Offshore oil and gas: global resource knowledge and technological change

Ocean & Coastal Management 44 (2001) 579–600

Offshore oil and gas: global resource knowledge and technological change David Pinder* Department of Geographical Sciences, University of Plymouth, Drake Circus, Plymouth, Devon PL4 8AA, UK

Abstract It is argued that the contribution of technological change to the offshore oil and gas industry’s progress is under-researched. As a prelude this theme, the changing geography of known offshore oil and gas resources is reviewed. Significant, and largely technologically dependent, developments are identified in terms of the industry’s global spread, its extension into deep and ultradeep waters and its ability to enhance output from well-established oil and gas provinces. Three sections (on the evolution of exploration and production rigs, drilling techniques and the application of IT to improve resource knowledge and access) then examine the relationships between technological change and the offshore industry’s progress. It is concluded that new technologies improve knowledge of, and access to, resources via four distinctive routes, but that the full impact of R & D is frequently related to the interdependence of technologies. Opportunities for further research are identified. r 2001 Elsevier Science Ltd. All rights reserved.

1. Introduction Over the last half century, and with accelerating momentum, the offshore oil and gas industry has firmly established itself as the leading player in the field of marine mineral exploitation [1]. Much of the academic research it has generated over this period has concentrated on two themes: political and policy issues on the one hand, and the influence of energy prices on offshore industry activity on the other. While work on the first has generally revolved around matters relating to the resolution of international jurisdictional disputes, the development of taxation regimes and the evolution of national offshore strategies [2–4], research into the second has focused *Tel./fax: +44-1752-233051. E-mail address: [email protected] (D. Pinder). 0964-5691/01/$ - see front matter r 2001 Elsevier Science Ltd. All rights reserved. PII: S 0 9 6 4 - 5 6 9 1 ( 0 1 ) 0 0 0 7 0 - 9

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primarily on the scale of resources and the relationship between energy prices and the oil and gas industry’s preparedness to engage in resource exploration and extraction [5–8]. This research has significantly improved understanding of the short- and longterm development dynamics of what is now acknowledged to be a vital global industry. But, despite this progress, it is striking that the literature has failed to examine in depth a third major theme: the role of technological change in the offshore industry’s development and success. This is not to argue that the importance of new technologies has been completely overlooked. Several recent contributions have in fact stressed their vital significance [8–10]. Yet despite this recognition the reality is that, outside the industry itself, offshore technological change remains to a very great extent a ‘black box’, the contents of which are appreciated only in general terms. Against this background, the primary purpose of this paper is to contribute to the development of a more appropriate balance between well-researched politicoeconomic perspectives, on the one hand, and essentially neglected technological ones on the other. Closer examination of the contents of the box is essential, it is argued, to provide overdue insights into the crucial role played by new technologies in two spheres: the enhancement, through exploration, of knowledge relating to the location and scale of resources; and the development of viable production systems capable of providing assured access to those resources once they are identified. Four further observations are appropriate at this point. First, even a brief examination of the technical literature produced by the oil and gas industry is sufficient to demonstrate that it is impossible to do full justice to this topic in a single paper. Industry journals, replete with articles on technological change, point rapidly to the conclusion that advances are significant on an extremely broad front. To square this circle the paper is deliberately selective. The three central themes explored are the evolution of exploration and production rigs, the nature and benefits of advanced drilling techniques, and the role of information technologies in both exploration and exploitation. But it is explicitly acknowledged that other topics, such as the development of subsea production systems, could have been given a similarly high profile [11]. Thus the need for further studies is seen as axiomatic. Second, it is difficult to overstate the rapid pace of technological change within the industry. As several recent reviews by industry experts and observers have underlined, little is static and there is every indication that the impressive rate of innovation experienced over the last quarter of a century will be maintained in the coming decades [12–18]. Inevitably, therefore, there will be a need for long-term continued research. Third, it is important to appreciate the relationship between technological change and the low oil-price regime which prevailed towards the end of the 1990s. In mid1998 the Opec-basket crude price was o$12 a barrel. Because of this weak financial incentive, many companies tended to restrain exploration and production activity in this period, with an inevitable impact on the development and uptake of some of the more expensive technologies. 1998 and 1999, in particular, were regarded as slump years, despite the sometimes impressive figures quoted in the following section. However, the relationship between innovation and prices is considerably more

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complex than this would suggest. For example, in many instances companies protected investments in cutting-edge developments, where they were already heavily committed to technologically intensive activity, and instead biased cutbacks towards less technologically demanding regions where incremental economies could be achieved more readily. Moreover, because of its impact on profitability, the prolonged low-price regime sharply stimulated interest in the uptake of innovations with the potential to reduce operating costs. Consequently a simple linear association between oil prices and technological change should not be assumed [19]. Fourth, to augment its technological focus, the paper also provides a global overview of the scale and geography of offshore oil and gas resources. This review of the dynamic resource situation provides essential background for the paper’s technological thrust because the imperatives driving research and development are inextricably connected with the question of where the industry wishes to operate. The evolving geography of resource awareness in fact provides an ideal starting point for the analysis.

