Subsea processing, the technology of the future, is essentially about getting rid of those bottlenecks that keep production from reaching its potential, and oil services and equipment makers are the ones to watch here.
Last week, we took an in-depth look at the Subsea oil and gas sector; this week we would like to home in specifically on subsea processing, which is fast becoming THE technological solution for increasing production in mature or marginal fields.
Subsea processing can handle everything from water removal and re-injection or disposal, to single-phase and multi-phase boosting of well fluids, sand and solid separation and gas/liquid separation and boosting to gas treatment and compression.
What we're talking about, essentially, is saving space and time (which means money) by performing processing activities on the seafloor rather than sending fluids back and forth between the seafloor and the processing facilities above water.
Subsea processing allows producers to separate the unwanted elements right on the seafloor, without using complicated and expensive flowlines to bring these elements up to the above-water processing facility to remove them and then send them back down to the seafloor to be re-injected. We're cutting out the middle man here. The middle man in this case is the process known as "subsea boosting".
Cutting out the middle man means an increase in hydrocarbon recovery from oil and gas fields, and a concomitant increase…
Subsea processing, the technology of the future, is essentially about getting rid of those bottlenecks that keep production from reaching its potential, and oil services and equipment makers are the ones to watch here.
Last week, we took an in-depth look at the Subsea oil and gas sector; this week we would like to home in specifically on subsea processing, which is fast becoming THE technological solution for increasing production in mature or marginal fields.
Subsea processing can handle everything from water removal and re-injection or disposal, to single-phase and multi-phase boosting of well fluids, sand and solid separation and gas/liquid separation and boosting to gas treatment and compression.
What we're talking about, essentially, is saving space and time (which means money) by performing processing activities on the seafloor rather than sending fluids back and forth between the seafloor and the processing facilities above water.
Subsea processing allows producers to separate the unwanted elements right on the seafloor, without using complicated and expensive flowlines to bring these elements up to the above-water processing facility to remove them and then send them back down to the seafloor to be re-injected. We're cutting out the middle man here. The middle man in this case is the process known as "subsea boosting".
Cutting out the middle man means an increase in hydrocarbon recovery from oil and gas fields, and a concomitant increase in profits. But it also means better efficiency and easier flow management. The bottom line is that subsea processing can turn marginal fields into major producers.
While this is the future, it is also the present, and subsea processing projects are already underway around the world, but the number of systems so far installed remains small. But that is changing and interest - is growing fast.
New Developments in Subsea Processing
Subsea Rotating Devices and Dual-Gradient Drilling
We are particularly interested in a new subsea rotating device that promises to enhance dual-gradient drilling (DGD). This is a system being developed by Chevron, which it is hoping to deploy in the Gulf of Mexico later this year.
Chevron thinks it will be a subsea game-changer for deepwater drillers. What the DGD system will do is render the thousands of feet of mud that is bearing down on the wellbore … well … weightless. A very significant part of this puzzle is the subsea rotating device (SRD), which diverts drilling fluids to establish a dual gradient environment. (I'm not an engineer, so you can read more about dual gradient environments here.) The point is that mud is a major challenge that hinders deepwater drilling, and the new technology will remove this hindrance and allow for even deeper drilling in even more challenging waters.
"Mud and cuttings in the riser impose a heavy hydrostatic burden in conditions where navigating narrow drilling windows between pore pressure and fracture gradient is paramount. From the perspective of the well, eliminating the column of mud extending from the seafloor to the sea surface and replacing it with a seawater density fluid effectively places the rig on the seafloor. As a result, water depth becomes inconsequential in its impact on well design."
Subsea Power Grids
We are also keeping an eye on subsea power grid plans, which since 2010 have been making giant strides towards the advancement of electric grids installed on the floor of the sea to run processing systems at the site of underwater wells. This is another significant reducer of production costs. It reduces the need for so many platforms on the water surface, and makes the entire process much less complicated.
The ultimate goal here is to be able to operate offshore wells REMOTELY from land-saving countless billions!
So while there is currently no way to generate electricity under water, the idea is to figure out how to get the electricity to the sea floor either by diverting it from onshore or by placing generators down there.
Who's doing what? Siemens-the pioneer of this idea back in 2010--is developing technology that could deliver 100 megawatts of electricity from generators up to 70 miles away. (Right now, we can only transmit around 3-4 megawatts via cables on platform generators.)
In September 2011, Siemens launched a new subsea technology center in Trondheim, Norway to develop and manufacture subsea grid equipment. Siemens also acquired Norwegian subsea specialists Poseidon and Bennex to boost its in-house capabilities. In March 2012, Siemens acquired a division of Scottish Expro, which would provide the final technology for the subsea power grid project.
"A subsea power grid lets you power up all your appliances to manage your field, and will allow you to do so for multiple wells," said Adil Toubia, CEO of the Oil & Gas Division of Siemens Energy.
And we're not too far from commercial viability here: Siemens thinks its technology will be on the market by next year already. Siemens expects to hit the ground running with this technology. Every offshore producer will want it. The first subsea power grid prototype will be unveiled by the end of this year and should hit the market by the end of 2014.
Bottom line: A subsea power grid could double oil recovery from deep-water wells to about 20%.
What to Watch? The oilfield equipment manufacturers and oilfield services companies who will employ this new subsea tech. The top two performers are Oceaneering International and FMC Technologies, but Oceaneering has seen its revenues more than triple over the past decade-which is two times the growth rate of FMC. Oceaneering is smaller, and less diverse, but we like its more focused investment on deep and ultra-deep offshore activities.
Oceaneering International (NYSE: OII)
Market Cap $6.81 billion
Debt/Equity 5.18
Profit Margin 10.39% (2012)
Return on Assets 10.38%
Return on Equity 17.14%
FMC Technologies (NYSE: FTI)
Market Cap $12.23 bill
Debt/Equity 88.54
Profit Margin 6.99% (2012)
Return on Assets 7.96%
Return on Equity 26.42%
But thinking ahead a bit further, we like Cameron International Corp. (NYSE: CAM) and Schlumberger (NYSE: SLB) best. CAM is higher 0.56% and trading at $64.31, with a market cap of $16.31 billion. Schlumberger is a MAJOR player with a market cap of over $100 billion and trading at $76.34.
Most importantly, the two plan to combine their subsea businesses through the OneSubsea joint venture with will allow them to capture a significant amount of the subsea services market.
(CAM has also procured a contract from Brazil's state-run Petrobras to provide subsea equipment for the development of Pre-Salt and Post-Salt areas offshore Brazil and enjoys a long-standing relationship with Petrobras. In February, CAM also signed a subsea equipment deal with an affiliate of ExxonMobil Corp.)
What we're looking at here is this trend: Deepwater and ultra-deepwater offshore are the keys to E&P exploration now and in the long-term future. Service companies and equipment manufacturers involved in subsea technology will remain in tight supply and enjoy premium prices.