Offshore drillers team up, try new tools to exit ‘the valley of death’

By Nathanial Gronewold | 05/07/2015 08:42 AM EDT

HOUSTON — Are we entering a new golden era of offshore technology? That would seem unlikely, considering the current market conditions for the oil and gas industry. Offshore drilling had been deemed too expensive by many analysts, even when international oil prices were strong. Now that they are weak, the cost equation becomes weaker still. But at the annual Offshore Technology Conference here, an unusual buzz is in the air.

HOUSTON — Are we entering a new golden era of offshore technology?

That would seem unlikely, considering the current market conditions for the oil and gas industry. Offshore drilling had been deemed too expensive by many analysts, even when international oil prices were strong. Now that they are weak, the cost equation becomes weaker still.

But at the annual Offshore Technology Conference here, an unusual buzz is in the air. Insiders are reporting that oil company interest in early stage technology is increasing. Backroom alliances are beginning to form where oil producers plan to partner with technological innovators, with the aim of assisting their research-and-development efforts and helping cutting-edge technologies cross what venture capitalists call "the valley of death" — that chasm between invention and commercialization.


Contrary to what many have anticipated, the price plunge in crude oil has "fueled the necessity for technical innovation and the early adoption of it," explained Duco de Haan, a commercial development director at Lloyd’s Register.

"The only area where you can really make quantum-leap cost reductions … is through technical innovation, and I do believe that there is absolutely a paradigm shift now in this market," he said.

The oil price bust has dealt a great blow to onshore shale oil production. The offshore side of things is hardly unscathed, but less so. Offshore active rig rates internationally are flat, whereas onshore North American rig numbers have fallen steeply.

De Haan said the cost cutting and shelving of some offshore ambitions was the industry being reactive to the news of falling crude prices. Now it is becoming proactive, he said, finding ways to get the costs down for offshore during the current pause, then riding the gradual improvement to oil prices that Lloyd’s believes will eventually come.

The new mantra: stronger, lighter, smarter

On the convention floor here, the technologies gathering the most industry attention at the OTC are smaller, stronger, lighter and smarter. More durable, longer-lasting materials are of interest. And anything that reduces weight and size, while maintaining or even enhancing capabilities, will likely be in demand, company officials are saying.

Examples include massive composite fiber rope that looks and acts like steel cable, and more energy-efficient propulsion and electrical systems. Lloyd’s Register is trying to help nurture a copper wire technology that incorporates carbon nanotubes, which enhance conductivity and make the wiring lighter and "much more resilient to mechanical stress," de Haan said.

Ovako, a Swedish company, doesn’t seem too worried about the oil price drop either. It manufactures components made from ultra-durable steel designed to withstand extreme temperatures. Its latest offerings were unveiled at the recent Arctic Technology Conference in Copenhagen, Denmark.

Bjorn Olsson, a technology development specialist at Ovako, said its steel is ideal for Arctic drilling. "With alloying and the way you heat-treat it, you can even come down to minus 100," he said. "Other material can go further."

The technology can also be applied to make bearings and gears more resistant to wear and tear over the life cycle of an offshore project. Making the steel more impervious to very low temperatures, and thus less brittle, involves heat treatment but also removing impurities in the steel, Olsson explained on the sides of the conference.

He seemed excited about the direction that the market is moving in terms of new technological innovation. "We’re now coming into the next level, talking about generation two of asset steel," Olsson said. "How to develop the technology to match these kind of properties in a more scientific way."

Doing it right the first time

Conversations among offshore engineers are also increasingly focused on pre-planning and project design. Collaboration is a rising buzzword. Major international oil companies have already announced partnerships for future development in the Gulf of Mexico. Now, oil majors are expanding this model to their service providers.

This week, Norwegian energy giant Statoil announced two such agreements: one with oil field service and technology provider Schlumberger; the other with OneSubsea, a joint venture between Schlumberger and Cameron.

The partnership with Schlumberger alone is focused on Statoil’s Mariner project in the United Kingdom. Through a new "integrated contract" model, the operator hopes to drive offshore expenses down. Rather than simply contracting with the service provider to do specific work, the two companies will design and execute a strategy together.

Patrick Schorn with Schlumberger said during a presentation that the new contracting approach "forces us to work together" and involves "putting our profitability on the line."

Kiewit Offshore Services, a major rig and platform fabricator, is looking to operate in a similar fashion in the future. Officials there have told EnergyWire that they can help operators drive down expenses by getting involved at a project’s inception, helping to identify technologies and solutions that perform the way the companies want while saving money.

Conference attendees say that firms put too little effort into careful pre-planning and near-flawless project execution when oil prices were at $100 or $115 per barrel, suffering delays and cost overruns as a result. Now interest is shifting to keeping costs down by better preparation well before construction begins. Firms are also expressing interest in innovative products that will not only lower installation costs but save them money on long-term maintenance, as well.

SBM Offshore, a supplier of floating production, storage and offloading (FPSO) vessels, achieved recognition at OTC for a technology that does just that. Its new articulated rod connecting arm (ARCA) improves on the chain moorings that keep an FPSO system anchored to the ocean floor and well site.

"We have a phenomenon of fatigue in this link," said SBM official Andrew Newport, "and that’s become much more of a case for deep water."

The new design stands up to stress better. It also uses a "rotor latch" that makes detaching the system easier and makes it possible to inspect and work on the system without a diver, which can be dangerous and costly. The more compact design also allows for a smaller turret at which an FPSO pivots in the water. Newport said the improvements in design make for easier inspection and maintenance and expands the life span of the system to 40 years.

"Our real targets were enhanced safety by avoiding the diver, as well as integrity, but also because things are much smaller … you make it more compact, as well, so you get more functionality and you save costs," he said. "There’s been a lot of interest from clients."

A floating future

De Haan said the future of FPSO technology is likely bright. It allows companies to develop and produce in very deep waters and in regions where little to no existing support infrastructure can be found. It is also reusable, whereas a platform designed for a specific project will need to be scrapped once a firm is done with it.

He also likes floating liquefied natural gas (FLNG) technologies, which he estimates can run 20 to 30 percent cheaper than conventional approaches, matching nicely with "what we see as a future wave forward in terms of cost base."

"FLNG will have a very serious future," he said.

Major international oil companies continue to venture into the challenging offshore environment not because they want to, but because they believe that they have to.

Even if crude oil demand doesn’t rise much in the coming decades, companies need to offset declining output from older projects. The last great onshore oil opportunities are found in very volatile places like Libya and Venezuela, or under the firm control of government-run oil companies that are less than eager to share. Major offshore oil fields offer the best opportunity to net very large volumes of production over long periods of time, buying companies time until the next opportunity is found.

This helps explain why Royal Dutch Shell is still moving ahead with Arctic Alaska offshore exploration. Its latest acquisition of BG Group also strengthens Shell’s hand in two areas the industry deems to have some of the best prospects: LNG and offshore. New exploration off Canada’s east coast is moving forward, as well. Greenfield projects are also advancing off West and East Africa.

Statoil is using its new partnerships to reduce costs and expand activity in the North Sea. It is also keen on helping to foster newer subsea technologies, executives there say. Working more closely with service providers and other major oil companies is key to coming out on top in a new environment of "survival of the best collaborators," Statoil Vice President Helge Hove Haldorsen told an audience.

"The winds have changed," he said. "You can’t control the wind, but you can adjust the sails."