2. Changing geographies of offshore oil and gas The broad history, and evolving geography, of interest in offshore oil and gas resources are well documented [5,6]. Early offshore activity took place in the Gulf of Maracaibo, Venezuela, in the middle Arabian Gulf, and in the southern Caspian Sea. The first major offshore developments, however, focused on the Gulf of Mexico where, stimulated by an import embargo imposed by the US government from 1959 to 1971, the industry turned to Texas and Louisiana waters. Gulf of Mexico activity was quickly followed by interest in the southern North Sea, where production began in 1967 and was given a powerful impetus by the economic and political challenges posed by the first oil crisis (1973–1974). From these dominant cradles on the US and European continental shelves, the offshore oil and gas industry has become global. The extent of this globalisation is effectively demonstrated by drilling rig activity data. Since the mid-1990s the industry has generally employed >300 drilling rigs to develop exploratory and production wells on the world’s continental shelves and slopes. Although many have recently concentrated off the US Gulf Coast and in the North Sea, almost half of them have been deployed in waters around the Middle East, Africa, Latin America and the Asia Pacific region (Table 1). In terms of our understanding of resource availability, the outcome of this activity to date must not be exaggerated. Offshore oil and gas reserves exceeding 14 billion tonnes of oil equivalent (btoe) have now been proven, yet knowledge of onshore resources is so well developed that this offshore figure as yet accounts for only about 5% of total proven oil and gas reserves. So far as utilisation is concerned, however, the picture is different. Offshore oil output now satisfies more than a third of total world consumption, while for natural gas the figure is almost a quarter. Moreover, these proportions will rise as exploration and development continue. Current

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Table 1 Regional distribution of operational drilling rigs, 1995–2000a 1995 (%) North America Europe Middle East Africa Latin America Asia Pacific

Total rigs

1996 (%)

1997 (%)

1998 (%)

1999 (%)

2000 (%)

37 13 7 8 17 18

36 16 9 9 16 14

36 17 7 9 17 14

38 14 8 8 16 16

36 12 9 9 14 20

49 11 6 4 12 18

100

100

100

100

100

100

327

350

395

412

347

292

a

Sources: Hughes Christensen and Baker Hughes rig counts for the International Association of Drilling Contractors.

estimates are that >90% of the world’s undiscovered hydrocarbon reserves lie offshore [19]. As Fig. 1 demonstrates, one significant implication of this is that further spread of the industry away from its heartlands will have the potential to benefit the economies of numerous developing and newly industrialised countries around the world. Even today, although half the known offshore oil and gas fields lie in North American or European waters, these regions account for less than a quarter of the world’s proven offshore reserves. Conversely, almost a third of the proven deposits are to be found in the Middle East, echoing this region’s two-thirds share of onshore resources.

NWECS (15.8)

E Europe (5.5)

N America (6.1)

N Africa (6.1)

E Asia (1.5)

S Europe (0.4)

Latin America (12.8) Middle East India (29.8) (0.8)

Key Potentially petroliferous continental shelves Potentially petroliferous continental slopes

(8.8) NWECS

Proven oil and gas reserves (million tonnes of oil equivalent) Percentage share of World reserves

W Africa (8.8)

SE Asia (8.4)

S&E Africa (1.3)

(6.1)

North-west Europe continental shelf

Fig. 1. Potentially petroliferous offshore zones and regional distribution of proven offshore oil and gas reserves.

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Africa, meanwhile, has 13%, chiefly identified off West Africa. Here the waters from Cote d’Ivoire through to Angola have been targeted by the industry as key prospects for exploration and development. Led by Angola and Nigeria, there is a very real prospect that offshore West African oil output will match that of the North Sea by the end of this decade. Around Latin America, also with 13% of known reserves, the current leading prospects are Venezuela, Brazil and Mexico. And in south-east Asia a far-from-negligible 8% share reflects widespread significant discoveries, especially in waters around the Philippines, Malaysia, Thailand, Indonesia and Vietnam [5,6,19]. Apart from this global dimension, progress towards greater understanding of the distribution and scale of offshore oil and gas resources has been significant on the deepwater and re-exploration ‘frontiers’. Although offshore exploration naturally began in shallow waters for obvious operational and economic reasons, throughout the industry’s history a key themeFintimately linked with the technological focus developed later in this paperFhas been the extension of activity into deeper areas. This trend, repeated in many oil and gas provinces, closely reflects experience demonstrating that the probability of discovering major oil or gas fields appears to increase significantly in outlying parts of the continental shelves. Worldwide, only 13% of proven offshore oil and gas fields lie in deep water (defined as 300 m or more) yet they account for 20% of known reserves [19]. Outward exploration of the continental shelves has consequently been a widespread phenomenon, so that even the slopes beyond the shelves are now areas of intense interest. Drilling data once again testify to the long-term continuity of this trend. Whereas in the early 1960s the water-depth limits for exploratory drilling and production were around 300 and 100 m, respectively, by the early 1990s exploration was being undertaken in >2000 m of water, and production in almost 1000 m [5]. Moreover, the current exploration record (2443 m) is likely to rise to 3000 m in the near future, and designs are already available for production facilities suitable for these exceptional depths [20, 21]. Thus ‘ultra-deepwater’ has joined ‘deepwater’ in the industry’s lexicon. Impressive though progress on the depth frontier has been, it is striking that it is not a worldwide phenomenon. Indeed, over 90% of all officially designated deepwater reserves have been discovered in just four world regions: Latin America, West Africa, North West Europe and North America (Table 2). This reflects both physical conditionsFthe Middle East, in particular, has no deep water to exploreFand the industry’s concern to concentrate the large-scale investments required by deepwater activity. The significance of this strong concentration is underlined by the generally high proportional importance of deepwater resources within these leading regions (Table 2). Although in North West Europe they account for only a quarter of all known reserves, in Latin America and West Africa the figure is one-half, and in North America it is no less than 60%. This latter figure is all the more impressive because, as a result of environmental protection pressure exerted on the US Congress by individual coastal states, hydrocarbon exploration and production are currently prohibited on large parts of the US continental shelf beyond a 10.4 mile (16.6 km) limit. This has focused deepwater activity in the largely

