Offshore Drilling

*UPDATE:  Be sure to visit the ‘Offshore Drilling News and Trends’ section below to learn about how recent events and Covid-19 have affected the offshore drilling industry

Introduction to Offshore Drilling

The Oil 101 upstream, drilling & production lessons are useful background before you begin this discussion of offshore operations.

Offshore Drilling: The Difference Between Onshore and Offshore Drilling

As explained in Oil 101, a typical onshore operation starts with seismic technology used to determine where potential oil and gas deposits may exist, far underground.

An exploratory or “wildcat” well is drilled to determine if a hydrocarbon reservoir exists at a suspected location. Once well logging indicates a quantity and quality to justify further investment, additional wells may be drilled to “delineate” or establish the size of the reservoir.

If it is deemed commercially economic, with anticipated prices for the oil and gas, additional wells will be drilled to establish and increase production.

With this background, this e-book now discusses the historical evolution of offshore drilling and deepwater operations – with a focus on the technology advancements in drilling.

A separate e-book presents the technology developments for development and production. The first offshore wells produced oil in 1897 from a set of piers at the Summerland offshore field in California.

Today, shallow water wells are those in less than 1,000 feet of water. Deepwater wells are drilled and produced in 4,000 to 7,000 feet of water; and Ultra Deepwater wells are those in over 7,000 feet.

Water depth is a major factor in determining the type of drilling and production facilities as you will see later. Recent years have witnessed a dramatic advance in the technologies employed to identify, develop and produce offshore reserves, some now in water depths beyond 10,000 feet.

Offshore drilling operators, equipment and service providers have all made major technology contributions. Evolution into Deepwater Over one hundred years ago, land drilling and production techniques were applied in shallow coastal waters.

The drilling rigs were mounted on docks extending from shore, or on shallow water platforms with causeways for transporting supplies. Then, about 70 years ago, jackup platforms, with legs that extended to the seafloor, were able to drill in a few hundred feet of water. When there was a commercial discovery, a steel platform was fabricated on land and set on the seafloor to ultimately support the production wells.

These jackups and platforms had cranes that lifted supplies off supply boats. Offshore drilling and production still utilized land technologies, only slightly modified. About 60 years ago, operators developed floating vessels capable of drilling in water depths approaching 1000 feet.

This was a challenge. For the first time the drilling rig moved both vertically and horizontally due to the wave action. “Water depth is a major factor in determining the type of drilling and production facilities.”

Additionally, the blowout preventer (or BOP), essential to manage drilling safety, had to be moved from under the rig floor to the seafloor.

A drilling riser was added to connect the BOP to the vessel. The riser is a vertical pipe used that contains the drillstring and provides a conduit to bring the drilling fluid back from the well. Both the drill pipe and the drilling riser were designed extend and contract as the floating vessel moved in the waves.

Starting about 30 years ago, exploration technology indicated that there were large reservoirs waiting in even deeper water. Floating drilling rigs today have the capability to drill exploratory and development wells in water depths to 12,000 feet.

MODUs (Mobile Offshore Drilling Units)

The drilling rigs, both jackups and floaters, are called MODUs (Mobile Offshore Drilling Units). They have a wide range of designs, capabilities, and cost, depending on weather conditions, water depth and well depth.

There are basically two types of MODUs that drill in deepwater, semisubmersible (semi) and shipshape (drillship). The semi is rectangular in shape with four vertical columns and submerged pontoons that provide much of the buoyancy.

They were designed to be more stable than ships in rough seas, like the North Sea. On a semi, drilling can proceed, even in bad weather that would shut down a ship. But a semi is more expensive than a drillship, needs more resupply support and transits more slowly between locations. The system of anchors and lines that hold a floater on location, called the mooring system, is heavy and time-consuming to deploy at each new location.

“Recent years have witnessed a dramatic advance in the technologies employed to identify, develop and produce offshore reserves.”

