The race to find deeper and harder-to-reach oil and gas deposits in the Gulf will propel the demand for high-tech rigs that are more efficient and safer to use
As oil and gas prices continue to rise, investment in expensive offshore extraction and processing facilities is becoming more financially viable. Ageing rig fleets – many with two decades or more of service – are due for critical maintenance and technology upgrades. Several companies operating in the rig maintenance and refurbishment sector have reported robust growth figures in recent years.
In 2011, UK-headquartered analyst Douglas-Westwood said global demand for offshore operations and maintenance (O&M) services was $52bn, having grown at a compound rate of more than 6 per cent during the past five years.
In a recent report, the company suggested that continuing growth in offshore activity in coming years “will be driven by a combination of high oil prices, buoyant offshore development activity and rampant price inflation for equipment and services.”
Netherlands-headquartered Bayards recently announced its biggest helipad replacement programme. The specialist aluminium construction firm has secured a contract to replace all of Abu Dhabi National Oil Company’s (Adnoc’s) 179 platforms with new helipads, in a deal with engineering company Adyard Abu Dhabi, which will span more than three years and will replace one helipad a week.
While the value of the deal has not been released, the sheer scale of the project and the fact that aluminium helipads have a lifespan exceeding 30 years suggest economically viable energy extraction in Gulf waters is assured for at least another generation.
US-based oil field services company Baker Hughes’ regional rig count figures for August found 47 offshore rotary rigs actively drilling in the Gulf.
Data for September from US-headquartered analysts IHS Petrodata indicates there are 129 rigs in the wider Middle East drilling fleet, 109 of which are under contract (although not necessarily operational, as some may be undergoing maintenance, in transit, or otherwise waiting for work).
|Middle East oil rig statistics|
|Total rigs in drilling fleet||119||127||129|
|Rigs under contract||101||106||109|
|Rigs without contract||18||21||20|
|Fleet utilisation rate||84.9%||83.5%||84.5%|
|%=Percentage. Source: IHS Petrodata|
UAE-based Lamprell, one of the region’s largest rig refurbishment and manufacturing firms, counts 222 offshore rigs of all types, including those under construction, stacked, mobilising and under repair. Lamprell’s figures include all rigs associated with the wider Middle East, North Africa and India. Of these, 110 were actively involved in offshore drilling in late September.
In 2011, Lamprell signed $1.1bn-worth of contract awards, which more than doubled its earnings when combined with a year-end $1.2bn order backlog. The company’s revenues rose by more than 127 per cent to $1.15bn from $503.8m a year ago, with a record bid pipeline of $5.2bn at the end of February.
Demand for rigs is driven by confidence in the energy market. Global oil prices have been on a downward curve as a result of lessening demand in China and the eurozone crisis, but prices are still more than $20 a barrel higher than in June. Brent crude – a benchmark for traders – has averaged $110 a barrel in 2012.
Lamprell saw a continuing increase in new-build jack-up orders, with about 13 jack-up rigs under construction in its three UAE yards.
Jack-up rigs, also known as self-elevating rigs, are most suited to the shallow waters of the Arabian Gulf. They have three or four movable legs that can be extended above or below the hull, a buoyant barge. Jack-ups are towed into position with their legs extended above the hull. On reaching the drill site, the crew jacks the legs downwards to the sea floor to anchor the rig and hold the hull well above the waves.
Jack-up rigs suit the Gulf’s calm seas and shallow waters – which average just 50 metres in depth and reach a maximum of only 90 metres
Lamprell’s order book totalled $1.25bn at the end of the year, with $489m coming from new clients and $726m from repeat business. The firm recently delivered the first of six jack-ups to National Drilling Company, one of the largest drilling contractors in the Middle East, and an Adnoc subsidiary, for use in the Zakum oil field.
Saudi Arabia holds particular promise for Lamprell, as the kingdom launches a fresh round of drilling activity to shore up its production capacity and tap new gas opportunities.
Douglas-Westwood forecasts more than $335bn-worth of global expenditure in 2012-16 on offshore oil and gas O&M. The second edition of its World Offshore Operations & Maintenance Market Forecast predicts growth of 8 per cent a year during the forecast period.
“As onshore reservoirs continue to mature and new prospects become few and far between, a greater proportion of oil and gas production will be met by the offshore sector,” reports Douglas-Westwood. “Oil price fluctuations do not generally have the same level of impact on O&M expenditure compared to capital expenditure-related activities such as drilling and field development.”
