Vol. 58 No. 7

July 2006

Offshore Technology Conference

OTC Sessions Cover Breadth of Modern Offshore Industry

John Donnelly, JPT Editor; Dennis Denney, JPT Technology Editor; and Diane Langley, JPT Features Editor

High oil prices, booming demand, and significant advances in offshore production capability combined to create an optimistic atmosphere at the 37th Offshore Technology Conference (OTC) in Houston. Attendance at OTC reached a 24-year high, at 59,236. The exhibit attracted 2,229 companies from more than 30 countries, including 246 additional exhibitors from 2005.

Technical papers presented at OTC represented the breadth of the modern offshore industry, covering such diverse topics as drilling technology, seismic applications, deepwater waterflood systems, reservoir monitoring, production optimization, and alternative energy sources. Sessions about industry recovery from the major hurricanes of the past 2 years drew large crowds. Other topics attracting great interest included offshore heavy oil production, gas-hydrate production, and methods to transport stranded gas to markets.

Consultant reports issued during the conference were upbeat about the future of the offshore industry. Douglas-Westwood issued a study predicting that daily world offshore oil and gas production will grow from 43 million BOE/D to 53 million BOE/D by 2010, with annual offshore expenditures rising from U.S. $193 billion to $248 billion during the period. Infield Systems released a report touting the strong health of the subsea market, led in particular by projects in west Africa.

OTC Awards

Marshall Simmons

At the annual OTC Awards Luncheon, Peter Marshall, who worked for Shell for 31 years, received the Distinguished Award for Individuals for significant contributions to the evolution of the offshore industry from shallow-water, fixed platforms to ultradeepwater floating facilities. He was instrumental in advancements in the selection, welding, and inspection of steels for offshore structures, as well as the development of reliability-based designs. The Distinguished Achievement Award for Companies, Organizations, and Institutions went to Doris Engineering of Paris for innovations in the design and construction of offshore facilities for nearly 4 decades. A special citation was given to consultant Matt Simmons for his contributions to educating the world about the energy industry and his participation in numerous presentations at OTC.

Guilherme Estrella presented the
Awards Luncheon keynote address.

Giving the awards keynote address, Guilherme Estrella, Managing Director of E&P for Petrobras, said that the oil and gas industry is in a “golden, unprecedented cycle” that also imposes great responsibilities, including the development of alternative energy sources. The industry, as well as governments, must increase efforts to relieve countries of poverty by providing them access to oil products, he said. Unfortunately, the industry has often been “demonized” even though it has provided countless jobs and economic contributions. “We must tell the world this truth: it is impossible to live without oil and gas,” he said.

Estrella called on the industry to undertake greater exploratory risks to increase production and to continue to increase the skills and technology necessary to produce from ultradeep water. Other challenges include improving rig utilization time and produced-water management, he added. In a separate press conference, officials from the Brazilian energy delegation announced that Brazil had reached oil self-sufficiency, with national oil production set to average 1.9 million BOPD this year with average consumption at 1.85 million BOPD. Oil self-sufficiency has long been a goal of the South American energy giant.

The Importance of Ethics

Attendees crowded the exhibit floor to get
a view of the latest upstream technology.

Panel sessions during OTC covered a variety of topics related not only to technology, but to current events and industry professionalism. The panel session on “Decision Making, Ethics, and Professionalism” satisfied a continuing-education requirement for registered professional engineers. Moderator Buford Pollett, Senior Counsel, Technip, pointed out that individuals and companies both face ethical challenges and that an increasing public awareness of social issues requires corporations and governments to exceed basic ethical, legal, and commercial obligations. The need for social responsibility may require new policies, practices, and programs that are integrated into business and considered in decision making. No longer is it good enough to talk about ethical responsibilities; behavior must be linked to such proclamations, he said. Pollett concluded with the suggestion that service and manufacturing businesses must demonstrate to customers, employees, shareholders, investors, regulators, legislators, and the public that they are acting with concern for the overall public safety and welfare.