Starting about 40 years ago, some MODUs began to be equipped with a dynamic positioning system, called DP. Using a computer, several large thrusters and a position reference system, the DP system is capable of holding the MODU on location without a mooring system. This saves time getting started, reduces deck weight but increases cost, both construction and daily fuel consumption.

Offshore Drilling: Introduction to Production in Offshore Drilling

Based on exploratory drilling and well log results, a reservoir may be deemed to be commercially economic. Work then gets underway to develop the prospect.

Development includes planning, designing, constructing and installing the entire required production infrastructure, as well as drilling the production wells. The major elements of a deepwater development will be described in this module.

Deepwater production generally refers to developments beyond depths where bottom founded platforms may be used.

Offshore Drilling: Deepwater Floating Platforms

One offshore drilling concept, the Tension Leg Platform (TLP), is held up by buoyancy, but is moored to the seafloor by vertical steel legs, called tendons. The tendons prevent vertical motions, thus providing a stable platform to both drill and complete the production wells.

The Tension Leg Platform

The Tension Leg Platform has been popular in the Gulf of Mexico in water depths to about 4500 feet. Beyond 4500 feet, TLPs become uneconomic due to the rapidly increasing weight of the tendons.

SPARs

Another development concept with low vertical motion is the Spar. A Spar is a large cylinder that extends down to about 350 feet below the waterline. Shell most recently used a SPAR to develop the Perdido field in 8500-foot water depth.

Spars are held on location by conventional, spread mooring lines that are made of synthetic material such as polyester and Kevlar. While expensive, these synthetic lines are nearly neutrally buoyant. Steel mooring lines would be prohibitively heavy in very deep water.

“Deepwater production refers to developments beyond depths where bottom founded platforms may be used.”

Subsea Completions and Processing

Perhaps the most ambitious technology advance in deep water has been the use of subsea well completions. The TLP and Spar platforms previously described permit wells to be completed with the production trees are on the platform deck. This facilitates access to the well for downhole maintenance, called workover or intervention.

Subsea completion refers to placing the production tree on the seafloor. Today, most deepwater production wells are completed on the seafloor after being drilled from a floating drilling rig. The completion may be performed by the same rig, or by using a smaller, specialized vessel.

Subsea completion advances now include moving oil-gas-water separation facilities from the platform on the seafloor. This has major advantages. For example, liquids separated from gas on the seafloor are pumped back to the surface in separate pipelines. This avoids the difficulty of pumping 2-phase fluid flow, always a major challenge.

The very deepwater discoveries in the Gulf of Mexico, off Africa and off Brazil, also required major advances in pipeline construction and installation. Huge new pipelay vessels were developed to lay pipe from deepwater fields to onshore facilities hundreds of miles away.

Some vessels use gigantic reels around which pipe is wound next to shore and then unwound into the water far offshore. Other pipelay barges have long welding lines into which straight sections of pipe are welded together.

The continuous pipe is then played out over the stern and lowered to the seafloor as the barge moves along the pipeline route. Other technologies have also been developed to bury the pipe on the seafloor, to inspect it both inside and out, and to repair it.

“Today, most deepwater production wells are completed on the seafloor after being drilled from a floating drilling rig.”

Control and Maintenance of Subsea Equipment

Critical to all phases of installation and operation of subsea equipment is the use of remotely operated (subsea) vehicles (ROVs). They come in a wide range of designs to perform a myriad of subsea observation and operation tasks.

Today subsea equipment is designed in conjunction with the ROV that will be used to maintain it. Modular design of the subsea equipment allows ROVs to make certain repairs, such as removing and replacing modules, when failures occur.

All equipment on the seafloor is controlled through large umbilical bundles having electronic or fiber optic communication lines.  Operators located on the surface receive a continuous flow of data from the seafloor production equipment.

This gives operators real-time control over a large number of functions in the equipment. Downhole Well Maintenance Yet another major advance is in downhole well maintenance and reservoir stimulation. Every production well requires periodic intervention.