Douglas-Westwood estimates growth in rig demand will average about 4 per cent a year over the next five years internationally. “Saudi Arabia, the UAE and most notably Iraq are all expected to see substantial growth in the volume of rigs playing a part in the drilling landscape,” says the firm’s report.
As demand continues to grow, the number of workers living offshore will also rise. Modern rigs are often like mini cities. With more than a hundred people on board living in close proximity, it is important that crew members are comfortable when off duty.
Modular living quarters enable rapid deployment of modern accommodation and straightforward refurbishment. With many Gulf rigs reaching the end of their practical lives – both from a drilling and a practical living point of view – and needing to be replaced, the region offers rich pickings for providers of offshore accommodation.
The US’ HB Rentals, the world’s largest supplier of temporary onshore and offshore accommodation modules, has moved into the regional market to take advantage of growth in offshore services.
The company operates from hubs in the US, the UK, Singapore and now the UAE. It has signed three new agreements in the Middle East since the turn of the year, with a combined value of more than $1m.
US-based liftboat provider Hercules Offshore has awarded HB Rentals a 6-12-month contract for its Amberjack self-propelled jack-up barge. The deal will see HB Rentals provide four eight-man accommodation modules and includes provision of services from installation to power generation and a sewerage system.
The second award came from Abu Dhabi-based National Petroleum Construction Company: a six-month rental agreement for four accommodation modules including modular stairways and walkways.
HB Rentals also won a contract from US engineering and construction firm McDermott, which includes accommodation modules and offices for use as an emergency overnight shelter on the carousel deck of a barge working off Saudi Arabia.
Rig technology makes oil exploration and production more efficient and also ensures greater platform safety, enhanced efficiency on rigs and more effective communication and data sharing.
Communications and information technology companies in particular are seeing increased interest from the offshore sector. Communication systems now have to support a range of services. In addition to voice, increasing volumes of data, video and voice conferencing facilities must be supported, often over the same communications channel.
Saudi Arabia, the UAE and most notably Iraq are all expected to see substantial growth in the volume of rigs
UHF (ultra-high frequency) and VHF (very-high frequency) radio systems are still used for two-way communications in land, marine and ground-to-air applications, but WiMAX – high-speed wireless access over long distances – is becoming commonplace. It is employed in personnel- and asset-tracking systems used to locate and monitor crew and equipment. It can also be used to provide internet access for offshore platforms.
VSAT (very small aperture terminal) satellite systems are now commonly used for communications with the shore, which can be hundreds of miles away. VSAT is also used for long-distance data transfer when it is not practical to use fibre-optic cable. Cable providers charge high prices for bandwidth and the lines are subject to damage. Satellite systems are more robust and can be more cost-effective, although they are prone to communication latency.
Chirag Rathi, a senior oil and gas consultant with US analyst Frost & Sullivan, suggests the recent history of developments in the rig market indicates less emphasis on high-tech innovation and more concentration on incremental changes to increase production.
He says operators are taking small steps towards greater automation, a greater use of telemetry and more efficient circulation systems as they try to reduce downtime and increase efficiency.
In terms of drilling and extraction technology, several products have seen a surge in interest due to increased health and safety concerns. High pressure/high temperature (HPHT) well controls and managed pressure drilling systems are becoming increasingly popular as they reduce damage to the well formation, which in turn allows for greater operational safety.
The Middle East has not had to deal with higher-temperature or higher-pressure drilling yet, but this will start coming onstream more and more. The easier-to-extract shallow oil has been discovered and exploration has to go deeper, which means working at higher pressures.
Higher pressures mean increased danger, and it becomes more important (and often mandatory) for well control and HPHT systems to be implemented. These systems require expensive refits on existing rigs, or specialist equipment.
“When you look at the things that we are able to do in these new rigs that we weren’t able to do in the past, it really makes the operators want to have these sorts of rigs out there,” said Merrill Miller, chief executive officer of US-based rig manufacturer National Oilwell Varco, recently to investors. “They have enhanced flexibility and also possess the ability to drill deeper, faster and longer, with extended reach. So we think [this progress] is going to continue, and [HPHT technology] is going to drive it.”
[Upgraded rigs] have greater flexibility and also possess the ability to drill deeper, faster and longer
Merrill Miller, National Oilwell Varco
There are several factors influencing future drilling platforms and, if recent statements from leaders in the sector are any indication, a focus on markets in Saudi Arabia and Iraq is to be expected. The race to find deeper and harder-to-reach deposits will undoubtedly push the creation of new technology in the sector and consequently shape the future of the rig.
$335bn: Forecast global expenditure on offshore operations and maintenance in 2012-16
4 per cent: Average growth in demand for rigs over the next five years internationally