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Drilling industry leaders, experts gather at 2007 IADC Annual Meeting

Posted on 11 December 2007

In addition, the 2008 IADC officers were elected. John Lindsay, executive vice president, US and international operations for Helmerich & Payne, was elected as IADC’s 2008 chairman. Claus Hemmingsen, CEO of Maersk Contractors, was elected vice chairman. Phil Rider, assistant controller–accounting, reporting and compliance for Transocean, was elected secretary-treasurer. Lee Hunt, IADC president, and Brian Petty, IADC senior vice president-government affairs, were re-elected.

David Russell, executive vice president, drilling operations for Rowan Companies, was re-elected as vice president of IADC’s Land Division. Tim Juran, Seadrill senior vice president deepwater units Americas, was elected vice president of the Offshore Division. Steve Richards, senior vice president–operations support for Key Energy Services, was elected vice president of the Drilling Services Division.

Highlights from the Annual Meeting include:

Steve Mamerow, director of worldwide drilling & completions, Pioneer Natural Resources, revealed that Pioneer has a plan capital budget of $1 billion for 2008. It will focus on North American land and Tunisia operations, with growth areas expected in Alaska, Texas, the Rockies and Tunisia.
For example, in the Spraberry Resource Play in Texas, a 15%-20% growth is expected for 2007 and a 20%-25% growth for 2008. Pioneer continues to pursue acreage expansion and bolt-on acquisitions there. Rig count also increased from 14 to 16 rigs to execute 350 well programs in 2007 and 350 more in 2008.

Pioneer’s South Coast Gas and Oooguruk projects are running on schedule, Mr Mamerow said. First production for South Coast Gas is expected in late Q3 2007 and Oooguruk in 1H 2008.

The company has also entered the Fort Worth Barnett Shale, with a goal to build a core position. It is investing about $60 million in 2007 to enter the play and commence drilling/seismic activities.

In Tunisia, Pioneer holds 3.9 million acres in the Ghadames Basin. It has experienced an 100% success rate on seven discoveries in Jenein Nord and is now constructing production facilities, with first production expected in late Q4 2007. More than 15 wells are planned for Tunisia for 2008, and the company expects to need two drilling rigs and one service unit in 2H 2008.

Svein Erik Eide, vice president drilling & well operations for the newly merged StatoilHydro, emphasized that the merger is not an end game but a forceful response to the growth challenge. The new company will have 31,000 employees in 40 countries, with production averaging more than 1.7 million bbl/day.

The new company has raised its ambitions for the Norwegian Continental Shelf (NCS), Mr Eide said. It aims to produce at the same level in 2015 as it did in 2004 (1 million bbl/day), and on gas it aims to double its production between 2004 and 2015 (to 50 bcm/a).
Internationally, he pointed out, StatoilHydro has invested nearly US$7 billion in a new growth platform in the Gulf of Mexico. It’s also put in a new growth platform in heavy oil in Canada. All this means a significant step-up in exploration: In 2006 the company drilled 39 wells, compared with 12 in 2004.

Looking ahead, the company is basing its technology development within five areas: exploration, reservoir management, subsea field developments, gas chains and environment. Key challenges cited includes: tight gas, hot recovery of heavy oil, more effective drilling and completion, increased oil recovery in mature areas, commercializing small and marginal deposits, long-distance multiphase flow, ice management, and CO2 emissions.

Barbara Yilmaz, BP global leader drilling and completions, emphasized the importance of performance in the current industry. BP spends about $5.5 billion annually on drilling and completions, about $2 billion of that in the rig area. “About a third of BP’s total production comes from new wells in drilling and completions. If we don’t deliver, the corporation’s not in good shape,” she said. “Operators are very dependent (on) and grateful for the contributions we get from our contractors. It’s absolutely importantly as we go forward that we continue to improve upon performance.”

Ms Yilmaz continued to explain that even more important than dayrate is a contractor’s competency and technology. Performance matters, and that includes safety performance. She cautioned that the BP drilling and completions high-potential incident frequency metric shows an increase for 2007, and that’s something the industry needs to pay attention to.

Nonproductive time has also been on the rise, with overall NPT for 2007 at 25% and offshore NPT topping 35%. Unless reliable performance is delivered, she said, “we cannot offset those increases and our projects won’t be as robust. Over time it will affect how many projects we have going forward.”

• The long-term outlook for our industry is clearly positive, said Jim Wicklund, partner and chief investment officer for Spinnerhawk Capital Management, if solely because nobody has yet developed a viable substitute for oil or natural gas in its primary and critical uses.
He pointed out seven key drivers for the business:

1. Commodity price drives revenues
2. Costs are a factor in returns
3. When margins increase, cash flow increases
4. This drives higher returns
5. When oil company returns rise, so do returns for drillers
6. Higher returns for drillers means cost inflation for oil companies
7. Higher spending by oil companies drives more drilling.

The last two drivers are not good in the long term and causes the first five points to reverse, Mr Wicklund pointed out. Drilling contractors often operate at cross purposes with their customers, but it’s the customers’ returns that drive the business, he said. “When their returns come down, your returns will come down as well.”

Offering advice for the drilling industry, Mr Wicklund urged drillers, especially land drillers, to cut up some old rigs and sell them for scrap. “Contractors should seize the current opportunity to recapitalize their rig fleets. The land and jackup markets will continue to get weak for the next 6-12 months. You need to take that time to figure out how you’re going to best take advantage of that (next) up-cycle.”

Jon Cole, president & CEO of Scorpion Offshore, emphasized the growing demand for ultra-premium jackups. With the easy oil gone, operators are more and more requiring jackups with greater capabilities than those built in the 1980s, he said. Operators are targeting deeper waters, deeper wells, more challenging reservoirs, more remote locations and redevelopment of older fields. Larger-diameter wellbores, larger and more complex completions and advanced drilling fluids are becoming common.
Ultra-premium jackups can deliver higher deck loads and more deck space, longer legs and stronger cantilevers, more powerful mud pumps, greater drilling fluid capacity and greater hoisting capacity.
The jackup market has also changed to focus more on natural gas as a replacement for oil and in the form of LNG. Historical markets such as the USGC and North Sea are declining while the Middle East, India and Asia are rapidly growing. National oil companies are also becoming increasingly important customers for drilling contractors.

Lee Ahlstrom, Noble Corp vice president – investor relations and planning, also noted the growing importance of national oil companies. About 60% of Noble’s 2007 drilling revenues will come directly from NOC’s, he said. This means that forging strong relationships with NOC’s will be key to
future success. At Noble, the company has already attempted to align its assets with the geographies with the most potential going forward, meaning a customer shift to companies such as PEMEX and Petrobras.
NOC’s themselves are changing. Many have more cash flow than they’ve had in the past, which affects the operational risks they’re willing to take and the partners they need. They’re also branching out into new areas, like Petrobras in the Gulf of Mexico and China’s CNOOC in West Africa. “The challenge for international drilling contractors is to continue to deliver value in these new arenas.”

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