Deep water to play key role in new reserves, production

These were some of the findings in a recent study released by Wood Mackenzie Ltd. and Fugro-Robertson. The two firms compared global deepwater exploration results with overall exploration results during the 1996-2003 timeframe (Fig. 1).

"One of the key differentiators of deepwater plays vs. their counterparts in shallow offshore and onshore areas is the greater average size of exploration prospects," the firms said.

WoodMac and Fugro built their oil-production forecast based on all known field developments, discoveries likely to be commercialized over the next several years, and the prospective contribution from YTF reserves, the firms said.

"Our analysis of [YTF] potential suggests that deepwater plays will be a key source of new reserves and production growth for the upstream industry for many years to come," the analysts said.

Deepwater trends

Oil and gas reserves discovered worldwide in new fields have declined to about 10 billion boe/year since 2001 from an average of 15-30 billion boe/year during 1996-2000, the study said.

"Much of this decline relates to gas discoveries and to nondeepwater exploration. However, deepwater gross discovery volumes, particularly oil, show only a gentle downward trend; therefore, the relative contribution of deepwater to overall exploration results is increasing," the firms noted.

Averaged over the 8 years covered by the study, deep water accounts for about 40% of all reserves found, the analysts said, adding that, in the last 2 years the deep water has risen to account for about 65% of this success.

"There is a very substantial difference between average new field discovery sizes in deepwater and the discoveries made onshore or in shallow water," the study found. One of the main attractions for producers to explore in the deep water has been the much larger size of the prospects. While nondeepwater discoveries average about 50 MMboe, deepwater discoveries tend to average about 250 MMboe in reserves, the study noted (Fig. 2).

Company rankings

The study also ranked the top international oil companies (IOCs) with respect to their deepwater portfolios:

• Petroleo Brasileiro SA (Petrobras) has recently overtaken BP PLC as the leading company by deepwater business value "as a consequence of its exceptionally strong domestic position in Brazil," the study noted.
• BP remains a close second by virtue of its continuing successes in the Gulf of Mexico. No subsequent discovery has yet to match that of Thunder Horse in 1999 in terms of reserves, the study said. Also, "Petrobras has a far greater proportion of its value held in fields already on stream than BP," the analysts said.
• Royal Dutch/Shell Group, now in third place, also has "a relatively well-developed field portfolio" compared with BP.
• ExxonMobil Corp. is in fourth place and, although well behind "the leading trio," it is "well ahead" of the group in value terms, the study said. "ExxonMobil is second only to BP in the value held in fields currently being developed, and second only to Petrobras in the value held in its technical reserves."
• ChevronTexaco Corp., Total SA, and ENI SPA comprise the next group ranked by deepwater business value. "These three companies, especially ENI, also have a significant proportion of their value concentrated in preproduction fields," the study said.

Deep water's future

The study found that YTF potential is about 180 billion boe—roughly equal to about twice the volume of reserves that has been discovered to date. "Oil accounts for 64% of discovered deepwater reserves, reflecting the oil-prone characteristics of many of the key deepwater basins; oil accounts for a similar fraction (63%) of our [YTF] estimate," the study said (Fig. 3).

In recent years, annual global deepwater discovery rates have been about 8 billion boe. At this discovery rate, the YTF potential will require 2-3 decades of further exploration effort, the study said.

In absolute value terms, the "greatest opportunity" for deepwater exploration is the Gulf of Mexico, the study asserted. "The plays [in the gulf] benefit from vast resource potential, and feature high posttax oil and gas values."

Also, the geography of deep water to date has been the story of the "Big Four" provinces—Angola, Brazil, Nigeria, and the US Gulf of Mexico. There is potential, however, for a fifth country, namely Mexico, to join this group, the study said (Fig. 4).

Two other countries—Australia and Egypt—"have comparable resource potential that is expected to be mainly gas."

The study concluded, "In the longer term, as markets are established for this gas, the deepwater industry could thus comprise a 'Big Seven.'"