Ready for prime time

Kory Kinney, of IHS, takes a look at some of the projects underway in the US Gulf of Mexico.

As we move through 2016, construction activity in the US Gulf of Mexico has begun dwindling. Previously sanctioned projects have started production and new projects are getting delayed as operators face the low commodity price market.

However, given the long life of offshore projects, the industry may see at least one large project in the region sanctioned this year. Subsea tiebacks are also expected to remain popular, with numerous greenfield and brownfield subsea tie-backs anticipated to come online in 2016. However, any project sanctioned this year will first have to make it past the cost-reduction measures being put in place by operators as they face the “lower for longer” oil price scenario.

In the past six months, several high-profile offshore projects have begun production, contributing to lower construction activity levels in the Gulf of Mexico (GoM). These include Noble Energy’s Big Bend and Dantzler projects in the Mississippi Canyon area. Both fields were developed as subsea tiebacks to SBM Offshore’s Thunder Hawk production facility and were brought online ahead of schedule. Big Bend came online late October, with Dantzler following shortly after.

Anadarko’s Heidelberg development in the Green Canyon area has also come onstream. Production started at the facility on 14 January this year, ahead of schedule and under budget. The Heidelberg field was developed using a spar facility capable of processing up to 80,000 b/d with initial production through three subsea wells with plans to add two more. The Heidelberg spar is a twin to Anadarko’s Lucius project, which came online in 2015 and is part of Anadarko’s “design one, build two” strategy.

Looking forward, several more projects, both large and small, are anticipated to come online this year. One of the largest and deepest of these is Shell’s Stones project, in the Walker Ridge area. At a depth of more than 9500ft, the Stones field is being developed using a floating production, storage and offloading (FPSO) vessel and associated subsea infrastructure. The Turritella FPSO, to be used to serve the field and supplied by SBM Offshore, will be the deepest operating FPSO in the world. At the time of writing, pipelay operations by Technip’s Deep Blue pipelay vessel were underway at the development and production was anticipated to start mid-2016. The Stones field is estimated to contain more than 2 billion boe. The Turritella FPSO is the second use of an FPSO in the US GoM.

Another project slated to begin production mid-year is Walter Oil and Gas’ Coelacanth project in Ewing Bank Block 834. Coelacanth is being developed with a steel jacket fixed platform in 1183ft water depth.

Fixed platforms at depths greater than 1000ft are not often seen any more in the US GoM; the last steel jacket installed in water depth that deep was was Chevron’s Petronius platform in 2000. The 30,000-ton Coelacanth platform was installed with Heerema’s Thialf heavy-lift vessel in late November 2015, with the export lines for the project installed in January this year by Subsea 7.

Two tiebacks to LLOG’s Delta House are also anticipated to come online this year. These are Deep Gulf Energy’s Odd Job field in Mississippi Canyon Block 214 and LLOG’s Otis field in Mississippi Canyon Block 79. Technip is due to install the flowlines for Odd Job in Q2-Q3 2016. Odd Job is a multi-well subsea tieback. Meanwhile, McDermott is handling the installation of umbilicals and flowlines for Otis and work is currently ongoing. Otis is expected online during 1H this year.

The only major project anticipated to be sanctioned this year is BP’s Mad Dog Phase II. After significant cost cutting, BP anticipates the project to come in at less than US$10 billion, a more than 50% reduction from the 2011 estimated $22 billion.

Anadarko’s Shenandoah project was expected to be sanctioned during 2016, but Anadarko recently indicated that no final investment decision (FID) will be made on the project in 2016, citing low commodity prices. Anadarko is currently deciding between a Technip-designed spar, similar to Lucius and Heidelberg, or a semisubmersible, from SBM Offshore, to serve the field. While 2016 will be a slow year for major project sanctions, there is still a glut of major projects in the pipeline for when operators feel comfortable to push ahead with new projects.

The Turritella FPSO for Shell’s Stones Project. The vessel departed for the Gulf of Mexico from Singapore on 10 November 2015. Photo from Shell/Flickr.