Peter Rose, President of the American Assn. of Petroleum Geologists, discussed conflicts in petroleum E&P and, in particular, reserves estimates. He stated that reserves-estimate reliability is hurt by a lack of uniform definitions and methods, a lack of consistent high standards of ethical application, and extraordinary and unforeseeable technical or economic events. Reserves writedowns have been caused by definition/application flaws, ethical lapses, incompetent professional staff, technical or economic surprises, and construction/contract schedules, Rose said. Writedowns reflect failures of leadership, he added. Employees can become more sensitive to ethical behavior by

Frequent reading about professionalism and ethics.
Recognizing that technical, philosophical, and competitive differences with others do not necessarily represent their unethical behavior.
Learning to sense “ticking time-bombs” and finding ways to defuse them before they blow up in your face.
Living within your means so you have the financial cushion to retain personal choice of employer or client.
Always being willing to “vote with your feet.”

Pat Galloway, Chief Executive Officer of Nielsen-Wurster Group Inc., stressed that professionalism is a mix of privilege and obligation. Professionalism for engineers is not exclusively a matter of esoteric knowledge. Because of social responsibility, professionalism offers one way to meet the need for informed public policy by establishing a legitimate role for private judgment by engineers, protected and encouraged by an organized profession. Galloway pointed out that ethics is an open-ended, reflective, and critical intellectual activity, and that deliberation and argumentation are needed to develop ethical principles. The engineer’s role is defined by state licensing boards; professional society codes of ethics; and The Order of the Engineer, which provides engineers with a constant physical reminder of being an engineer and shows the public that the person has accepted the ethical and moral obligations and responsibilities of the profession, she said.

Collaborative Relationships: A Reality Check

Staged using a direct audience participation format, the panel session “Changing Dynamics of Deepwater Ownership” shared ideas and explained the various approaches of partnering in deepwater and ultradeepwater fields. Offering insights regarding their company perspectives, members of the panel included Renard Falcon, Facilities Coordinator, Gulf of Mexico (GOM) Deepwater and Exploration Projects, Chevron; William McHolick, Vice President, Americas Operations and Development, BHP Billiton Petroleum; Helge Hove Haldorsen, President, Hydro Gulf of Mexico, LLC; Joao Figueira, Executive Manager, Petrobras; Cory Weinbel, General Manager of Production Facilities, Cal Dive Intl.; and moderator Sandeep Khurana, Subsea Systems and Facilities Project Manager, JP Kenny Inc.

During the session, audience perceptions were compared with panelists’ viewpoints. Voting by audience members tested preconceived notions and offered feedback on panelist assertions. An example was the audience reply to this question: What type of oil company will bring the most deepwater fields on stream during 2006? The majority audience response was: major oil companies. In fact, independents are leading in the number of deepwater fields coming on stream in 2006. Also, 35% of the audience voted that operators single-handedly develop fields without involving nonoperating partners. While this, according to panel members, is painstakingly true in many instances, operators and nonoperating partners often work together in a combined management team.

According to Falcon, all Chevron GOM projects have been executed through the use of integrated project teams (IPTs) formed during the concept-selection phase. Responsible for delivering a development plan, the IPT form of participation is employed on both operated and nonoperated ventures. Benefits from the use of IPTs include

Gaining experience and expertise of partners.
Alignment of partners (which usually helps to reduce cycle time).
Personnel for staffing projects.
Better solutions through diverse partner experience.

“As the challenges and economics continue to compound in deep water,” Falcon said, “IPTs will be critical in finding an efficient means to meet these challenges.”

McHolick said that BHP Billiton, a relative newcomer to the GOM, believes that, “A successful joint venture should be measured by value creation and not who has control.” In successful joint ventures, he said, all partners are empowered to make decisions, partners are appropriately positioned and in agreement on disciplines critical to the project, and all parties are clear about issues and wants. McHolick noted these factors as contributors to a breakdown of alignment:

Differing data sets.
Investment downside risk.
Pace of activities.
Scope of initial project.
Access to and cost sharing of vital equipment.

Special presentations at exhibitors’ booths attracted large crowds.

Norsk Hydro’s entrance into the GOM with its Spinnaker Exploration acquisition brings yet another approach to deepwater partnerships. Haldorsen presented Hydro’s core values (openness to partnership, cooperation, determination, courage, foresight, and respect) as they relate to joint ventures. “We view operatorship as an opportunity to move the project along,” Haldorsen said, adding that Hydro welcomes IPTs incorporated into the decision-gate process. “For Ormen Lange, a project with six major players, we instituted a joint decision-gate process rather than combining the processes of all players,” he said. Hydro has a strong track record of accelerating application of new technology to create value and the use of a capital value process in aligning a partnership, he said.

