New analysis from Westwood Global Energy Group (Westwood), the specialist energy market research and consultancy firm, reveals the number of FPSO leases set to expire in 2022 is significantly higher than the yearly average of ~3 since 2015, with the potential of 30 units becoming available by end of 2022.  

The oil and gas industry, which is traditionally a laggard in the adoption of connected technologies, is increasingly deploying digital twins to improve decision-making.

Oil and gas contract activity remained relatively stable in Q1 2021, with the industry recording a marginal decrease in the number of contracts and at the same time an increase in disclosed contract value, according to GlobalData, a leading data and analytics company. 

The proven oil and gas reserves of the group of major companies called “Big Oil” are falling at an alarming rate, as produced volumes are not being fully replaced with new discoveries. A Rystad Energy analysis shows that Big Oil lost 15% of its stock levels in the ground last year, with remaining reserves set to run out in less than 15 years – unless the group makes more commercial discoveries, and fast.

The task is becoming more and more challenging as investments in exploration shrink and success rates slump. The declining proven reserves could create serious challenges for Big Oil (ExxonMobil, BP, Shell, Chevron, Total and Eni) to maintain stable production levels in coming years. This would in turn cause revenue to dwindle and pose a major threat to the financing of the group’s energy transition plans.

Big Oil saw its proven reserves drop by 13 billion barrels of oil equivalent (boe) in 2020 as the companies took large impairment charges, and this year’s exploration has not come off to a great start either. The industry’s global first-quarter discovered volumes totaled 1.2 billion boe, the lowest in seven years, as high-ranked prospects failed to deliver and successful wildcats only yielded modest-sized finds.

The collapse in crude oil demand and prices due to the Covid-19 pandemic and an increased focus on capital discipline has led to investment cuts that could aggravate the challenge of many major operators as they strive to boost their proven reserves. Even for European majors, which are increasingly focusing on the energy transition, business models will continue to be dominated by the sale of oil and gas.

“The ability of Big Oil to generate future revenues will continue to depend on the volume of oil and gas the companies have at their disposal to sell. If reserves are not high enough to sustain production levels, companies will find it difficult to fund expensive energy transition projects, resulting in a slowdown of their clean energy plans,“ says Parul Chopra, vice president of upstream research at Rystad Energy.

ExxonMobil’s proven reserves shrank by 7 billion boe in 2020, or 30%, from 2019 levels. This was mainly due to reductions in Canadian oil sands and US shale gas properties. ExxonMobil’s proven reserves of liquids in Canada were revised from 4.8 billion barrels of oil to less than 900 million barrels, while bitumen-related reserves for the Kearl and Cold Lake oil sands projects were slashed from 3.8 billion barrels to less than 100 million barrels. In addition, liquid reserves related to some US shale plays have been reduced by 1 billion barrels.

Also, ExxonMobil’s proven gas reserves dropped last year by 9 trillion cubic feet, mostly in the US. The revisions were primarily linked to the gas assets ExxonMobil bought from XTO in 2009.

Shell, meanwhile, saw its proven reserves fall by 20% to 9 billion boe last year. Liquid reserves accounted for one-third of total reductions and were mostly down to US and South American projects, and a lack of new discoveries elsewhere. Gas reserves accounted for two-thirds of the reductions, led by a 600 million boe revision in Australian projects.

Chevron also suffered reserve losses due to impairments, despite the addition of around 2 billion boe of proven reserves to its inventory through the acquisition of Noble Energy. Similarly, BP saw its total proven reserves drop from 19 billion boe in 2019 to 18 billion boe in 2020, mainly due to the sale of existing assets and a lack of major new discoveries. Total and Eni, however, have been able to avoid any reduction in proven reserves over the past decade.

Amid the proven reserve reductions – due to impairments and a lack of new discoveries – companies are seeing a negative impact on their ratio of proven reserves to production. When assessing the development of this ratio for the period from 2015 through 2020, ExxonMobil, Chevron and Shell show the highest decline.

For ExxonMobil, for instance, the proven-reserves-to-production ratio has not fallen below 13 years for the past two decades, but the 15 billion boe of reserves declared in 2020 means its volumes would run out in just over 11 years, compared to the previous expectation that these would last for more than 16 years. The reserves to production ratio for Shell, meanwhile, fell dramatically to 7.4 years in 2020 – the lowest level among all majors. The company has already reported its oil production peaked in 2019 and it expects an annual decline in output of between 1% and 2% until 2030.

