It’s all fine and good to talk about how costs must be brought down for exploration and production in the deepwater but HOW TO BRING THOSE COSTS DOWN is the hard nut to crack? Every piece of equipment or service required by the operators is going to be more complex and that required for land drilling and production so that in and of itself places the deepwater at a cost disadvantage provided that fracking can keep opening up supplies of tight oil on land. Everyone who is fully invested in deepwater is going to have a very tough time competing in a world awash in land based crude hence why Conoco Phillips decided to pull the plug on their offshore ambitions. There simply is not going to be enough profit to be made to justify the expense.
Written by Jerry Lee Tuesday, 24 November 2015 12:40
The high costs surrounding deepwater developments and the low price of oil is a challenging combination for operators.
For deepwater operators, such as Total, this challenge must be carefully navigated in order to sustain deepwater investments. Khalid Mateen, vice president, engineering and technology at Total, gave his insights into the challenges and potential remedies that lay ahead in a keynote speech at the seventh annual Teledyne Technology Focus Day on 19 November 2015.
The immediate issue for deepwater developments is the current low price of oil. Developing deepwater fields is a cost intensive process. Considering transportation, services, qualifications, permitting, and infrastructure costs, capital expenditure (CAPEX) costs are much higher than onshore developments. Similarly, operating in remote locations, where risk must be low, and safety and preparedness must be high, operating expenditure (OPEX) is also much higher than onshore.
“In the last 10 years, we’re looking at the doubling of both CAPEX and OPEX, when it comes to deep offshore,’ Mateen said. “Even at US$100/bbl, these costs were not sustainable, and when it comes to $40/bbl, one obviously cannot justify this capital cost.” The sources of capital cost increases comes from many areas including the complexity of current operations, and the increasing remoteness and complexity of the fields being discovered.
As the price of oil rose in the early 2000s, operators were able to justify designing operations that were more flexible and could respond to a greater number of scenarios. However, this resulted in complex designs, which involved more engineering, and greater costs. Mateen explained that there was a time when operators were able to afford more costly project specific specification, however, in the current cost environment, operator must now work with the service companies to discuss what acceptable specifications are. If deepwater operations are to survive going forward, the luxury of unnecessary customization of facilities and individual company specifications of components must cease; industry needs to develop a more cost-effective “good enough” mindset.
“We have to do things simply, rather than making designs which can do everything, let’s go for something that is good enough for what you’re trying to do; simplify things,” Mateen said.
By simplifying, standardizing, and industrializing deepwater technologies, 25-30% reduction in lead time and costs are projected, Mateen told the crowd. However, these likely won’t save the industry, he said. They are a necessity, however, there is a limit to how much they can save.
Mateen said that these limits are based on two reasons: first, the resources we are developing are no longer come from massive fields, which limits the economic and cost-saving potentials; second, the industry cannot create an economy of scale like commodity industries such as automotive. As an example, the automobile industry produces millions of vehicles every year; however, in the oil and gas industry’s most productive year, 2013, the industry delivered 632 Xmas trees, he said. Thus, the industry must be mindful of the limits that standardization and industrialization have, and must set reasonable expectation, but more importantly, the industry must realize that more must be done.
Project inefficiencies are not the only source of prohibitive CAPEX. The fields themselves are also a contributing factor, Mateen said. Considering the fields as a whole, more are being found away from shallow depth, far from current infrastructure, and in smaller quantities. These isolated fields are not large enough to require standalone facilities, and, if they are to be developed, require costly tie-backs to existing infrastructure. The oil itself is also found to be more complex in nature, resulting in greater costs associated with flow assurance management to ensure greater reliability and operability at deeper water depths, Mateen said.
These issues may be overcome with the willingness of the deepwater industry to continue investing in technology developments. For example, Mateen said, with more isolated fields requiring greater length tie-backs, improvements in pipeline cost could be realized by developing single pipe architecture, and lowering laying costs, or research into composite material and subsea high-integrity pressure protection system (HIPPS). Also, the flow assurance issues associated with complex oils can be reduced with greater investment into remediation technologies, more reliable prediction tools, and developing a better understanding the nature of the oil.
“[Total] firmly believes that technology and constant innovation is what will bring us acceptable economic profitability, which will allow us to continue deepwater development,” Mateen said.
However, with the prohibitive costs of new technology developments, collaboration is key to its feasibility.
Technology qualification is an area that can see value from collaboration, he said. When taken into perspective, it is unnecessary for the same technology to be qualified multiple times to specification customized to individual companies.
“Companies should get together and come up with an industry acceptable criteria for new technology qualification. So you do it once and everybody can use it,” Mateen said. “I think there is a reason for industry to sit together to work on this so that we can avoid the unnecessary cost and waste that we incur qualifying technologies multiple times.”
Industry-wide collaboration also has the potential to lower the technology costs upon commercialization, as a result of competition during the development process. FMC Technologies and Subsea 7’s joint industry projects (JIPs) to develop 20,000 psi rated equipment exemplify these ideas. Each JIP can qualify their equipment and all parties involved may use them, and because both JIPs are doing similar work, the commercialized cost of the technologies must be competitive, lowering deepwater development costs.
“This is high time that we press on with technology development because that’s the only way that the required profitability can be ensured,” Mateen said.