Commenting on “forced marriages,” Figueira of Petrobras pointed out that any given partnership may or may not be friendly. Companies get together in a number of ways, including

Companies with common strategic views and complementary skills develop joint-bidding agreements.
Companies holding working interests in a given contract offer some of their equity through farmouts.
Some partnerships are formed by host-country authorities when awarding blocks, marrying companies that file individual or consortia applications.
Unitization of fields that straddle block or country boundaries.
Equity swaps of contractual rights in blocks among oil companies.

Geography tends to establish some patterns of behavior. For instance, “in the mature areas of the shallow-water GOM, operators generally behave as if the operator were the only player; other partners are relegated to be only cash-cowed,” Figueira said. “West Africa ventures demand technical and budgetary issues be discussed by all partners before a decision is taken.” He said Petrobras “moved toward deep water because it was seen as a natural route to grow.” Alone for a long time because Brazil did not allow partnerships until the mid-1990s, the company had to learn how to efficiently discover large deepwater fields and develop successful technology to bring these fields into production. Petrobras is now a valued partner because of its capabilities, Figueira said.

The exhibit featured 2,229 companies
from more than 30 countries.

Weinbel of Cal Dive presented the benefits of third-party offshore ownership—an infrastructure that has not been widely adopted. Marginal prospects account for more than half of the deepwater prospects in the GOM. Weinbel pointed out that early reallocation of cash from infrastructure to area drilling and completion can lead to larger project upside as areawide projects are exploited and tied back to a third-party-owned infrastructure. Project timing also may be improved because the third-party owner may be able to sanction and execute the project more quickly than many producers. Strategic benefits to producers include the reallocation of capital to drilling and completion or other projects, the possibility to keep infrastructure debt off the balance sheet, or teaming up to consider multiple deployments from the floating production unit, he said.

According to Khurana, who posted questions to the audience, some of the votes from the audience left panelists bemused. “The audience overwhelmingly thought a company taking the role as operator is a better stock buy than a company just participating as a nonoperator,” he said. “The reality is that oil companies do value operatorship, and some make it a corporate goal to secure as many operatorship positions as possible. However, a prudent business model rather than a take-over mentality shall be practiced.” Audience and panelists agreed on these issues:

IPTs work well.
Following each company’s decision-gate process has led to unwarranted delays in development. This issue must be discussed and tackled in joint ventures at an early stage.
Personnel shortages are creating more collaborative approaches.
GOM hurricanes will not change relationships among owners; owners collectively look for suitable technology to offset the risks.
Operators tend to push their own technology.
The dynamics of deepwater ownership are headed in the right direction; however, owners should work to bring production on stream faster, improve delivery, and apply new technology.
Cost management and reserves disclosures are on track.

Deepwater Development Issues

Flow assurance has become a major issue in deepwater fields with issues in fluid mechanics, heat transfer, oilfield chemistry, and process instrumentation and control. Technical papers presented offered examples of successful flow-assurance programs. The Mica field in the GOM uses two 29-mile flowlines (one for oil and one for gas) to move production to the Pompano facility. Evaluation of a hydrate plug in the gas flowline provided insight regarding how hydrate plugs form as well as potential operating strategies to avoid plug formation. In the Canyon Express transportation system, which moves gas from three subsea fields in 6,200 to 7,250 ft of water, hydrate inhibitors were studied. Kinetic hydrate inhibitors were selected over low-dosage inhibitors for this case. The study also led to field operational optimizations that enhanced production and extended field life. Production testing of arctic paraffinic crude oil showed that double-walled vacuum-insulated tubular products provide downhole-temperature management and are highly beneficial, at least in the permafrost layer. After hydrate plugs formed above the mudline in two dry-tree oil wells in deepwater GOM wells after being shut in for hurricane evacuation, hot oil was injected into the tubing/casing annulus to melt the plugs. Another paper detailed the pig-removal process after the Marlin tension-leg-platform oil-export line experienced a stuck pig while undergoing pipeline wax management.

