expenditure is expected to increase by over 400% during the 2014-2018 timeframe compared to the previous five years, and will be predominantly driven by projects offshore Norway, most notably the aforementioned Aasta Hansteen, in addition to significant development offshore UK, Italy, and on the South Stream project within the Black Sea.

New areas of deepwater development are also expected to demand significant expenditure during the period, with key prospects including the Aphrodite field offshore Cyprus, in addition to possible developments offshore Crimea, Albania ,and the southern Adriatic towards the end of the 2018 timeframe. While the Statoil Polarled and Gazprom-led South Stream pipeline projects are expected to lead deepwater development spend within the European region, Infield Systems also expects significant investment from the likes of Chevron on the Rosebank development. The Galsi Spa consortium is expected to direct significant expenditure towards its giant pipeline development stretching from Algeria to Sardinia and onto Italy, with investment expected in each year of the forecast period.

Middle East

Infield Systems expects capital expenditure directed towards the Middle East and Caspian Sea markets to comprise 3% of total global deepwater spend over the 2014-2018 timeframe. This disguises the significant deepwater development expected here, with a number of key global deepwater projects within the region. Noble Energy is expected to lead this investment with its activities within the Levant Basin anticipated to require 54% of the operator’s total offshore capex during the 2014-2018 timeframe. Here, the deepwater projects of Tamar (Phases 1 & 2), Leviathan, and the smaller satellite prospects of Mari-B, Dolphin, and Dalit are expected to require 59% of the Middle East and Caspian Sea regions’ deepwater spend over the forthcoming five years, while BP’s Shah Deniz (Phase 2) within the Azeri sector of the Caspian Sea is also forecast to require significant expenditure during the period as it pushes out its subsea reach into deeper waters.

Conclusion

The next five years are expected to be a pivotal time for the deep and ultra deep- water sector. No longer a marginal area of development, E&P within water depths of 500m and greater is beginning to form the largest share of offshore spend. With a plethora of new prospects outside of the traditional areas of deepwater development, Infield Systems expects this market sector to become not just a regional phenomenon contained within the deepwater triangle, but a key driving force behind offshore development globally to the end of the decade and beyond.



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