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Table 2 Relative importance of proven shallow- and deep-water oil and gas reserves, 1999a,b Shallow water (mtoe)c West Africa Southern and eastern Africa North Africa North America Latin America NWECSd Southern Europe Eastern Europe Middle East India South-east Asia East Asia Australasia Total

Deep water (mtoe)c

617.9 176.5 378.0 343.1 913.9 1668.8 51.5 766.9 4181.2 109.1 989.6 215.8 816.6

615.6 0 23.5 513.7 883.3 545.8 0 0 0 0 184.3 0 41.1

11,228.4

2807.4

% deep water 49.9 0 5.9 59.9 49.2 24.6 0 0 0 0 15.7 0 4.8 20

a

Source: Offshore, May 2000. Notes: Water depth >300 m. c Million tonnes of oil equivalent. d North West Europe continental shelf. b

unrestricted Gulf of Mexico. There the industry has moved further offshore partly as a reaction to falling output from early shallow-water production areas. But the trend has also been strongly encouraged by political stability, the availability of extensive oil industry infrastructures andFby no means leastFthe 1995 Deepwater Royalty Relief Act. Under this measure, oil companies have invested >$4 billion in leases for Gulf of Mexico blocks with water depths exceeding 800 m. Towards the current depth ‘frontier’, the number of proven fields in depths >1500 m rose from 16 to 112 in the 1990s. Sixteen of these finds were in >2000 m of water, with >40 scheduled to be in production by December 2001 [22,23]. The re-exploration ‘frontier’, in contrast, lies in those parts of the continental shelves where oil and gas reserves have already been proven and, usually, brought into production. Resource knowledge at the time of initial discovery is always far from complete, so that the industry frequently has much to gain by revisiting existing oil and gas ‘plays’. The best-known consequence of this ‘workover’ process is the phenomenon of resource appreciation (the increase in proven reserves arising from fuller understanding of the geology and structure of known oil or gas fields, a theme to which the discussion will return in the conclusion). But re-exploration of established petroliferous provinces can also result in the discovery of new fields whose existence was unknown at the outset. Thus, for example, declining natural gas output from the southern North Sea in the late 1970s and early 1980s was reversed partly through the discovery of new deposits at greater depths. Similarly in the Gulf of Mexico, there is current interest in exploration beneath extensive salt formations in US waters, while Mexico has begun investigations below known plays in several of

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its mature hydrocarbon provinces [24]. The potential value of this activity is evidenced by major discoveries in the US ‘subsalt fairway’ in 1999, including one 400-ha reservoir with reserves initially estimated at 140 mboe, and a second with 40 mboe [23,25]. Essential though exploration on these various frontiers has been for improved resource awareness, this does not imply that production swiftly follows discovery. Resource recovery strategies reflect government policy, company strategy, the scale of deposits, oil and gas prices, and the technological feasibility of production in the prevailing physical circumstances. Given favourable government policy, the irrevocable bottom line is the economic viability of the investments required to bring resources onstream. This assessment may point towards rapid exploitation, but it may equally indicate that a delay of years or even decades is prudent. Nonetheless, it is axiomatic that neither the drive towards deeper waters, nor reappraisals of the potential of existing productive provinces, could be achieved without major technological advances. Deeper waters demand innovation to support exploration and production in extreme conditions of various types; and the stimulus for reappraisal of established production regions is above all a reflection of the technological limitations which prevailed in the initial exploration era. Here, therefore, it is appropriate to turn to the detailed analysis of interrelationships between technological change and the offshore industry’s progress, beginning with the most high-profile aspect of advanceFthe evolution of drilling and production rig design.

3. Rig technologies 3.1. Mobile versus fixed rigs A priori, it might be assumed that the industry’s requirements would have led to the emergence of two distinct types of oil and gas rig: mobile drilling units used to develop exploration and production wells in numerous locations, and fixed production installations designed to remain in situ at a single location throughout a field’s production life. To a degree, this assumption holds true. Early exploration and production drilling on the continental shelves was dependent on relatively simple mobile ‘jack-up’ rigs. These comprised a working platform, equipped with a drilling rig, which floated during transportation but was then raised out of the water in the operational location as the platform’s legs were lowered and made contact with the seabed. Currently there are still >300 jack-up rigs deployed around the world, and they are widely regarded as some of the offshore industry’s best-tried workhorses [26]. But they are also subject to severe depth limitations, especially in >100 m of water [27]. Consequently the industry’s movement further offshore has demanded alternative technological approaches to rig mobility. The most widely adopted solution to the problem of combining mobility, and therefore the effective long-term use of investment, with the ability to work at greater