Another important issue for future deepwater development covered in the technical sessions is subsea processing and boosting. Subsea processing for oil systems includes pressure boosting to lift the oil to the surface, oil processing, bulk water separation, bringing oil to sales quality, and raw-seawater injection for reservoir-pressure support. Gas systems include gas compression, dehydration, flow assurance, and bringing gas to sales quality. A North Sea example described the use of multiphase pumps to tie in several satellite wells to produce unprocessed well streams and the use of multiphase meters for reservoir management and individual-well testing. Another example described the use of vertical annular gas/liquid separation, electrical submersible pumps, and multiphase pumping in the Campos basin offshore Brazil. Another paper described the technology-qualification program for the Tordis subsea-separation, -boosting, and -injection system that is scheduled for installation in 2007. The system separates produced water from the wellstream and injects it into a disposal well, and a multiphase pump boosts the production-fluid pressure to move it to the surface. One presentation summarized the value drivers for subsea processing and set forth the building blocks required to perform technically feasible and economically viable field developments. Another presentation highlighted the evaluation of several sand-control completion techniques for use in the Mokoko-Abana field offshore Cameroon, focusing on long-term performance.

Harvesting Hydrates

A session on “Technology for Methane Hydrates” addressed what tools will be needed to harvest hydrates. While drilling and producing this vast resource is expected to begin during the next 5 to 10 years, there has been little drilling performed (for cores) and no intentional production. Because methane hydrates are encased in frozen water, they are highly unstable both in subsea and onshore deposits. According to R.J. Todd of Weatherford, the key to identifying both equipment and processes will be the need to control disassociation of the methane from the ice crystalline structure.

“Management of the reservoir and the entire drilling and production process to prevent depression or any type of environment-changing subsidence and preventing any of the hydrate from escaping a subsea production process are all key to the development process,” Todd said. While still new to the industry, managed-pressure drilling (MPD) may be a viable solution. Todd identified these technologies as part of the MPD toolbox for methane hydrates:

Downhole requirements—Horizontal and multilaterals; intelligent completions allowing for pressure and temperature management; instrumentation and installation of surface-controlled valves on each branch of the wellbore; a downhole safety valve installed in the casing; risers and other means of return; a riserless dual-gradient tophole drilling system from a floating rig; insulated dual-flow drillpipe; a multigradient drilling process for deepwater applications; chemical additives; low exothermic cement; drilling with casing and coiled tubing; and a minimum number of required trips.
Surface equipment—Rotating control device with fluids-takeoff capability; blowout preventers; circulation pumps; muds that can be actively controlled for density; remotely operated chokes; a separation package to remove all liquids and other gases from the methane stream; and an active, algorithm-based control system.

Global Warming: Consequences and Accountability

Panel and luncheon presentations spanned the diversity of issues confronting the oil and gas industry. During one topical luncheon, Climate Control Center Research Director Philippe Jean-Baptiste raised several points related to the scientific effects and consequences of global warming.

One controversial theory posits that the global warming some consider a threat may actually have prevented a natural ice age within our lifetime.
Hurricanes will become more intense rather than increase substantially in number. Statistics tracking hurricane frequency in the Atlantic, Pacific, and Indian oceans do not show significant change over the last 2 decades even though sea temperature has increased. But models show that the intensity increases as a result of more moisture available from the increased sea temperature.
Methane and nitrous oxide are increasing and can act as amplifiers of CO2 absorption. The increase caused by greenhouse gases is called “radiative forcing.”
Sea levels could rise by a minimum of 6 ft over several centuries because of thermal expansion of seawater and land-ice melting. Total melting of ice from Greenland could contribute a 16- to 20-ft rise in sea level.
In case of a shutdown of the thermohaline circulation (still a debated issue within the climate science community), Gulf Stream waters would no longer reach the coasts of Northern Europe, but the warming trend will recur and escalate.
Some regions stand to benefit from global warming. “There will be winners (agriculture could expand to the north, for example) and losers. Such shifts in geographic players could likely create international tension,” said
Jean-Baptiste.

Total Senior Vice President–E&P Louis Heuze confirmed the industry’s responsibility regarding climate change. The industry must promote “a form of development that meets the needs of the present without compromising the ability of future generations to meet their own needs,” he said. Oil and gas firms shoulder a heavy responsibility to take necessary measures to first stabilize and then preferably decrease emissions by four times rather than the two-time quantitative target set forth in the Kyoto Protocol, he added. He touched on some initiatives being actively researched and implemented by Total—technology for higher efficiency, flaring reduction, use of natural gas, and CO2 capture/sequestration.

Papers presented at OTC are available at www.otcnet.org.