Stocks of offshore oil and gas drilling and producers have gone on a tear after recent contracts broke records, reversing their seven-year decline that reached its peak during the Covid-19 pandemic. The increase in global oil demand, along with the increase in deepwater exploration and drilling, has kept offshore contractors really busy.
Leading with impressive benefits is deep water drilling specialist, Transocean Ltd. (NYSE: RIG), whose shares have gained 99.1% in the year to date. Rope’S stock rose nearly 10% over the past week after the company reported a three-year, $ 518 million contract to deploy one of its drilling vessels to the Gulf of Mexico, the latest in a series of major transactions announced in recent months. The company has disclosed that its total upward backlog associated with recent contracts amounts to ~$1.2, bringing its total backlog to $9.2 B. Meanwhile, platform rates have hit as high as $ 480,000 per day, a 50% Y/Y increase and about three times the drop-offs.
Other offshore drilling stocks with robust gains are Diamond Offshore Drilling Inc. (NYSE: DO)+66.8% YTD; TechnipFMC Plc. (NYSE: FTI)+54.2%; Seadrill Ltd. (NYSE: SDRL)+53.8%; Noble Corporation Plc (NYSE: NE)+44.1%; Oceaneering International Inc. (NYSE: OII)+39.4% and Valaris Ltd. (NYSE: VAL). In contrast, the preferred standard of the energy sector, Energy selection Sector SPDR Fund (XLE), has achieved only a return of 1.6% per year to date, while the broad market benchmark, S & amp; P 500it gained 19.4% during the time frame.
Deep Water Boom
A notable trend in continuous offshore flowering is a large increase in deep-water and deep-water drilling. Lately, China National Petroleum Corporation (CNPC), the parent company owned by the government of PetroChina, and Cnooc (OTCPK: CEOHF), launched ultra-deep exploratory drilling for oil and gas as the country looks to wean itself off foreign oil. According to Chinese news agency Xinhua Global Service, CNPC will drill a test hole of up to 11,000 meters (36,089 feet), the country’s deepest ever, which will help it better understand the Earth’s internal structure better, as well as test underground drilling techniques. Related: Oil Prices Fall As Market Awaits Fed Interest Rate Decision
CNPC’s hole depth is not far from Qatar’s world record of 12,289 meters (40,318 feet) for an oil well depth that was drilled at the Al Shaheen oilfield in 2008 or Russia’s Superdeep Kola well that reached a depth of 12,262 meters (40,230 feet).
In the oil and gas exploration and Production (E&P) industry, deep water is defined as water depth greater than 1,000 meters while ultra-deep water is defined as depth greater than 5,000 meters.
But China is not the only country willing to drill into ridiculous depths in the pursuit of energy security.
Deep-water oil and gas production will increase by 60% by 2030, to contribute 8% of Total Upstream production, according to a new report from the company, as cited by Rig Zone.
Deep water production will continue to grow at breakneck speed to account for half of all deep water production by 2030.
Deepwater production remains the fastest growing upstream oil and gas segment with production expected to reach 10.4 million boe/d in 2022 from just 300,000 barrels of oil equivalent per day (boe/d) in 1990. Meanwhile, Mackenzie has predicted that by the end of the decade, this figure will exceed 17 million boe/d.
Aker BP of Norway (NYSE:BP) (OTCQX: AKRBF) is the latest oil major to make an ultra-deep-water discovery. At a total depth of 8,168 m, Aker BP says the well is the longest exploration well drilled in offshore Norway. The much larger-than-expected oil discovery was made in the Yggdrasil area of the North Sea.
Preliminary estimates show a recoverable crude volume of 40 million-90 million barrels of oil equivalent (boe), much higher than the company’s previous projection of between 18 million and 45 million boe. The discovery will significantly improve the company’s resource base for the development of Yggdrasil, which was previously estimated at 650 million gross boe.Oil discovery is located within production licenses 873 and 442: in license 873, with Equinor ASA (NYSE: EQNR) and PGNiG Upstream Norway as partners. The development and operations plan (PDO) for this project was submitted to Norwegian authorities in December 2022, with production scheduled to begin in 2027.
Two years ago, u. s. oil and gas major Exxon Mobil (NYSE: XOM) made a major discovery of oil and gas in deep water. Exxon announced that it had made two more discoveries at Sailfin-1 and Yarroflix-1 wells in the Stabroek Block in Guyana, bringing the discoveries in the block to more than 30 since 2015. Exxon found that the Sailfin-1 well was drilled in 4,616 meters of water and encountered 312 meters of sand stones with hydrocarbons, while the Yarropora-1 well was drilled in 3,560 meters of water and encountered 75 meters of sand stones with hydrocarbons.
Exxon did not disclose how much crude oil or gas it estimates the new disclosures to contain, but increased an earlier production forecast for the third quarter from older disclosures in the region.
The supermajor has increased Guyana’s development and production offshore at a pace that “it far exceeds the industry average.”. Exxon’s two sanctioned offshore Guyana projects, phase Liza 1 and Phase Liza 2, are now producing above design capacity and have already reached an average of nearly 360k bbl/day of oil. The supermajor expects total production from Guyana to exceed one million barrels per day by the end of this decade.
Exxon said a third project, Payara, is expected to be launched by the end of 2023, while a fourth project, Yellosiblytail, could start operations in 2025.
Exxon is the operator of the Stabroek Block where it holds a 45% interest while partners The Hess Corporation. (NYSE: Hes) and Cnooc hold an interest of 30% and 25%, respectively. Exxon’s oil and gas production is well below record levels, averaging 3.7 m boe/day, nearly 9% below the 4.1 m boe/day set in 2016.
By Alex Kimani Oilprice.com
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