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depths has been the development of semi-submersible rigs. Normally positioned by cables anchored to the seabed, these are subject to far fewer depth limitations than the traditional jack-up rig. The early semi-submersibles were in fact converted jackup systems from which the legs had been removed, but subsequent development has led to a much-refined variety of configurations. Despite this diversity, however, semisubmersibles continue to share common design principles. The working platform is mounted on pontoons which can be lowered below, or raised to, the surface by the addition or removal of seawater ballast. Flooding the pontoons at the operational location leaves only the platform above sea level (hence the term ‘semi-submersible’) and also assists stability and restricts vertical motion, even in severe seas. Conversely, once the pontoons have been voided and raised to the surface, the rig is easily towed from one site to another. As exploration and field development have extended outward from the continental shelves, i.e. to the continental slopes and beyond, the dominant industry response to the challenges posed by these new environments has been further investment in advanced semi-submersible rigs. In addition, however, a new trend has been the introduction of drillships. As with semi-submersibles, these have various configurations, but they are essentially specialised surface vessels whose hulls incorporate open operational wells, through which drilling takes place. The capital costs of both systems amply demonstrate why high productivity based on mobility is of the essence. In 1998, for example, average order book prices were $228 million for semisubmersibles and $242 million for drillships [28]. Both deepwater semi-submersibles and advanced drillships are very recent phenomena, reflecting the surge of interest in more remote hydrocarbon provinces. In 1999 only 80 vessels had the capacity to drill exploratory or production wells in depths exceeding 1100 m. Moreover, almost 90% of these had been built or upgraded from a shallower-water specification within the previous 3 years [22]. Numerically the trend has been led by semi-submersibles, which currently account for two-thirds of all units with >1100 m depth capability. In the short-term at least, this balance is likely to be maintained by additions to the fleet: 31 semi-submersibles are due for delivery between 1998 and December 2001, compared with 20 drillships. But although semi-submersibles predominate, design advances have established for drillships an operational depth advantage. Those delivered in 1998 and 1999 had an average depth capability of 2900 m, almost 20% greater than the average for semisubmersibles completed in the same period [28,29]. This, together with the limited number of drillships available, and their capacity for high productivity through extremely rapid redeployment to new locations, has encouraged the development of a relatively strong drillship market. In 1999, already noted in the introduction as a slack year for the industry because of low oil prices, their supply exceeded demand by only 11%, as opposed to 25% for semi-submersibles [19]. Major technological challenges associated with the use of either type of vessel are those of positioning the rig accurately over the drill site, and of maintaining that position throughout the drilling operation. Traditionally, these problems have been solved through the use of cable moorings. But the cost and technical difficulties of adapting established mooring technologies to increasingly demanding deepwater

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conditions have encouraged interest in entirely different solutions known as dynamic positioning systems (DPS). Directional thrusters, controlled by computer systems linked to precisely positioned seabed transponders or to global positioning systems (GPS), enable rigs to maintain station extremely accurately under their own power [30,31]. By eliminating the need for moorings, these systems also reduce operational costs and raise rig productivity by facilitating mobility between drilling locations. Consequently almost two-thirds of all deepwater drilling rigs now have dynamic positioning. 3.2. Fixed platforms and the production process A clear relationship between fixed platforms and oil and gas production is equally as evident as the association between mobile facilities and drilling. As Skaug [20] has outlined, for production purposes the industry has developed an impressive range of large-scale fixed-rig configurations appropriate for long-term production in sea conditions that are often rigorous. Four examples effectively illustrate this trend (Fig. 2). The deepwater jacket is essentially a tall pyramidal pylon fixed to the seabed and equipped with an operational platform at its apex above the surface. Strength in this arrangement is derived partly from the pylon’s width and pyramidal shape, but also from its geodetic steel construction. Gravity-based structures provide a second solution. These involve the preparation on the seabed of a level foundation on which the rig can rest. The working platform itself remains above the surface, but is supported by tubular columns fixed at the base to ballasted chambers, holding the entire structure in place through the force of gravity. A third approach is the compliant tower. As with the deepwater jacket, this is fixed to the seabed, has a geodetic steel construction and is surmounted by the working platform. Its particular feature is that the tower itself includes a midsection incorporating a degree of flexibility in the structure and, therefore, resistance to stress [32]. Fourth, because the first three types of structure reach their limits towards outlying slopes of the continental shelves, fixed-rig design has evolved to offer more radical solutions such as the tension-leg platform. Here the

Mobile

Fixed configurations

Jack up Deep-water Gravity-based jacket structure Compliant tower

Mobile

Classic spar

Tension-leg platorm

Fig. 2. Evolution of platform options.

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approach is to retain a structure fixed to the seabed, but to abandon the traditional concept that this should be substantial enough to hold the working platform clear of the water. Instead, a floating superstructure carrying all operational facilities supports its own weight and applies stabilising upward tension to relatively lightweight tubular fixed legs [33]. The practical suitability of this design concept is well demonstrated by the fact that three of the seven deepwater fields brought into production in the US Gulf of Mexico in 1999 were based on tension-leg systems [23]. 3.3. Towards functional flexibility and convergence Although it is convenient to conceptualise a neat functional dichotomy between mobile drilling rigs and fixed production platforms, in reality this is increasingly an oversimplification. This partly reflects a long-term trend to deploy mobile rigs as fixed production facilities. Mobile jack-up rigs began to be used for shallow-water production early in the offshore industry’s history, and it has not been unusual for semi-submersibles to be converted for this purpose. Currently, for example, around 5% or 6% of the world’s jack-up fleet is engaged in production, and there are twice as many semi-submersible production units. The latter are employed in many different circumstances, but are most commonly used as central hub facilities for ‘tiebacks’Fseabed pipelines radiating inwards from wells frequently 10–15 km distant [27]. Conversely, however, there is an impressive trend to develop mobile production facilities which also have a drilling capability, particularly for deepwater use. The ‘classic’ spar, for example, is a mobile hollow column, of circular cross-section, which sits vertically in the water and is supported by buoyancy chambers at the top (Fig. 2). As with semi-submersibles, positioning is not achieved by fixed legs, but by anchored cables in tension. Additional stability is provided by the length of the column itself, which effectively acts as the keel of the ‘vessel’, and by a midstructure suspended from the buoyancy equipment [20,34,35]. The working platform surmounts the floating column, allowing operations to be conducted through the protected environment of the hollow core. These operations may be either development drilling for new production wells, or oil and gas extraction or, indeed, a simultaneous combination of both processes. While spars are massive structures, therefore, functional flexibility and the potential for mobility are inherent attributes of their design. The growing popularity of floating production, storage and offloading (FPSO) facilities highlights even more clearly the decreasing emphasis on fixed production platforms. The FPSO design concept is based around a converted supertanker, moored above the wellhead and with the capacity to store extracted oil ready for transshipment to visiting tankers [36]. Because FPSOs are moored in a single location for extended periods, which may run into many years, they are admittedly in one sense fixed facilities. But as tankers they must retain their full ocean-going certification, and if necessary can be re-deployed even more rapidly than spars to new production sites. The first FPSO entered service in the Mediterranean in 1977 with an annual throughput capacity of o1 million tonnes per year, having been