It may be to repair downhole equipment, to remove sand or scale, to stimulate the reservoir or even to drill a sidetrack into a different part of the reservoir. Until recent years, intervention into a subsea well required mobilization of an expensive floating drilling rig.

Today, new, smaller vessels are available to perform these operations reducing well intervention cost. Remote control and monitoring, described previously also helps reduce maintenance costs. These cost reductions and the increased reliability of subsea equipment explain the major growth in subsea completions.

Offshore Drilling: Offshore Well Completions

In this lesson, we’ll focus on the unique aspects of completing after drilling an offshore well.

The primary difference from an onshore well is the location and design of the safety equipment, wellhead valves and fittings that control the fluids as they flow from the top of the well.

An offshore completion may be categorized as a surface completion with a “dry tree” or a subsea completion called a “wet tree”.

The term “tree” refers to the Christmas tree assembly that is located at the top of a well to control the flow of fluids. Christmas trees are discussed in more detail in our “Controlling the Well” lesson.

Surface Completion

In water depths less than about 6,000 feet, the wellhead is installed on the deck of the offshore platform above the water’s surface and attached to the well equipment on the seabed.

Compared with a wet tree, a dry tree is advantageous because it allows easy maintenance of the valve assemblies and for wireline access to the well. A wireline is a cable that can be lowered into a well with special tools attached to perform monitoring or downhole repairs.

Subsea Completion

When the water depth exceeds 6,000 feet, the wellhead is often installed on the seabed in a subsea or “wet” completion.

A subsea wet tree is encased in a steel box to protect the internal valves and gauges from the elements.

External access via electronics or hydraulics is designed into the protective box so that any maintenance can be done with a subsea Remote Operated Vehicle (ROV).

The wet tree is also connected to the surface using what is called an umbilical. An umbilical is made up of several hydraulic hoses which transfer power, chemicals and/ or communication between the surface and a subsea tree.

Because wireline access to subsea trees is costly, wet trees typically include permanent downhole pressure, temperature and flow-monitoring equipment. The type of tree utilized depends on a well’s specific characteristics.

Historically, subsea trees, like the trees used for onshore and “dry” offshore completions, were only vertical – that is the primary valves were always arranged in a vertical configuration.

In the 1990s, subsea trees were developed where the valves are arranged in a horizontal configuration.

In general, the horizontal subsea tree design allows for easier installation and easier access in the event repairs are necessary, compared with a vertical tree.

Offshore Drilling Podcasts:

Offshore Drilling Safety – From Deepwater Horizon to BSEE 

Offshore and Deepwater Drilling – Interview with Terry Gardner

Preparing for the OTC – Interview with Dick Ghiselin

Offshore Drilling News and Trends:

COVID-19 Response in Offshore Drilling

Consensus: COVID-19 has presented a lot of challenges for the offshore industry. Offshore rigs inherently operate in close proximity quarters, and crews encounter extended exposure. The industry is doing a good job, given the circumstances. 

+ Best practices to mitigate the impact of COVID-19 on offshore operations – Offshore Magazine Webcasts

The close quarters on an offshore rig, as well as the extended periods that crews spend on the rig, pose a unique combination of threats given the virus.

Speakers Erik Milito, Trevor Stapleton, and Bruce Beaubouef discuss “the latest technologies and safety and operational measures that are available to mitigate the impact of COVID-19 on offshore operations.”

+ The Effects of COVID-19 on The Oil & Gas Industry – Oil & Gas Journal and Offshore Magazine

Thanks to Chris Smith, David Paganie, Conglin Xu, and David Boggs for their insights.