New discovered volumes – a measurement of a company’s exploration performance – illustrates the daunting challenge faced by oil majors to maintain their reserves base and supply existing customers. Over the past five years, the six majors have replaced only 45% of their production through reserves from new discoveries. ExxonMobil fared better than its peers, adding more than 70% of the produced reserves thanks to 9 billion boe of discovered volumes in the offshore Stabroek Block in Guyana.

Total also enjoyed significant exploration success last year in the Guyana-Suriname basin, while Eni did well thanks to success in Africa. Chevron and Shell, on the other hand, have struggled to register new discovered volumes. Chevron managed to replace only 15% of its produced volumes from 2016 through 2020, while Shell replaced 27%.

For more analysis, insights and reports, clients and non-clients can apply for access to Rystad Energy’s Free Solutions.

TechnipFMC has been awarded a significant⁽¹⁾ Engineering, Procurement, Construction and Installation (EPCI) contract from Ithaca Energy (UK) Limited for the Captain Enhanced Oil Recovery (EOR) Project in the UK North Sea.

Seadrill Limited has secured a new contract by Sonadrill Holding Ltd (“Sonadrill”), the 50:50 joint venture with an affiliate of Sonangol E.P. (“Sonangol”). Sonadrill has secured a twelve well contract with one option for nine wells and eleven one well options in Angola for the Sonangol Quenguela drillship. Total contract value for the firm portion of the contract is expected to be approximately $131 million (inclusive of mobilization revenue and additional services) with commencement expected in Q1 2022 and running to Q3 2023. The contract is contingent on National Concessionaire approval.

Sonangol Quenguela is the second of two Sonangol-owned drillships to be bareboat chartered into Sonadrill. The drillship is a 7th generation, DP3, dual activity, e-smart ultra-deepwater drillship delivered in 2019, capable of drilling up to 40,000ft wells.

Sonadrill is a joint venture created between Sonangol, owner of Sonangol Libongos and Sonangol Quenguela drillships, and Seadrill, which has extensive drilling expertise both worldwide and in Angola.

A further two Seadrill-owned units are expected to be bareboat chartered into Sonadrill. Seadrill will manage and operate the four units on behalf of Sonadrill.

Seadrill’s Chief Executive Officer, Stuart Jackson commented, “Sonadrill is a strategic partnership in an important deepwater basin. The operational excellence and experience of our team has driven this expansion of the joint venture. Securing the contract for the Sonangol Quenguela drillship is a great achievement and is testament to the confidence that our partners and clients have in the company and its staff.”

Global contractor Dolphin Drilling has announced it has secured a Letter of Intent with Wellesley Petroleum AS for the drilling of an HPHT exploration well on the Norwegian Continental Shelf.

The Covid-19 pandemic has brought new challenges for the global gas industry, with the LNG shipping market not being an exception.

A NEW study mapping-out potential risks to the UK’s coastal environment, marine life and traffic as a result of hydrocarbon releases from energy industry activity and shipping has been completed, helping to inform the Maritime and Coastguard Agency’s (MCA) future response strategy.

For decades, most international offshore contractors have built their fleets by taking on financing to acquire rigs or order them from scratch. If they do not have a suitable rig to meet a potential demand, the option to do so by bareboat chartering one - that is, to lease a 'bare' unit without crew or provisions, and to assume responsibility for someone else's asset - is seldom considered. Nor do these firms usually bareboat their rigs to others.

But as offshore financing dried up in the last few years, and contractors struggle to survive while yards pile up with unwanted newbuilds, one trend has become clear of late: more offshore rigs are being put to work on the back of bareboat arrangements. These days, the cart can come before the horse: some firms chase the work first, by offering units they do not own; and only when they win the tender, do they seal the deal and lease the rig to fulfil the contract.

Figure 1: Bareboat charters over the years

The chart above shows the number of rigs on bareboat charter every year over the last three decades. It includes units that may have been bareboat for only part of a year, but most were on contract for at least a year or longer. As the global drilling fleet grew since 1988, the proportion of rigs on bareboat charters has also increased progressively - from 0.2% of the fleet in 1988, to 2.5% in 1998, 3.3% in 2014, and 8.1% in 2020.

It is clear from the chart that the majority of the units with bareboat arrangements are jackups but this is not surprising as floaters are more expensive than jackups, whether to build, maintain, or charter. The terms for bareboat contracts, though, can vary widely. Under some arrangements, the charterer or leasee has to pay a fee only when the rig is working. Some have their units chartered based on a monthly rate, while yet others are under lumpsum agreements.