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converted from a 60,000 dwt products carrier. In comparison, a typical throughput capacity today is nearer 10 million tonnes per year, as exemplified by Petrobras’ fleet of 8 vessels offshore Brazil. The current world fleet totals 66, of which two-thirds have either been commissioned since 1995 or are about to enter service [37,38]. Moreover, the tide of interest in FPSOs is still rising: at present at least 75 additional projects are currently either planned or under evaluation, and the actual total may exceed 100. Also significant is that, while not all of these projects will come to fruition, at least some will blur still further the simple division between mobile drilling facilities and fixed production units. The next innovation in FPSO design is likely to be the addition of drilling capability (FDPSO), creating platforms as multifunctional as the spar and considerably more mobile [21,37,39]. Several factors have resulted in this dual trend towards flexibility and functional convergence. In the early years of the offshore industry it was quickly realised that, despite their inherent mobility, jack-up rigs and semi-submersibles could be readily modified to act as static production platforms. This established interest in low-cost conversion rather than high-cost specialist construction, a trend that was further encouraged by periodic surpluses of exploration rigs caused by the industry’s cyclical nature. Similarly, the availability of redundantFand therefore extremely cheapFsupertankers from the mid-1970s onwards fostered FPSO technology as an alternative to the large-scale investment required by fixed platforms. Although newbuild FPSO projects now outnumber supertanker conversions by 3–1, the industry has only moved clearly in this direction very recently as problems have been encountered with poor workmanship in some conversion yards and with the quality and durability of supertankers available for conversion [40]. As is well documented, field size economics have also been highly influential on the continental shelves [41]. Investment in costly fixed production rigs in these regions can best be justified in the context of major field exploitation, with payback over several decades. Yet, for any given oil price, such investment normally becomes decreasingly attractive as field size declines, and is eventually unjustifiable. At this point less elaborate fixed-rig solutions may well become appropriate. One trend has been the development of ‘minimal’ fixed rigs, structures which take advantage of advances in engineering design and standardisation to achieve significant savings in construction and installation costs [42,43]. But in this context the use of mobile semisubmersibles as static production platforms enters the frame, as does the FPSO concept. On many continental shelves, economically marginal fields have commonly been brought into production by such solutions. For example, the North West European continental shelf, well known for its small and medium-sized reservoirs, has 20 active FPSOsFalmost a third of the world total. Beyond the continental slopes, meanwhile, a driving force is that even major fields will have difficulty in supporting fixed-rig investment as production approaches water depths of 2500 or 3000 m. The engineering challenges, and escalating costs, of creating large-scale fixed structures in these regions are generally likely to be too great, even though ‘minimalist’ construction techniques are starting to address some obstacles [42,43]. Ultimately this problem may lead to the development of fully automated subsea production systems able to deliver oil and gas to land without

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surface facilities [11,15]. But in the more immediate future the probability is that resource accessibility will be heavily dependent on platform configurations with no, or very basic, substructuresFconditions which again favour moored or dynamically positioned semi-submersibles and FPSOs [44]. What must also be stressed, however, is that the development challenges and investment costs of deepwater operations are not the sole factors militating strongly against fixed-rig operations. In many instances uncertainty concerning the scale and accessibility of resources is also highly influential, despite highly sophisticated exploration techniques. Against this background, mobile production platforms offer companies the security of being able to redeploy investment elsewhere if deposits fall short of initial expectations. Fig. 3 illustrates the attractions of FPSO systems, relative to two fixed-platform configurations, as water depth and field output increase. Such considerations also underline the attractions of advanced semi-submersibles and spar technologies. The latter are considered particularly suitable for marginal deepwater where the need for large permanent production facilitiesFsuch as tension-leg platformsFis unproven [20]. Spar designs for depths of 3000 m are now available, compared with 600 m when the concept was introduced to the Gulf of Mexico as recently as 1996. While the above factors relate to the advantages of deploying mobile platforms for production, a major additional consideration has become the need for many platforms to both drill and produce, sometimes simultaneously. This trend reflects two forces. First, as has already been noted, offshore exploration and production drilling are expensive. Currently, for example, the average cost per foot for wells developed in US Federal waters and offshore Louisiana and Texas is five times the figure for wells drilled on land (Table 3). As a result, the average total cost of individual wells in these offshore areas is almost $4.3 million; and such figures are in turn eclipsed in ultradeep waters. In these circumstances, hybrid drilling and production rigs have become highly attractive because of their ability to bring fields into production at an early stage, before the full programme of development drilling is completed. Heavy investment is therefore partially offset by accelerated cash flow [27,39].

Field output (mbd)

250

Tension-leg platforms

200

Compliant towers

150

Floating production, storage and offloading systems

100

50 300

400

500

600

700

800

900

1000

Water depth (m)

Fig. 3. Schematic relationship between water depth, field output and preferred production platform configuration.