Takeaways are as follows:

• Supply chains are disrupted because so much in the industry comes from overseas so it’s not just prices that are hurting the industry. If you think about an oil and gas megaproject and what goes into it from a logistics standpoint, it’s clear that coronavirus-induced woes are amplified in offshore projects. Offshore projects portray the perfect storm of how severe the consequences of the coronavirus can be at impacting a business.
• Staffing is down on offshore rigs in an effort to protect employee safety.
• COVID-19 is essentially halting the offshore investment cycle, hurting future projects.
• New project sanctioning at risk, everything in the second year at risk.
• Unmanned platforms are trying to use AI and digital technologies for “faster and smarter business decisions.”
• Offshore wind development installations should continue even though the supply chain will be strained in the short term.
• Exxon and Shell are making and designing equipment for health care workers.
• There’s been a trend of large integrated oil and gas companies continuing to divest towards renewable sources to lower their carbon footprint.
• Many wind tax breaks in the U.S. and China will expire this year, so you could see companies still invest in offshore wind despite being strained for cash.
• At $30 oil, the margins of many oil projects fall significantly, making offshore wind projects more competitive.
• Offshore wind can be more economical if there’s a demand for those projects whereas many oil and gas projects simply aren’t profitable at this time.

Offshore Drilling

Consensus: Cancelled projects, delayed funding, and bonds due in 2021 that can’t be paid will significantly strain and potentially bankrupt a portion of the offshore drilling industry.

+ Offshore Drilling: It’s Going to Get Worse Before it Gets Better – Offshore Engineer

Terry Childs wrote this article. He’s the head of RigLogix, so he leads the research and insights for the research firm. The firm is focused on the worldwide offshore rig market. If there was anyone to listen to about the offshore drilling market, it’s this guy. We’re including some key quotes from the article, but there’s way more to it if you’re interested in the offshore rig contract process, including laws of force majeure (act of God), that could come into play as a result of the pandemic.

“RigLogix has contacted a number of rig owners and operators and the consensus seems to be that it’s going to get worse before it gets better, especially if current conditions persist.”

“Announcements of operators cutting 2020 capital expenditure plans are coming fast and furious with a 20-30% reduction typical.”

Chapter 11 bankruptcies could pick up. Time is of the essence. There are debt payments due in 2021 that, if offshore drillers can’t afford, may force them to turn to bankruptcy. If things improve quickly, maybe this can be avoided.

“If more countries end up adopting no travel bans or lockdowns, it will only extend the list of idle rigs.”

“Most of the nearly 300 drilling programs that currently have 2020 start dates will be delayed.”

“Some contract awards, particularly those where drilling is not planned until 2021 or later, should continue but it is reasonable to assume that the number of contracts finalized during the next few months will be minimal.”

+ Day rate pressures looming for all types of offshore rigs, contractor claims – Offshore Magazine

“Seadrill has issued an update on the status of its offshore rig fleet and market prospects.”

This article goes into Seadrill’s latest contracts for its rigs, what it’s forecast is, and more. There’s some good and bad news, mostly bad, but Seadrill was able to land a “$48-million, two-well contract from ExxonMobil for the drillship West Saturn to operate offshore Brazil, including 2.5 years of continuous nationality.”

“Current market conditions have led offshore operators generally to pare back 2020 capex, and the likely impact on drillers, Seadrill said, will be a reduction in exploration programs and delays in the sanctioning of development programs, resulting in cancelled or deferred tenders, contract terminations, and renegotiation of existing contracts. This will in turn affect supply and demand dynamics, putting pressure on day rates and driving down utilization for all types of rigs in the coming months.”

Offshore Production

Consensus: Existing offshore projects will continue as oil majors prioritize long-term production, cut shale spending.

+ Global E&P capex may hit 13-year low – Offshore Magazine

+ Oil majors slash 2020 spending by 20% after prices slump – The New York Times

+ BP cuts spending by quarter, lowers U.S. shale output – Yahoo Finance

+ Chevron halts share buybacks, slashes Permian on oil rout – Bloomberg

+ Shell, Total cut spending, share buybacks in response to oil price slump – S&P Global Platts

“Global capex for exploration and production companies is expected to drop by up to $100 billion this year, about 17% versus 2019 levels, under Rystad Energy’s updated base case scenario of $34/bbl in 2020 and $44/bbl in 2021.”

