Post on 14-Jul-2020
Floating Production & Storage Systems Europe 2008
An IQPC Conference London, March 31 – April 2, 2008
NYSE: DVN www.devonenergy.com 2 of46
An operator’s outlook for FPSOs in the ultra deep waters of the U.S. Gulf of Mexico
Peter LovieDevon Energy CorporationHouston, Texas
NYSE: DVN www.devonenergy.com page 3 of 46
Key Messages
Good reasons no FPSOs in GoM hitherto
Players have been changing, particularly Devon
GoM Ultra Deep Water (UDW) stretches drillers likenever before
Increasing lag, UDW discovery to development
Hubs & spokes continue
FPSOs different for today’s GoM
Flexibility critical
NYSE: DVN www.devonenergy.com page 4 of 46
Good Reasons No FPSOs in GOM
a. Wells often needed intervention, non-FPSO field development solutions available, known quantities in GOM, fast and cost effective;
b. FPSOs might are theoretically workable in some instances but not the optimum solution so far;
c. Extensive efficient network of export infrastructure (pipelines), been effective solution for tie in of new deepwater developments hitherto;
d. Export by shuttle tankers expensive in US GOM: Jones Act calls for US built/owned tankers, means CAPEX about 3x intl, OPEX about 2 x intl, long uncertain delivery hitherto;
e. But most of all: “Economics, Economics, Economics”; [Rick Meyer of Shell, at SPE’s FPSO Global Workshop Houston, 2002]
NYSE: DVN www.devonenergy.com page 5 of 46
History in GoM
Pipelines have been highly profitable for many years for many oilcompanies and independent pipeline owners – why change thatbusiness model?
MMS/USCG approval in principle achieved in Record of Decision in December 2001 for FPSOs and shuttle tankers in US waters;
For service in US waters FPSOs can be built anywhere. In contrastshuttle tankers must be owned, built and crewed in US;
For the record, the first two FPSOs in GoM were in Mexican waters:1st FPSO 1989 Owned by Pemex1st FSO 1998 Charter from Modec2nd FPSO 2007 Charter from BW Offshore
NYSE: DVN www.devonenergy.com page 6 of 46
The Early Production System (EPS) at Cascade / Chinook is firstFPSO in US waters in GOM, with first use of Jones Act shuttletankers in GOM, contracted 2007, first oil 2010;
Cascade is 50:50Petrobras: Devon
Chinook is 2/3:1/3 Petrobras: Total
Petrobras operator of both;
8,200 ft. water depth;
Full field developmentsolution not yet decided, not necessarily an FPSO;
5 year lease with BW Offshore600,000 bbl capacityMax. 80,000 bopd
It All Changed in 2007FPSO Contracted for EPS service
NYSE: DVN www.devonenergy.com page 7 of 46
2004 Ivan: storage vessels discussed for mitigating pipeline damage effects;
2005 Katrina and Rita. Storage vessel chartered at one location to enable gas production via collection of liquids;
2006 Two DP storage vessels chartered as “insurance policy” during hurricane season;
2007 Changes in design codes: announcements and debate of API RP2 at OTC;
2008 Underwriters start to ease up a little;2008 More lawsuits settled on the explosion at BP Texas City.
Industry realizes how hurricane damage may not be the only risk of interruption of revenues for offshore producers!
Mother Nature has spoken: Disconnectability, optionality and storage are all good!
Corporate Memory“2005 All Over Again”, Designs for the Future
NYSE: DVN www.devonenergy.com page 8 of 46
Players Have Been ChangingParticularly Devon
1997 – 2007 saw the birth of Supermajors:BP Amoco, Arco, BPChevron Chevron, Texaco, UnocalConocoPhillips Burlington, Conoco, PhillipsExxonMobil Exxon, MobilTotal Elf, Fina, Total
The coalescing of the bigger puddles of oil continued:ENI ENI, DominionStatoil Hydro, Saga, Statoil
And then there is: “The Rise of New Bodacious Independents”
[SPE’s Journal of Petroleum Technology, guest editorial, pp. 22, 24, March 2008]
0
2
4
6
8
10
12
14
Uno
cal
Burl
ingt
onU
PR
Pion
eer
Apac
heAn
adar
ko
Vast
arEO
GO
ryx
Kerr
-McG
eeN
oble
Loui
sian
a La
nd
Uni
on T
exas
Seag
ull
Trit
on
Oce
anPo
goVi
ntag
e
Ense
rch
Park
er &
Par
sley
Mit
chel
l
Dev
onU
nite
d M
erid
ian
Loui
s D
reyf
us
Che
sape
ake
Mon
tere
y Re
s.N
ewfi
eld
Barr
ett
Nue
voXT
O
Forc
ener
gy
Sant
a Fe
Fore
st
Cab
otSn
yder
Lom
ak
Note: Enterprise value calculated as sum of market value of outstanding common stock plus book value of long-term debt, preferred stock, certain other long-term liabilities less net working capital.