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D. Pinder / Ocean & Coastal Management 44 (2001) 579–600 Table 3 Comparative US onland and offshore well drilling costs, 1996a,b Average cost of onland wells ($/ft)

71.31

Averagec cost ($/ft) offshore Louisiana South waters Louisiana State waters Texas offshore waters Federal waters

265.92 366.15 473.34 335.06

Unweighted offshore average

360.12

Average total cost of offshore wells

$4,255,000

a

Source: Oil and Gas Journal, 2.2.98, 71. Data are sampled and refer to vertical wells only. c Average of 17 hydrocarbon production areas. b

Second, as we have again noted earlier, over the decades it has become standard practice for operators to ‘workover’ operational fields, i.e. to re-explore and reassess them, usually by exploiting techniques and technologies that were unavailable at the time of initial exploration and development. Approaches to this process will be discussed shortly, but here the key point is that additional exploration and production wells are frequently required. These may, of course, be drilled by bringing in specialist drilling rigs. Clearly, however, it can very advantageous financially ifFwithout interruptions to current productionFadditional wells can be developed from existing platforms.

4. Drilling technology and resource accessibility Impressive though the development of rigs and production platforms has been, progress with respect to the understanding and exploitation of oil and gas deposits has also been heavily dependent on technological advances made on quite differentFand usually far less obviousFfronts. This is amply exemplified by exploratory and production well development, in which context the key technological advances have been related to drilling. To a degree these advances have been driven by water depth. As this has increased, the industry has had to confront the immediate problem of the escalating weight of ‘risers’ to be supported and manipulated beneath the surface. The result has been significant upscaling of rigbased ‘drawworks’. Deepwater rigs can now be equipped with multiple motors with total power ratings up to 5000 hp (40% more than the previous record). In this way maximum hook load has been raised by a third, from 1.5 to 2 million lb (0.68 million–0.9 million kilos) [45]. Yet while this capacity growth represents an indispensable step forward, drilling techniques themselves have been dependent on far more sophisticated technological advances.

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This is above all true of directional drilling. For decades the standard practice was to drill vertical wells into geological structures believed, or known, to contain hydrocarbons. Today, although wells are begun vertically, it is commonplace for them to be angled from the vertical towards chosen target points in the geological strata [46–49]. The direction of drilling may similarly be adjusted to left or right, while the drilling angle may be varied in the vertical plane at will as work progresses. In some instances, indeed, the drill bit may be driven horizontally or uphill for considerable distances. In 1999, for example, work in the UK’s Kingfisher field entailed almost 1000 m of horizontal drilling, at a depth of 4600 m, and with a lateral displacement of 1800 m between the rig location and the start of the horizontal section [50]. Given the flexibility that this technique has brought to the drilling process, there is an infinite number of configurations for individual wells. However, Figs. 4a and b illustrate the principles through two examples drawn from fields in the Norwegian sector of the North Sea [49]. The fundamental technology underpinning directional drilling is the steerable drill bit. This is not only able to vary the primary course of a well, but also to drill ‘laterals’ outwards from the primary line, thus creating branching or ‘multilateral’ wells [51–53]. But the full exploitation of this technology is in turn dependent on other advances. Some are physical, such as the development of more robust, longlife, drilling bits and the introduction of synthetic drilling fluids tailored to specific geological, pressure and temperature conditions [54,55]. Other advances, however, are predominantly IT related. Some of these information innovations are more appropriately considered in the context of reservoir evaluation, but three may be noted here. One is the development of mathematical techniques into threedimensional (3-D) well-planning software packages [56,57]. These enable well paths to be determined, and if necessary varied, with great precision. A second is the use of GPS to ensure the accuracy of the initial drilling location [30,31]. The third is the application of electronics and telematics to achieve real-time monitoring, at the drill bit, of the bit’s condition and precise location in three dimensions. This monitoring can reduce substantially rig ‘downtime’ caused by drill withdrawal for maintenance

A

B

C Water depth = app. 290m

2,500m 3,900m

Midgrad

Smørbukk South

Fig. 4. Directional drilling strategies for Smørbukk South and Midgrad fields (Norwegian sector, North Sea) and hypothetical onshore-to-offshore well plan.

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checks and the verification of well-path accuracy, a major variable cost factor when deep drilling is in progress [58]. Moreover, despite the harshness of down-hole environments, ‘smart well’ technology is now being extended into the production phase, enabling integrated down-hole sensor and valve systems to optimise oil and gas flows from individual production horizons [59]. A driving force behind the development of directional drilling has been its ability to ensure that a well enters, and passes through, the target geological structure in such a way that its oil or gas gathering potential exceeds substantially that of a vertical bore (Figs. 3a and b). This should ensure that, over a field’s lifetime, the total recovery rate is significantly enhanced. But as exploration and development have moved into deeper waters, and drilling has been undertaken at greater geological depths, cost factors have also become influential. The effective exploitation of a field depends almost invariably on the development of a suite of wells, rather than a single bore, with far-reaching implications when drilling costs are of the magnitude detailed in Table 3. Although many fields are still best developed by sinking wells individually (Norway’s Grane project entails 40 directional production wells [60]) major economies can be achieved by lateral drilling from a primary well to a number of target localities in the hydrocarbon-bearing structure [46–49]. Moreover, such laterals need not be drilled at the outset, but can be developed later as knowledge of reservoir structure and flow improves. Beyond this, the extended reach allowed by directional drilling can be used to bring into production, from a single location, either clusters of fields which individually would be too marginal to develop, or marginal deposits accessible from rigs installed to handle the production of major fields. Additionally, extended-reach strategies can also be employed to tap nearshore reservoirs from onshore sites (Fig. 4c). This may be attractive because of the substantially lower cost of land-based drilling, but also as a response to environmental concerns. The latter have certainly driven recent use of the technique in California’s coastal zone where, since the mid-1980s, opposition to potential marine pollution and disturbance have made the installation of new offshore platforms a political impossibility [61].