Aside from the general market view, independents and majors across the board have cut their capital spending.

BP’s debt-heavy and spending-heavy strategy has positioned it to return respectable cash flow in a $55 oil market, but that same positioning leaves it more vulnerable than other majors when prices are lower. Until recently, Exxon and BP had both reaffirmed their massive capital spending plans. Then on April 1, BP cut its 2020 spending forecast by 25% to avoid layoffs. Exxon also announced a cut to spending. Along with a focus on reducing operating costs over the next year, Royal Dutch Shell cut its spending by around $5 billion, or 20%. Chevron decided it too would cut spending by 50% in the largest onshore U.S. oilfield, the Permian Basin, as well as total 2020 spending by 20%. Chevron also halted its $5 billion share buyback program.

+ Petrobas Sees No Need to Cut Oil Production – Offshore Engineer

“Brazil’s state-run Petrobras sees no need for cuts in oil production, executives say, as the market for its crude remains robust in China, while domestic demand for fuel picks up amid social distancing fatigue in Latin America’s largest economy.”

Petrobras is in a unique position. The company claims to have a large interest in demand from China. They also note “while demand for gasoline had been 65% lower than normal, it is now off only 40% to 45%. Diesel consumption had fallen 50%, but is now only 30% off normal levels.”

Petrobras is also interested in moving a lot of its office operations to permanently work from home after realizing that “50% of office workers could effectively work from home permanently, Chief Executive Roberto Castello Branco said.”

The Crash

Consensus: Offshore just got the wind knocked out of its sails. What was a recovery, a renaissance even, is now a fleeting memory in the wake of several bankruptcies.

+ “Not for the faint of heart”: Oil bust lashes offshore industry still in recovery – Houston Chronicle

“The offshore oil sector, still rebounding from the 2014-16 oil bust, is again fighting for survival — this time from the coronavirus pandemic’s economic fallout.”

The article discusses how many offshore drilling companies, such as Diamond Offshore Drilling, were already struggling before the pandemic. Now, many are going bankrupt as rig contracts are canceled and customers buckle down and tighten up their balance sheets.

“”Offshore is getting hit really, really hard,” said Matthew Fitzsimmons, vice president of cost analysis for Norwegian research firm Rystad Energy. “It’s looking like investments will take a while to rebound.””

According to the article, the timing could not have been worse. Offshore investments were looking to rise this year on the backs of investments by majors like ExxonMobil, Hess, Chevron, and BP.

“Many offshore projects, however, need oil prices above $40 and even $50 a barrel to be profitable. Now with crude stalled just under $40, as it was last week, analysts say only the strongest, best-financed and most-efficient offshore companies will survive, again reshaping the industry into one that is smaller, leaner and that employs far fewer workers.”

The decline in offshore investment won’t just lower production, it will affect job markets like Houston that hosts many of the workers in the Gulf of Mexico. Apparently, the offshore industry is downright unsustainable if oil is in the $30s.

“A typical offshore well can cost $3 billion to $5 billion to drill, and can take five to 10 years from exploration to production. But they can reliably produce oil for at least 20 years.”

“Spending this year on offshore projects is expected to plunge by 80 percent to $20 billion from $104 billion in 2019 commitments, according to Rystad. At the worst of the 2014-16 oil bust, offshore spending dropped to $38 billion.”

+ Offshore drillers facing second wave of bankruptcies – Offshore Engineer

A similar article to the one above. It provides a few more statistics on how offshore drillers are suffering.

“The offshore services business is the worst performing of the oilfield services sector, with shares of the 10 largest publicly traded down 77% since the start of the year.”

Offshore Drilling:  Related Articles

The Challenge of Maintaining Deepwater Wells

This article was written by EKT Interactive Sr. Associate Terry Gardner and published in Plant Engineering magazine.