U.S. Independents in 1997Enterprise Value, US$ Billions
Often not realized, U.S. Independents changed radically since 1997.
0
5
10
15
20
25
30
35
40
45
Uno
cal
Burl
ingt
on
UPR
Pion
eer
Apac
heAn
adar
ko
Vast
arEO
G
Ory
x
Kerr
-McG
eeN
oble
Loui
sian
a La
ndU
nion
Tex
as
Seag
ull
Trit
on
Oce
anPo
go
Vint
age
Ense
rch
Park
er &
Par
sley
Mit
chel
l
Dev
onU
nite
d M
erid
ian
Loui
s D
reyf
usC
hesa
peak
e
Mon
tere
y Re
s.N
ewfi
eld
Barr
ett
Nue
voXT
O
Forc
ener
gy
Sant
a Fe
Fore
st
Cab
ot
Snyd
erLo
mak
Growth over 1997 base
Acquired / merged
U.S. Independents in 2008Enterprise Value, US$ Billions
Source: Enterprise Value as stated on Yahoo! Key statistics on February 2008.
The bodacious few still standing in 2008!
NYSE: DVN www.devonenergy.com page 11 of 46
Devon - Exploration InventoryNet Unrisked Resource Potential
GULF OF MEXICO CHINA
4 – 7 BBOE36 Prospects
2 – 4 BBOE17 Prospects
BRAZIL
1 – 2 BBOE12 Prospects
NYSE: DVN www.devonenergy.com page 12 of 46
Devon - Largest IOC in BrazilIn Terms of Net Exploration Acreage*
98179
323325
1,751
1,328
1,159
879
637581
374 354
Chevron Repsol Anadarko Shell SK Total Statoil N. Hydro Esso EnCana ENI
Net
Acr
eage
(Km
2)
1,752 Km2 = 70 OSC Blocks
*Excludes Petrobras which has 10,100 sq km under license
NYSE: DVN www.devonenergy.com page 13 of 46
Devon - Largest IOC in ChinaIn Terms of Offshore Net Exploration Acreage*
25,818
10,626
9,729
3,919
10,88211,982
20,09818,194
6,277 6,504 5,255
20,750
BG Husky SINOPEC TARC Anadarko ConocoPhillips Primeline Chevron
Net
Acr
eage
(Km
2)
Total 31,632 Km2
(Includes 53/30 & 64/18)
Shelf Deepwater
*Excludes CNOOC 278,617 km2
NYSE: DVN www.devonenergy.com page 14 of 46
Devon Floating Systems - History Most types, different parts of the world
Field Location Water depth, feet Type First oil Capacity,
boepd Devon role Partners
Cascade GOM 8,200 F P S O 2010 80,000 Non op Petrobras
Polvo Brazil 344 F P S O 2007 90,000 Operator SK
Independence Hub
GOM 8,000 Semisubmersible 2007 166,000 Non op Anadarko, Dominion, StatoilHydro
Red Hawk GOM 5,300 Cell Spar 2006 20,000 Non op Anadarko
Magnolia GOM 4,700 T L P 2006 75,000 Non op ConocoPhillips
Serpentiina Eq. Guinea 1,558 F P S O 2003 110,000 Non op ExxonMobil, Govt. of Equatorial Guinea
Panyu S. China Sea 320 F P S O 2003 60,000 Non op CNOOC, ConocoPhillips
D e v o n F l o a t i ng P r o d u c t i o n S y s t e m s
Mostly non operated projects hitherto - that is changing now
NYSE: DVN www.devonenergy.com page 15 of 46
Panyu FPSO in South China Sea
Operator: DevonCNOOC 51.0%Devon: 24.5%ConocoPhillips: 24.5%
Oil development at Panyu Block 4-260,000 bopd max320 ft. water depthFirst oil 4Q031,000,000 bbl storage
NYSE: DVN www.devonenergy.com page 16 of 46
SerpentinaFPSO in Equatorial Guinea
Oil and gas development in Block B:Initial development started in 1993 with the Zafiro Producer FPSO, expanded with the Jade platform then the Serpentina FPSODiscovery March 1995
First oil August 1996
Serpentina first oil July 2003, 110,000 bopd, 1,900,000 bbl storage(ExxonMobil generic EPS FPSO), waterdepth 1,558 ft.
