GlobalSantaFe Corporation's GSF Development Driller I.

Looking for oil with the drillbit

by Nick Blenkey
Senior Editorial Consultant

Energy majors have been taking a strange new approach to how they add to their reserves of oil and natural gas lately. They've been enlisting petroleum geologists as well as accountants for the task.

As a result, offshore rig utilization is substantially up. According to data from Rigzone.com's RigLogix, as of February, world drillship utilization was 26 of a fleet of 32, or 79%, compared with 23 of 32, a 69.2% utilzation rate, last September. For jackups, 219 of the world fleet of 313 were employed in February, a utilization rate of 93%. This compares with 284 of 312 vessels last September, when the utilization rate was 89.1 percent. For semis, the world utilization rate in February was 117 of 134 units, or 84.1 percent, compared 111 of 134 units last September, or 81.4 percent.

GlobalSantaFe Corporation reports that its worldwide SCORE, or Summary of Current Offshore Rig Economics, for February 2005 was up 4.6 percent from the previous month's SCORE.

The world SCORE rose from 58.1 to 60. The Gulf of Mexico SCORE rose from 59.0 to 62.4 and the North Sea SCORE from 59.7 to 64.7. Compared with one year ago, the world SCORE is up 36.7 percent, the Gulf of Mexico is up 64 percent and the North Sea up 60.2 percent. In contrast, the S.E. Asia SCORE, at 57.2, is down 7.8 percent.

At the end of March, GlobalsantaFe took delivery of the GSF Development Driller I in Singapore [. The ultra-deepwater semisubmersible rig, the fourth and last rig in the company's four-year newbuild program, is expected to arrive in the Gulf of Mexico in June where it will complete sea trials and commence a two-year multi-well exploration and development program for BHP Billiton in July.

GlobalSantaFe took delivery of its other ultra-deepwater semisubmersible rig, GSF Development Driller II, on February 23, 2005. It is currently on schedule to arrive in the Gulf of Mexico in late May, where it will begin sea trials and then commence a three-year contract with BP for the Atlantis project in July.

If you've filled up your SUV or paid a utility bill lately, any pick up in offshore drilling activity should be welcome news rather than a surprise. All that's in question is whether we're seeing just a spike in energy prices or something longer term. Goldman Sachs analyst Anjul Murti was in the headlines recently with predictions that oil could hit a "super spike" of $105 a barrel in 2007. Be that as it may, no denying an underlying trend of increasing world demand for energy. And in the U.S., demand for natural gas is a further factor driving developments in the Gulf of Mexico

TARZAN SWINGS IN

Last month, Rowan Companies, Inc., was awarded a drilling contract by a large independent oil and gas company to drill a deep well on the outer continental shelf in the Gulf of Mexico, using its second Tarzan Class jack-up, the Bob Keller.

The one-well assignment should commence in September 2005. It is expected to last about seven months. Revenues from this contract are estimated to be about $20 million.

The Bob Keller is under construction at Rowan's Vicksburg, Miss., shipyard. Delivery is expected during the third quarter. The unit is the second of what could be as many as four Tarzan Class rigs built by Rowan. The rigs are designed to tap the emerging ultra-deep shelf gas market in the shallow waters of the Gulf of Mexico by offering the drilling capabilities of a Super Gorilla class rig at about one-half of the construction cost.

Though several major operators have been planning ultra deep shelf wells that call for drilling beyond 25,000 feet, "independent operators continue to dominate jack-up activity being carried out on the Gulf of Mexico's outer continental shelf," says Rowan chairman and CEO Danny McNease. Rowan is well-positioned to take advantage of expected growth in this market, he said, as it has the only four jack-ups with the capacity to handle the drill string required to reach the 25,000 ft depth.

"The Bob Keller will be our fifth Gulf of Mexico jack-up with a two million pound hook-load capacity," said McMease. "The timing for our introduction of the Tarzan Class jack-up into the marketplace could not have been better."

LEASE SALES "ROBUST"

There was what the U.S. Minerals Management Service termed "robust bidding" in two offshore federal lease sales conducted by the agency. Central Gulf of Mexico Lease Sale 194, brought in $353,961,798 in high bids from 80 companies for oil and natural gas leases. The total of all bids was $540,254,193. Eastern Gulf of Mexico Lease Sale 197 "exceeded expectations," with $6,974,531 in total bids.

While interest in deep water continued, the large number of tracts receiving bids in shallow water was of particular note.

"We believe this reflects definite industry interest in deep gas in shallow waters, as well as deep water oil and gas production in response to royalty relief offered by MMS," MMS Director Johnnie Burton explained.

Meantime, for future Gulf of Mexico lease sales, the Minerals Management Service is proposing to increase base level rentals and is considering the use of sliding scale rentals in future sales.

The Administration's FY 2006 Budget submission called on MMS to increase the base level for rentals. For future lease sales for the GOM, MMS is proposbase levels of about $6.25 per acre for blocks in water depths of less than 200 meters and $9.50 per acre in water depths of 200 meters or greater. MMS is also considering using a sliding scale structure for blocks in water depths of 400 meters or greater, where royalty relief is typically offered.

The Deep Water Royalty Relief Act of 1996 has brought increase in the pace of leasing that's about twice as high as the increase in the pace of exploration. Use of a sliding scale rental system is designed to encourage earlier exploration in deepwater areas.

MMS is looking at a sliding scale where rentals would go from $9.50 an acre annually in the first five years, then rise in increments to $17.50 an acre in the tenth year. Under this proposal, if a lease is drilled within the first five years of its initial period, escalating rentals can be avoided through either a discovery or through relinquishment.