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This Oil Major Hasn’t Lost Faith In Subsea Drilling

This Oil Major Hasn’t Lost Faith In Subsea Drilling

Offshore drilling technology has progressed to the point where oil companies have the ability not only to drill miles underwater from surface platforms the size of football fields, but also to extract hydrocarbons from wells that sit on the seafloor, a branch of the industry known as subsea.

Norwegian oil and gas major Statoil has been pursuing subsea technology since 1986 - it currently has 540 subsea wells that account for over half of its energy production - but Statoil is pushing the envelope further with plans to develop a subsea “factory” that performs all the functions of an offshore drilling platform without the risks to human and marine life. Think disasters like Ocean Ranger, a semi-submersible drilling unit that was hit by a rogue wave and sunk in 1982 off the coast of Newfoundland, drowning all 84 crew members. Or the Deep Water Horizon explosion in 2010, which killed 11 workers and leaked millions of gallons of oil into the Gulf of Mexico to become the largest maritime oil spill in the world.

Such tragedies might be avoided, and risks substantially mitigated, in an automated subsea factory, which eliminates the need for a drilling platform and personnel, while operating in some of the harshest environments on the planet.

Statoil says its planned subsea factories are vital to future extraction opportunities in the Arctic, the Gulf and offshore Brazil.

Total and Shell have also invested in the technology. Total's Moho Nord subsea project, located about 75 kilometres off the coast of Congo, is targeting additional reserves from the Moho-Bilondo license shared by Total E&P Congo, Chevron and Congolese state-owned SNPC. The $10-billion facility is expected to begin producing this year, with a total output of 140,000 barrels of oil equivalent per day anticipated by 2017. Related: Why Now Is The Time For Investors To Pick Up Positions In NatGas

At Shell's Perdido project in the Gulf of Mexico, five subsea separation and boosting systems separate gas and liquids and then boost the liquids up risers to processing facilities on the surface. Installed 8,000 feet below Shell's oil platform, Perdido is the world's deepest subsea processing application. Peak production is expected to top 100,000 barrels of oil equivalent per day.

Currently subsea wells pump the oil or gas and then send it via pipelines (or risers) to the drill rig or an onshore facility for processing, but Statoil's subsea factory would also employ large undersea gas compressors, normally housed on the drill rig, which are designed to increase production.

This past June, Statoil passed a major milestone by installing two “compressors trains” at its Åsgard and Gullfaks subsea projects offshore Norway, effectively completing its first subsea factory. Each train consisted of 22 modules, weighed 1,500 tonnes, and was installed using the North Sea Giant vessel, built especially for that purpose. According to Margareth Øvrum, Statoil’s executive vice president for technology, Åsgard will start production in the third quarter of this year, followed by Gullfaks in Q4. When it comes online, Åsgard is expected to add 282 million barrels of oil equivalent, around the same size as a medium field on the Norwegian Continental Shelf. Related: Are “Palm Trees” The Next Step In Solar Energy’s Evolution?

"Subsea gas compression is no doubt a crucial technology and a key delivery to our mission of the subsea factory. With subsea compression we now have all the vital elements for a subsea factory in place,” Øvrum told delegates at the Underwater Technology Conference in Bergen, Norway. “We can control the production flow. We can separate oil gas and water on the sea floor, and we can inject water back. We still need to further develop and refine several elements, for instance extended reach power supply and much better oil and water separation.”

Much progress has been made on subsea lately, but observers also note that the low oil price environment is causing many in the offshore industry to take a hard look at the economics of the technology.

Upstream Intelligence reported recently that experts from Shell, Statoil and Total are warning equipment suppliers that they must reduce the cost of subsea factories because low oil prices have weakened the business case for moving processing from the oil rig to the seabed. While enhanced oil recovery is touted as a major advantage of subsea, in a low-price environment capex reduction could trump EOR when it comes to decisions that affect subsea field development, operators say. Related: “Supersize” Fracking Could Keep Natural Gas Prices Low For Years

Cost inflation has already been blamed for Shell dropping a major subsea compression project at Ormen Lange in the North Sea. Last year, even before the oil price collapse, Shell abandoned plans to engineer a subsea well to develop the second-largest Norwegian gas field, citing rising costs and complexity. While the company did not give a cost estimate, the cost of Statoil's Åsgard project is pegged at $2.5 billion and Ormen Lange is more complex because waters are deeper and there would be no platform nearby to supply power and other equipment, Reuters reported in April 2014.


Of course, risk calculations must also be made when oil companies decide to drill topside. Here the capital costs may be lower than subsea, but the less tangible risks to human life and ecology are also factors that need to be taken into account. As recent history has proven, the cost of a blowout is catastrophic in both monetary and environmental terms. If the oil majors can adequately derisk subsea, even in an era of low oil prices the technology may prove to be a viable alternative to traditional offshore extraction, especially in locations where the costs of failure are currently considered to be too high compared to the potential payoff.

By Andrew Topf of Oilprice.com

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