Operator: ExxonMobil71.25% ExxonMobil23.75% Devon5% Govt. of Equatorial Guinea
NYSE: DVN www.devonenergy.com page 17 of 46
Red HawkCell Spar in GOM
Gas development in GB 877: Operator: AnadarkoPeak 120 mmscfd 50:50 Anadarko: Devon5,300 ft. w.d.Contracted: 2002First gas: 2004
NYSE: DVN www.devonenergy.com page 18 of 46
MagnoliaTLP in GoM
Oil development in GB 783 Operator: ConocoPhillips50,000 bopd capacity + 150 mmscfd 75: 25: ConocoPhillips: Devon4,700 ft. w.d. Discovery: May 1999First oil: November 2004
NYSE: DVN www.devonenergy.com page 19 of 46
PolvoFPSO, shown en route, now producing in Brazil
Oil development in BM-C-8: Operator: Devon90,000 bopd 60:40 Devon:SK344 ft. w.d. Leased FPSO from Prosafe1,500,000 bbl storage (7 years + options)Discovery: June 2004, first oil: July 2007
NYSE: DVN www.devonenergy.com page 20 of 46
Texas
Louisiana
Deepwater GoMExploration Trends
Lower Tertiary Trend194 Blocks
Miocene Trend156 Blocks
Block Ownership:• 3rd largest in trend• 2nd among independents
Block Ownership:• 5th largest in trend• 3rd among independents
Looking ahead: Devon in a leading position in the frontier areas for Gulf of Mexico ultra deepwater exploration
NYSE: DVN www.devonenergy.com page 21 of 46
TertiaryLower Trend
Tertiary
Lower
Trend
TertiaryLower Trend
Tertiary
Lower
Trend
• 4 announced discoveries out of 6 exploration wells drilled
• 67% success rate
Devon Significant Discovery
Devon Non-Commercial
Cascade2002 Discovery
Jack2004 Discovery
St. Malo2003 Discovery
Kaskida2006 Discovery
Toledo2003
Sardinia2004
Lower Tertiary TrendDevon Results to Date
NYSE: DVN www.devonenergy.com page 22 of 46
TertiaryLower Trend
Trend
Devon - Lower Tertiary Prospect Inventory
• 4 significant discoveries to date
• 21 additional prospects
Devon Discovery
Devon Prospect
Cascade
Jack
Kaskida
St. Malo
Trend
Merope
Cherry Bomb
Capella
Sardinia West
Propus
Bottle Rocket
Gorgona
Navi
Knik
M80
Jericho
Vinita
Cypress W
Bass Green Bay
Azha
Dart
Latigo
TertiaryLower Trend Ponza Deep
Fist
Chuck
NYSE: DVN www.devonenergy.com page 23 of 46
Texas
Louisiana
Devon - Miocene Prospect Inventory
Devon Miocene Prospect
Recent Industry Miocene Discovery
Devon Miocene Discovery
Mission Deep
Sturgis
Bigfoot
Puma
Knotty Head
Tahiti
Tubular Bells
Rigel
ColoradoDestin
Tuscany W
Sabre
Winter Park
Wombat
Shogun
Shelby
Petard
Chaps
RaptorKoalaPortage
Sturgis North
NYSE: DVN www.devonenergy.com page 24 of 46
4,685’50%DevonKeathley CanyonDart
5,820’50%DevonWalker RidgeFist
6,500’39.5%DevonWalker Ridge Chuck
6,059’25%ChevronKeathley CanyonGorgona
6,237’12.5%ChevronKeathley CanyonCypress West
6,324’33.3%ChevronKeathley CanyonCherry Bomb
5,511’75%DevonKeathley CanyonCapella
6,475’100%DevonKeathley CanyonBass
4,189’16.7%AnadarkoKeathley CanyonBottle Rocket
5,583’100%DevonKeathley CanyonAzha
Prospect Water DepthDVN Block
W.I.OperatorArea
Lower Tertiary Prospect Inventory
Operated By: Anadarko (2), Chevron (7), Devon (12)
NYSE: DVN www.devonenergy.com page 25 of 46
6,28423%AnadarkoWalker RidgeGreen Bay
5,525’75%DevonKeathley CanyonVinita
6,062’35%ChevronKeathley CanyonSardinia West
4,200’100%DevonGarden BanksJericho
6,219’25%ChevronKeathley CanyonPonza Deep
6,364’50%DevonKeathley CanyonNavi
3,422’100%DevonGarden BanksMerope
5,645’50%ChevronKeathley CanyonM80
4,094’50%DevonKeathley CanyonLatigo
6,764’100%DevonWalker RidgeKnik
Propus
Prospect
6,482’50%ChevronKeathley Canyon
Water DepthDVN Block
W.I.OperatorArea
Lower Tertiary Prospect Inventory - Continued
Operated By: Anadarko (2), Chevron (7), Devon (12)
NYSE: DVN www.devonenergy.com page 26 of 46
Extreme depths: 30,000+ ft. RKB not unusual;
Extreme pressures in reservoirs, e.g. 18-22,000 psi;
Mountainous seabed;
Reservoir rocks without production history;
MODU availability limited, long deliveries;
Experienced people in operator, drillingcontractor and vendor organizations are morecritical than ever for wells like these.
