Stable market pushes Asia Pacific rig demand

Posted on 19 April 2012

Energy-hungry countries in the region drive deepwater exploration frontier, robust jackup sector

By Jeremy Cresswell, contributing editor

Asia Pacific is a dynamic yet relatively stable drilling market, having successfully weathered the impact of negative global economic pressures since the 2008 credit crunch.

The quest for new hydrocarbons continues both offshore and onshore, powered by a growing focus on deepwater and the accelerating quest for coal-bed methane resources and early steps prospecting for shale gas.

The region remains robust as a center for rig construction, with Singapore defending its role as the rig-building capital of the world; for how many more years depends on China’s success in capturing newbuild orders.

This review focuses on the offshore scene, and covers Southeast Asia through Australasia, an area where jackups have ruled; however, the population of semisubmersibles and drillships is rising..

According to RS Platou’s rig demand tracking service, the early 2012 “Pacific Rim” jackup count was 77 units with 45 in Southeast Asia, 30 in China, one in Australia and one in “other.” Turning to floaters – mostly semisubmersibles – the February total was 32, of which 16 were working the Southeast Asia sector, eight were in Australian waters. A further eight are dotted around this vast region.

They comprise the eclectic mix of locally owned and Western MODUs.

Platou records that Southeast Asia demand for jackups climbed 25% in 2011 and that the increased demand was mostly met by modern units.

“It is interesting to note that the increased demand in (the Middle East) and the Pacific Rim was mostly met by modern-built jackups. We also expect future jackup demand to expand in these regions as they have represented a large and growing part of shallow-water oil and gas discoveries over the last years,” said Simon Crellin, Singapore-based Asia director of petroleum services at Deloitte (UK). He considers the region’s offshore drilling scene to have two distinct sub-regions – Southeast Asia and Australasia.

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Southeast Asia

Mr Crellin defines Southeast Asia as that vast swathe of countries defined by Myanmar in the West to PNG in the East, including East Timor.

He notes that more than 12,000 exploration and appraisal wells have been drilled in Southeast Asia.

“Analysis that I’ve done recently indicates that, typically, around 180 to 250 new wells have been spudded annually over the past five years,” Mr Crellin said. “Essentially one is talking about the offshore market; the onshore market is hard to track anyway. Regardless of rig availability and the financial crises since 2008, the actual drilling level has been fairly consistent.

“That results typically in around 15 to 30 new discoveries per annum over that same time period 2007 to 2011. By new discoveries I mean green field, not step-out appraisals of producing fields that have identified additional reserves in a known structure.”

This relative stability is important as it provides a fairly consistent hopper of discoveries for future development, which therefore offers relative stability in terms of development drilling requirements, though it is E&A activity that drives the region’s MODU market.

Mr Crellin says the Southeast Asia fleet composition – balance between jackups and semisubmersibles/drillships –has also been relatively steady in past years, although the gradually accelerating deepwater push is changing that.

“Typically we’re talking about jackups for less than 150-meter water depth; semisubmersibles to 3,000 meters. To 3,700 meters (and beyond), drillships are generally required. Much of the South China Sea is relatively shallow, which is why jackups dominate the region’s offshore rig market.

“Interestingly, if you look at rig rates over the last seven-year period, the rates in Southeast Asia have on average been higher than the world average. This is because the demand for jackups within the region is quite high as the majority of the wells are drilled with this type of rig. In 2011, the average price of a jackup was about $120,000 per day compared with the world average of $110,000.

“At any one time there are probably around 60 active jackups in the region and between 30 and 50 drilling at any one time; probably a few en route plus a few undergoing maintenance.

“The number of semisubs and drillships (in Southeast Asia) is much smaller. The number of semis active last year was about 22, of which eight were drilling deepwater wells. There were even fewer drillships … about eight … and they have mostly been working off Indonesia and deepwater Malaysia.”

Australasia

Turning to Australasia, the latest annual average has been about 100 exploration spuds a year, somewhat down compared with the past few years.

“There’s a rough split 50:50 between onshore and offshore activity,” Mr Crellin said. “That’s excluding coal seam methane as hundreds of wells are drilled a year, but this activity is much harder to track. They can spud a well one day and be complete a couple of days later.”

Offshore, the main focus remains Western Australia and especially the North West Shelf.

“It dominates and has done for a long time. By that I mean the Browse Basin, North and South Carnarvon Basins and so forth. In contrast, the Bass Strait is a much more mature area. Much of the activity in that area is around development and extending field life rather than new exploration.

“In terms of material impact on drilling statistics, it’s the North West Shelf as that’s where the greatest offshore exploration potential exists, including moving into deepwater waters for gas.”

Mr Crellin notes that there has been a dip in federal drilling commitments on a year-by-year basis. This peaked in 2007 and has been tailing down since.

“Around 100 commitment wells were drilled in 2007 in federal waters. The count dropped to 50 in 2008, remained much the same in 2009, while 2010 was even worse … more like 40 wells. However, this does not mean doom and gloom. What that really means is that a lot of the blocks that companies were interested in were licensed, and reasonably successful exploration was carried out offshore North West Shelf.”

There is a bank of offshore discoveries, but the challenge is to develop those reserves and whether operators can get ambitious LNG projects off the ground.

According to Mr Crellin, that’s a very important issue as success or failure with LNG projects determines everything else to do with offshore activity.

From Shale Gas Threat to Hungry China

There is a spectre on LNG’s horizon. It’s called shale gas; it has been a game-changer in the US, and China is nursing bold ambitions with targets set.

The success of shale gas means that the US is no longer a net importer of gas; indeed it may become a major exporter. Mr Crellin argues that shale gas presents a future potential threat to LNG projects in Asia Pacific and elsewhere.