Sale-and-leaseback deals have also been a feature since the late 2000s. Under these agreements, rig owners would sell and then lease back their rigs from the purchasers - allowing them to free up cash while holding on to the assets they need for operation. In 2019, Singapore yard Keppel FELS delivered newbuild jackups Cantarell III and Cantarell IV to Grupo R, then bought the rigs from the Mexican contractor before leasing them right back for 10 years. This way, though the yard now effectively becomes a lender to a customer who could no longer afford to own the jackups it ordered, it monetized the assets and got the rigs working.

Historical data points show that bareboat fees are usually at least 10% of prevailing drilling day rates. With the rig market in the doldrums, bareboat prices have also fallen as the market bottomed out. Currently, fees for jackups range between USD 10,000 and USD 30,000 per day. Factors like job scope, rig age, state of the unit and other specifications can also affect the price.

Location is another determinant. Early on, the few rigs on bareboat charters worked mostly in Europe or in the Gulf of Mexico. This has changed over the years. In 2020, the top three areas to feature bareboat rigs are Asia-Pacific with 24 units, the Middle East with 19 units, and Mexico with 11. At present, Asia-Pacific is the region with the largest bareboat fleet and the bulk of these units are located in China - in 2020, 17 of the 24 units in Asia were based there.

Building a fleet with bareboat rigs

An interesting facet of the recent increase in bareboat numbers is how newbuilds are driving it. In 2017, just three of the 18 units bareboat worldwide were mobilized straight from a yard. In 2018, it was two. By 2019, this jumped to 24, or well over a third of the 54 units on bareboat charter that year. In 2020, although just seven of the 60 bareboat units worldwide were newbuilds, 35 of them were built within the last four years.

However, it is no coincidence that newbuild bareboat numbers rose so dramatically in 2019 - that was the year SinoOcean was set up. Since the last offshore downturn in 2014, China - the rig-building powerhouse of the last decade - was quickly becoming a graveyard for undelivered rigs. The state-owned entity was conceived to manage offshore assets abandoned by their original buyers, working behind the scenes to seek solutions for orphaned rigs. So far, China's leading offshore rig contractor COSL is the one that has taken on the bulk of Chinese newbuilds via bareboat arrangement. Of the 58 offshore rigs it operates worldwide, at least 22 jackups and semis are managed under bareboat contracts.

There is no doubt bareboat charters are a means for the industry to cope with existing market conditions. It is a certainly a cheaper option than ownership for contractors and other enterprising middlemen to secure rigs. Not to mention the unexpected bonus of bareboat charters having helped to ease the oversupply situation by winnowing the number of undelivered rigs from over 120 units in 2018 to 60 today.

By Yun Yun Teo, Data Transformation Principal for Upstream Energy at IHS Markit.

McDermott International, Ltd. has been selected by BHP Petróleo Operaciones de México, S. De R.L. De C.V. (BHP), in partnership with Pemex, to provide Front-End Engineering Design (FEED) of a Semi-submersible Floating Production Unit (FPU) for the Trion Project in the Gulf of Mexico.

Sharp Reflections, a trailblazer in big data solutions for quantitative seismic data analysis, has announced a software update to its industry leading proprietary software, PreStack Pro.

The U.S. Department of the Interior’s Bureau of Safety and Environmental Enforcement and the U.S. Department of Energy have entered into a cooperative agreement with Texas A&M Engineering Experiment Station to support the ongoing operation and maintenance of the Ocean Energy Safety Institute (OESI).

Shell Offshore Inc. (“Shell”), a subsidiary of Royal Dutch Shell plc, has made a significant discovery at the Leopard prospect in the deep-water U.S. Gulf of Mexico (GoM). The Leopard well encountered more than 600 feet (183 meters) net oil pay at multiple levels. Evaluation is ongoing to further define development options.

CGG has been awarded a major contract by Equinor for the seismic imaging of its Bacalhau 3D ocean bottom node (OBN) survey covering 409 sq km currently being acquired in Brazil’s deepwater Santos Basin. Final products for the fully imaged dataset are expected to be delivered within ten months after the survey is scheduled to complete in May 2021.

Hardide Coatings is providing its advanced Hardide-T coating for well construction specialist DeltaTek Global’s SeaCure® technology.