But these people are in very short supply;
GoM Ultra Deep Water Stretches the Drillers
Combination of factors at work
NYSE: DVN www.devonenergy.com page 27 of 46
Drilling Like Never Before: And Stretching Development Strategy
Drilling and completion for one well may take six to nine monthsin the Lower Tertiary;
Drilling investment can be in the region of $120-$160million per producing well;
Well costs dramatically high for the Lower Tertiary, in part from day rates and in part from well characteristics;
Facility choices more driven by drilling than 5-10 years ago: well CAPEX about 2/3 now of field development, instead of 1/3 before;
Developments may take several years to drill up, hence production ramp up may be slower;
Development solutions: choices changing, e.g. no TLPs,maximum size spars, FPSOs, semisubmersibles;
NYSE: DVN www.devonenergy.com page 28 of 46
MMS Report 2007-021: Deepwater Gulf of Mexico, Interim Report of 2006 Highlights
Proven Reserves Add Value
Increasing Lag Discovery and Development in the Ultra Deep
Reproduced by Permission of RPSEA
NYSE: DVN www.devonenergy.com page 29 of 46
DeepStar/BP (Nov04)
Great White
Walker Ridge
Keathley Canyon
Alaminos Canyon
Independence Hub
Reproduced by Permission of RPSEA
GoM Ultra-deepwater Activity(broad industry attention on challenges in region)
Walker Ridge / Keathley Canyon
– Sub-salt– Deeper wells– Tight formations
Alaminos Canyon– Viscous crude– Lacking infrastructure
Eastern Gulf – Gas Independence Hub
- Higher pressure- Higher Temperature- CO2 / H2S
Higher Drilling CostsChallenging Economics
page 30 of 46
120+ Project Ideas$300 MM
70 Project Ideas $175 MM
26 Project Ideas$30 MM
RPSEA 2007 & 2008 Projects
April, 2007
June, 2007
July, 2007
Reproduced by Permission of RPSEA
Significant Demand for UDW Technology Funding
NYSE: DVN www.devonenergy.com page 31 of 46
Decades of tradition of tie ins to deepwater hubs that process andfeed a transportation system often with major oil companyownership;
Same practical reasons hold today, looking ahead: shared facilities, profit motive for all;
Independence Hub = Independents’ Hub, first gas in July 2007;
FSOG: Devon developed concept for hub storage in remote ultradeep waters of Walker Ridge and Keathley Canyon, ability to collect and process gas on deck;
FPSO: Duty as a hub may be a priority features in FPSO capabilities,similar to FSOG;
Hubs and Spokes ContinueMore Ahead
NYSE: DVN www.devonenergy.com page 32 of 46
Independence Hub = Independents’ HubIngenious teamwork in aligning contractor & independents’ interests
GOM Gas Hub:8,200 ft. w.d.Engineering began: July 2004 First gas: July 20071.0 Bcf/d5,000 bopd condensate
Owned: 80% Enterprise / 20% Helix Operator: Anadarko
3 Additional AnchorProducers:
Devon
Dominion
StatoilHydro
NYSE: DVN www.devonenergy.com page 33 of 46
Out of sightindependents produce 14 locations, 10 fields
Pioneering in 8,200 ft. of water: Huge subsea spread created engineering and construction challenges
If you know Houston, it’s like an area from Galveston to The Woodlands
NYSE: DVN www.devonenergy.com page 34 of 46
Field 1Operator 1
Field 2Operator 2
Field 3Operator 3
FSOG
FSOG Concept: Regional StorageDeveloped by Devon in 2004
Separate fields using Devon operated FSOG with shuttle tankers to Gulf Coast refineries: typically use a standard VLCC with 2,000,000 bbl storage capacity US patent pending, inventors:
Dave Bozeman & Steve Seat
300,000 – 500,000 BOPD
NYSE: DVN www.devonenergy.com page 35 of 46
Features of the FSOG
a. Common infrastructure for storage and transportation of crude;
b. Provides for collection, processing & compression of commercialgas volumes in low GOR region;
c. Provides marketing hub for tie in of future fields;
d. Devon has a patent pending for the FSOG: “Method and System forGathering, Transporting and Marketing of Offshore Oil and Gas”;
e. Practically: FSOG is an assembly of proven components: doublehull VLCC, low pressure risers, disconnectable turret mooring;
f. Could work with any non disconnectable option (e.g. spar etc.);
g. Would mean an extra tariff to add to the shuttle tanker tariff.