“It is almost turning markets on their head. If you’re an oil company with significant investment tied up in exploration and development activity with a view to bringing more LNG on-stream within the next five to 10 years, there is obviously now much more uncertainty for projects, especially in Australia because of the high cost base associated with development.

“There is now an interesting question mark over the competitiveness of projects all over the world and not just Asia-Pacific. A lot of E&P companies are now taking a serious look at unconventionals and have been building positions for the future.

“Meanwhile, majors like ExxonMobil, Eni and others are investing in acreage positions in Australian CBM blocks, and their long-term objective is to commercialize that CBM gas as LNG, such as in Queensland.”

Notwithstanding, Mr Crellin said the push for new conventional reserves continues and deepwater is an increasingly important place to hunt.

“Clearly exploration is moving into deepwater; it has to,” he said. “But typically a deepwater well in Indonesia now costs $100 million. That’s a big outlay on what is high-risk exploration. But that’s the way it is in frontier basins when you’re testing new plays. That’s a pretty high-stakes exploration game, and only certain companies can afford it. The push to find new reserves and replace production means that the demand for deepwater rigs is looking good.”

Focusing on China, the world’s most populous nation has over the past 10 to 15 years been making a big push into the rest of Southeast Asia and is an aggressive acquirer of reserves.

“Whether Indonesia, Australia or countries like Myanmar, the Chinese NOCs have been building acreage positions through licensing and acquisitions.

“The demand from China will continue to grow as will its influence in the region as its voracious demand for energy goes on rising. Therefore, the NOCs will be increasingly important and influential in terms of the pace of exploration, development and subsequent production.”

Petronas – A Major Player

Rosli Hamzah, head of well delivery exploration for Petronas Carigali, is due to speak at the forthcoming IADC/SPE Asia Pacific Drilling Technology Conference, July 9-11 in Tianjin, China.

“I’ve been asked to talk on deepwater drilling challenges. Basically we have the technology, but in terms of resources there are shortages of people and drilling rigs,” he said.

“The main challenge is the lack of suitable rigs as most of the deepwater/ultra-deepwater units have been pulled away to Brazil by Petrobras. More  will become available from 2013 onwards, but in the interim, there is a shortage of such vessels.

“There are issues to do with post-Macondo requirements. Quite a number of the current fleet are not eligible to work for supermajors in terms of BOP certification. And there are supply chain shortages because of the fast-expanding amount of work in deepwater.”

Mr Hamzah also warns that original equipment manufacturers (OEMs) are not necessarily up to scratch.

“We think that OEMs themselves are not performing up to our expectation, again because of the pressure on resources.”

Meanwhile, Petronas does have suitable deepwater drilling tonnage to work with. According to Mr Hamzah, about half the company’s deepwater effort is concentrated in home waters while the balance is elsewhere in the world. As for conventional shallow-water drilling, about 70% of the effort is local versus 30% rest of world.

The company drilled three deepwater wells in Asia Pacific last year, compared with 21 conventional spuds. As for the current year, the tally is two deepwater wells in home waters, with possibly a third to come. Mr Hamzah expects that 18 shallow-water wells will be drilled.

Mr Hamzah, who previously drove Petronas’ deepwater program, believes Malaysia is on the way to becoming the leading center of deepwater activity for Asia Pacific. Indeed, production from deepwater fields is expected to account for 30% to 40% of Malaysia’s total oil production by 2020.

Deepwater resources, most of which are offshore Sabah in eastern Malaysia, account for 65% of all undiscovered oil and 43% of undiscovered gas in the country. Winning that prize will require a considerable exploration, appraisal and development effort, not just by Petronas but also other players such as already-successful ConocoPhillips and Shell.

Ensco

The Ensco 104 jackup has a long history working for Apache in Australia. Ensco currently has 11 jackups and one new 8500-class utlra-deepwater semi in the Asia Pacific region. “The market is strongest for higher-spec jackups – a lot of operators are choosing to contract higher-spec rigs even if they don’t need all the heavy-duty capabilities,” said Jan van Bohemen, Ensco.

Among the largest providers of jackups in Asia Pacific is Ensco, which currently has 11 jackups, plus one of its new 8500-class ultra-deepwater semis in the region. The rigs are working in Australia, Brunei, Indonesia, Malaysia, Thailand and Vietnam.

The drilling market outlook is bright, as confirmed by Jan van Bohemen, Ensco senior director – marketing, Eastern Hemisphere. With a steady stream of quality discoveries, coupled with healthy oil prices and regional demand for gas, this is an attractive hunting ground, particularly for jackups.

“In the jackup market, dayrates have been increasing over the last six months, and we expect them to further increase over the near future,” Mr van Bohemen said. “The market is strongest for higher-spec jackups – a lot of operators are choosing to contract higher-spec rigs even if they don’t need all the heavy-duty capabilities.

“We also see the floater market growing further, with all majors present in the deepwater and ultra-deepwater market.

“We view Asia Pacific as a growth market, and we’re well positioned with independents, majors and national oil companies such as PTTEP, Pertamina, and Petronas Carigali, to take advantage of that knowledge and grow.

“ENSCO 8504, one of our newbuild semi-submersibles, has been working for Total in the emerging basin of Brunei. This is one of our best startups ever with a downtime percentage of 2.4%, which is exceptionally low for a newbuild floater.”

Among the jackups Mr van Bohemen is keen to highlight ENSCO 104, which has a long history working for Apache, and ENSCO 109.

“We’ve been working for them in Australia for more than 10 years. Australia has very strong environmental and operational legislation following the Montara incident. ENSCO 109 was chosen to repair the client’s wells, a technically challenging exercise.”

 

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