5. Information technologies and field discovery, appraisal and development The discovery of oil and gas fields has long been dependent on geological, geophysical and palaeontological analyses for decisions concerning where to drill, for visualisation of the structures being drilled, and for the correlation and dating of strata sampled during the drilling process [62]. Today, however, field exploration, appraisal and development are also heavily dependent on advanced information technologies designed to deepen understanding of available data, thereby boosting profitability via reduced exploration and development costs and/or significantly improved reservoir yields. Indeed, it is arguable that IT applications have been the most powerful factor contributing, first, to rapid recent improvements in resourcebase knowledge and, second, to our understanding of how best to apply other technologies in order to exploit that resource awareness effectively. Here the driving

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force has been that oil companies perceive in IT the opportunity to gain ‘a perfect description of the reservoir at minimal cost’ [63]. A prerequisite for IT applications is high-volume high-quality data, obtained at as low a cost as possible. In this context seismic survey advances are key. Although not universal, today’s survey technology of choice depends on surface seismic vessels towing sets of ‘streamers’ in which hundreds, and sometimes thousands of sensors are embedded to capture high-density data returned from the seismic pulse. Particularly advanced data analysis is usually undertaken onshore, but since the mid1990s powerful computing advances have enabled extensive on-board data processing to be undertaken. This allows near real-time assessments of reservoir conditions to be undertaken, typically through on-screen imaging techniques. In this way standard onshore industry workhorse techniquesFranging in complexity from 2-D analyses to 3-D rotatable representationsFhave been transferred to the marine working environment [13,25,63]. This emphasis on imaging reflects above all the greater understanding of reservoir characteristics and behaviour that can be gained as a result of computer-based visualisation. From this paper’s perspective the full significance of imaging lies in its ability to improve the exploitation of other technologies and, therefore, assist optimisation of the balance between investment costs and the recovery of oil or gas. Of particular importance in this respect is the interface with drilling technologies discussed earlier. In the initial stages of field development, high levels of reservoir knowledge and understanding are crucial for the optimum location of vertical wells, as well as for decisions concerning the pathways and target localities for directional drilling. Later, especially when oil or gas flows begin to decline as pressures fall, effective reservoir management is similarly heavily dependent on growing understanding of local geological structures, coupled with awareness of changing reservoir conditions. At this stage imaging techniques, based on new data sets derived from seismic resurvey and ‘down-hole’ sensors, are now crucial to the evaluation of both the disposition of major remaining deposits and the location of significant hydrocarbon pockets left ‘stranded’ by initial drilling strategies. Beyond this, sequential seismic surveysFquickly and cheaply accomplished offshore by ‘streamer’ vessels as outlined aboveFcan be combined with down-hole data to produce 4-D (i.e. timelapse) representations of reservoir evolution [63–65]. Such advances provide the basis for greatly improved approaches to ‘workover’ drilling intended to revive declining field output. As might be anticipated, one thrust of workover drilling is to improve yields directly by sinking additional vertical or directional production wells into precise sites in residual reservoirs. But in the workover process it is also standard industry practice to drill not only production wells but also others, through which water and/or gases can be injected to increase reservoir pressure and, therefore, output. Against this background there is clearly scope for over- or under-investment in drilling, and for the sub-optimal location of wells. Consequently the insights which imaging technologies provide into field structure and reservoir evolution can be invaluable in reducing significantly the uncertaintiesFand costsFassociated with decisions concerning the optimum number, pattern and orientation of both

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production and injection wells. Moreover, once these wells are commissioned, further 4-D surveys make it feasible to monitor closely their effects on the remaining reservoirsFusually within days rather than weeks. Two further points serve to underline the dynamism of IT-based technological change, and the possibilities arising from advances in computing power. First, a current goal of seismic survey data analysis is to go well beyond the identification of hydrocarbon reserves and assess the qualitative nature of the oil and gas resources in place. Second, what is now mainstream computer imaging is itself being developed into a radical derivativeFimmersive visualisation (IV). Various companies are developing rival IV systems [66], but the directions of change and motivations are already clear. Despite their strengths, important limitations of even very advanced flat-screen imaging techniques are that they are much more suitable for use by individuals than teams, and thatFeven when presented in the most sophisticated 3-D formatFthe image must be viewed externally. IV, in contrast, aims to allow entire teams to experience geological structures as if they were exploring them from within. The ARCO corporation, for example, has devised a cubic room in which lenses and mirrors project a structure’s image onto the inner surfaces. Within this room a technical team can move at will and, because of the optics involved, have the impression that they are progressing through the formation itself. Texaco’s system, meanwhile, allows a team internal views of an apparently 3-D image projected onto an almost semi-circular screen approximately 8 m wide and 3 m high. By definition, because these systems are designed for team rather than individual use, they are expected to lead to speedier and more holistic decision-making based on interdisciplinarity. Moreover, this decision-making should exploitFwithout confusion or overloadFfar larger quantities of information than is possible with flat-screen imagery. ARCO, for example, claims up to a five-fold increase in effective data usage, not least because these systems are able to exploit the eye’s peripheral, as well as frontal, vision [66]. The ultimate objective is, of course, improved accuracy in the assessment of geological formationsFas evidenced by ARCO’s report of a twoto three-fold increase in the identification of significant geological faults using the approach. Although, as the earlier descriptions perhaps indicate, IV infrastructures are currently cumbersome, research is progressing to produce more compact and cheaper successors. In addition, a key additional goal is enhanced flexibility and responsiveness based on greater use of real-time data and networking between analytical headquarters and offshore exploration and production facilities. The near future is likely to witness significant maturation of this form of information management as the oil and gas industry continues to pursue its overriding aim ‘to get the most out of every field at the lowest possible cost’ [63].