Floaters

IHS’ FPSBase database, which tracks the supply and demand of floating production systems around the globe, suggests there is the possibility of 10 floating production system (FPS) based projects in the US GoM between now and 2019.

Among these projects are Shenandoah, possibly a spar development sanctioned in 2017; Shell’s Vito, expected to be a semisubmersible production facility to be sanctioned no earlier than 2017; Repsol’s Leon field, which is expected to be an FPSO-based development, to be potentially sanctioned in 2018; and Chevron’s Tigris hub, anticipated to be a semisubmersible tying together several northwestern Keathley Canyon discoveries and potentially due to be sanctioned in 2018.

However, the future of these projects remains undetermined while the industry grapples with the current downturn. All projects are expected to undergo rigorous evaluation and cost-cutting measures in order to make them economically viable. Operators will likely follow Shell’s and BP’s cost-reduction examples, seen at Appomattox and Mad Dog Phase II. Shell was able to shave 20% off the total cost of Appomattox through supply chain savings, design improvements, and reducing the number of wells required for the project; while BP was able to cut down the price tag for Mad Dog Phase II through renegotiating contracts, redesigning the work and capitalizing on market deflation.

Meanwhile, operators working in the GoM continue finding success with subsea tiebacks to existing infrastructure. Given the ample amount of already installed infrastructure in the region, fields are able to be developed with subsea tiebacks relatively quickly and at a lower cost than larger scale scopes.Evidence of this can be seen at Noble Energy’s Big Bend and Dantzler fields, which came online three and two years after initial discovery, respectively.

Examining data from IHS‘ FieldsBase database, which tracks field development data for offshore fields worldwide, 17 green and brownfield subsea tieback projects are anticipated to start production in 2016, with one subsea project already online. Looking forward, subsea development schemes are anticipated to continue being a popular development concept in the region. However, due to the current commodity prices and other run-of-the-mill project delays, we may see first production from some of these subsea projects pushed to the right. Already some operators have delayed tendering processes with planned tie-backs, due to current uncertainty in the market.

Construction doldrums

With low levels of construction activity in the GoM, offshore construction vessel utilization is at an all-time low. While it is important to note that utilization of construction vessels typically falls during the first quarter of every year, due to weather, levels have not been this low since IHS started tracking utilization data in 2007.

IHS‘ ConstructionVesselBase database, which tracks global construction vessel activity, shows there are currently 109 construction vessels in the US GoM and only 16% of them are currently being used. In ConstructionVesselBase, IHS classes construction vessels as accommodation; bury/trench; derrick; derrick pipelay; diving support; multiservice; pipelay; ROV support; support and well intervention.

Not only are seasonal patterns bringing down construction vessel utilization, but a lack of large projects is impacting the amount of installation work available for these vessels.

For 2016, it is anticipated that vessel contractors will be primarily focused on winning inspection, repair, and maintenance (IRM) and decommissioning work, a less cyclical type of work than installation work. Without an ample amount of alternative work for the regional supply of construction vessels, it is expected that construction vessels will start leaving the region as their owners increase bidding for work on the international market.

Although the current commodity markets introduce a lot of uncertainty into project schedules and future regional outlooks, the US GoM is poised to remain a concentrated area of activity for the foreseeable future. With 10 large scale floating developments expected to be sanctioned in coming years and numerous subsea tiebacks expected online, operators seem committed to projects in the US GoM. With an increased amount of projects, offshore contractors will enjoy greater utilization of their vessels. The only thing that remains to be seen is when exactly oil prices will pick up in order to help move these projects forward.

Kory Kinney is a specialist at IHS based in Minnetonka, Minnesota. Kinney covers the North American offshore oil and gas construction market, focusing on field development activities from discovery, engineering, procurement, construction, installation and production phases. He is a managing editor for IHS FPSQuarterly report and provides content for the IHS publication Offshore Field Development Monthly.