6. Conclusion The evidence presented has demonstrated the continuing evolution of the offshore oil and gas industry into a global phenomenon. While the heartlands of the Gulf of Mexico and the North Sea retain leadership positions, more than 40 countries are

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now known to possess hydrocarbon resources, and developing and newly industrialising countries figure prominently on the resource map. Similarly, although offshore hydrocarbons as yet account for only a minority of total oil and gas production, and although offshore output growth has in fact been slower than anticipated by the International Energy Agency in 1996 [67], the trend is rising and is likely to continue to do so as the limited infrastructures found in newly proven resource regions are enhanced. But it has also been shown that improved understanding of the extent and scale of offshore hydrocarbon resources is not simply a consequence of the industry’s extension to new global regions and countries. Additional key factors are the rapid progress made with respect to operations in deep and ultradeep waters, together with accumulating resource knowledge in well-established production provinces. Known resources in these provinces increase partly through deeper insights into the scale of proven fields, and partly through the discovery of new deposits as the provinces are reworked. Moreover, the industry’s history gives every indication that this will continue to occur. As was emphasised at the outset, the momentum of progress with respect to resource knowledge and exploitation is closely interwoven with state policies and with the basic economics of energy prices. Thus the recent dramatic rise in Opecbasket oil prices (from o$12 a barrel in mid-1998, to almost $19 a barrel in mid-1999 and nearly $30 a barrel in 2000 and 2001) is likely to stimulate exploration and development in many costly offshore regions. Conversely, if major producing countries allow output to be boosted in response to the West’s argument that high oil prices risk destabilising the global economy, this stimulus will be muted. While these politico-economic factors cannot be ignored, however, the paper has clearly demonstrated the need to add to them the crucial contribution made by technological change to offshore exploration and exploitation activity. In addition it has revealed the importance of probing beyond the umbrella term ‘technological change’ to gain insights into the exceptionally broad spectrum of advances on which progress is dependent. Interpretations offered throughout the paper suggest that, to rationalise this complex spectrum, offshore innovations can generally be related to four overriding industry objectives: *

*

*

*

to improve, through exploration, knowledge of the location and scale of resources (as exemplified by the evolution of mobile drilling rig design); to achieve affordable access to those resources (e.g. through floating production systems); to ensure cost reductions in exploration and production (e.g. through minimal rig designs or improved data analysis and interpretation); and to boost recovery rates (e.g. through advanced drilling techniques).

For two reasons, however, this classification should not be allowed to oversimplify the picture. First, individual advances are commonly related to more than one of the industry’s objectives. The evolution of drilling rig design, for example, has not simply made a fundamental contribution to exploration, but also to resource accessibility. Second, it is important to recognise the degree to which the maximisation of benefits

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is a function of the interdependence of innovations. Thus directional drilling and computer imaging must be integrated operationally if the full potential of either is to be realised. In the innovative offshore world, outcomes are frequently more than the sum of the individual parts. Partly because of this interdependence, but also because of commercial confidentiality and variations in conditions from one oil or gas field to another, it is impossible to quantify the gains associated with specific technological advances. However, there is no doubt that their combined effects are impressive, as a range of North Sea resource experiences demonstrate. Initial estimates were that total reserves in the first 13 fields to be developed in the UK sector amounted to 1072 mt, far less than half of which would have been recoverable using the technologies of the day. But by 1997 these fields had already produced 1385 million tonnes, and at least another 200 million tonnes were known to be recoverable [41]. Similarly, although production from the Statfjord field between 1988 and 1998 was equivalent to the total reserve estimate made at the start of the period, this field is now expected to remain productive until at least 2020. Recent reappraisal in the Troll field, meanwhile, has raised its estimated recoverable reserves by almost 8% as a result of enhanced recovery technologies. More generally, whereas in the 1970s the proportion of oil reserves that could actually be recovered was typically only 30% or less, by the mid-1990s the average recovery rates for North Sea oil and gas were 43% and 70%, respectively [60]. Moreover, EU estimates at this time were that the eventual impact of R & D would be to increase recoverable North Sea oil reserves from 21 to 57 billion barrels, and more than double the volume of recoverable gas. In the process, >400 marginal fields might well become developable [68]. Finally it must be stressed that the paper has by no means exhausted the underresearched issues requiring investigation in connection with offshore oil and gas. A start has been made with respect to the relationships between technological progress and offshore developments. But most of the technologies considered would justify much fuller investigation and evaluation in their own right and, as was indicated at the outset, space limitations have prevented consideration of important additional themes. Virtual reality technologies, for example, are not simply impacting on reservoir analysis, but also on the construction costs and ergonomics of drilling rig and production platform design [69]. While the technological focus must remain a priority, however, there is also scope for extensive research into industry strategies which suggest that technological solutions are not universally viewed as the sole way forward in the resource procurement arena. This is particularly true with respect to companies’ efforts to reduce costs and risk. One strand of evidence strongly suggests growing interest in the externalisation of risk to ‘turnkey’ drillers [70,71] while a second highlights the increasing importance attached to the cost-reduction potential of new corporate organisational structures, characterised by one operator as ‘smarter management rather than smarter technology’ [72,73]. What is also important is to ensure that a new research focus on technologies and organisational practices designed to benefit the oil and gas industry does not eclipse concern for other neglected issues. In the environmental arena, for example, the impact of noise pollution on sensitive and endangered species such as cetaceans is now a matter of

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debate; this raises major questions as to the acceptability of progress with marine seismic survey techniques [74]. And, while it is always tempting to dwell on the forces driving an industry’s growth, the other end of the life cycle must be remembered: decommissioning strategies, as yet barely studied systematically, will ultimately provide a yardstick by which the industry’s environmental credentials are judged [75]. In short, therefore, a range of major neglected research issues associated with offshore oil gas is readily identifiable, and offers the prospect of achieving far more balanced understanding of the forces driving this increasingly vital global industry than has hitherto been possible.

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