New business opportunity in regional marketing of oil and gas
NYSE: DVN www.devonenergy.com page 36 of 46
FPSOs for Today’s GoMThe New Requirements
a. Disconnectable. Run before storms like in Far East. Becomes easier to modify, expand or maintain;
b. Long field life, e.g. Lower Tertiary fields may produce for as long as 40-50 years, i.e. about double past field lives. Important effect on facility design and on exposure to extreme storm events;
c. New more remote areas of Lower Tertiary turning out to be veryprospective (potential for high rates);
d. Long way out, over mountainous seabeds, pipeline routes much longer, more circuitous and more expensive than hitherto (exporteconomics may favor FPSOs);
e. Pressure to cut the cycle time to improve economics is counteredby risks of reservoirs performing differently from expectations (timing on a firm FPSO contract less clear than before);
NYSE: DVN www.devonenergy.com page 37 of 46
Is There Really a Case for an FPSO for Full Field Development?
Simultaneous with all that is deeper, higher pressured, more remote,bigger CAPEX, the corporate need in these mega projects intensifies to maintain capital discipline and project management discipline;
So we could study it to death to mitigate risks - or take some risks withfuture flexibility at a premium;
How to forge ahead? How to apply Devon’s mantra “accelerate through the value chain”?
More GOM acceptance of FPSOs: the rise of the independents, plus arrival of non GoM experience (Petrobras, StatoilHydro);
Conclusion: Circumstances now more favorable today for FPSOs in GoMthan before, if they can be more flexible in capability & business basis;
NYSE: DVN www.devonenergy.com page 38 of 46
Early Well Testing (EWT) ? And/or Early Production Systems (EPS) ?
Gas cannot be flared in GoM – makes shorter term operations moredifficult than in countries where there is some regulatory latitude fortrials in new areas;
Desirable to test wells for longer durations but assembling the spreadis difficult and costly ;
Smaller shorter term EPS, possibly on DP, has been debated in GoMbut true added value to a field development often not there - or not conclusive;
Dilemma of equipment being built if several multi-month (or one ortwo year) long commitments were available. The trick is gatheringenough of these to enable vessel construction;
In spite of much discussion, no definitive GoM solution yet selected!
NYSE: DVN www.devonenergy.com page 39 of 46
Putting It Together(Cautiously)
Corporate goals of large independents may favor FPSOs: proving as they go along, e.g. EPS morphing into FFD;
Commitments on export pipelines are huge, tanker export easier tostart quickly for remote areas and economics competitive – hence export system selection may favor FPSOs);
Drilling, well access, available technologies affect facility choice(e.g. dry trees and/or DVA, no FPSO);
Not conclusive that there must be a future for FPSOs for FFD in ultradeep in GoM;
Projecting the future fleet size of FPSOs for US GoM would requiretruly remarkable use of crystal balls plus perfection of SWAGs on abiblical scale!!!
NYSE: DVN www.devonenergy.com page 40 of 46
Logic of Real Option Value decision process expedites steering ourcourse in uncharted waters (pun intended);
Rigorous internal debate, little/no bias pro/con FPSOs;
No legacy of pipeline operation, shuttle tanker v. pipeline (relatively open competition;
Sanctioning an FPSO by end 2009? A P50 event?
Concept selection process slow and deliberate with Devon and itspartners;
Would not expect a flood of FPSO orders for GoM;
Devon’s Perspective(1 of 2)
NYSE: DVN www.devonenergy.com page 41 of 46
Devon’s Perspective(2 of 2)
For Devon’s 2008 portfolio of Lower Tertiary prospects in the UDW GoM, we can confirm considering FPSOs along the lines of:
Technically: + EPS expandable to FFD+ Suezmax newbuild;+ Disconnectable;
Commercially: + Studies on FPSOs for GoM soon;+ Early talks with contractors;+ Firm commitment dependent on well results;+ Premium on flexibility and speed;+ Bid process could proceed – or negotiation on hull
under construction – depending on progress;+ Linked to availability of shuttle tankers.
We do encourage exchange of ideas with contractors, expect them to make a reasonable profit,
and understand paying for successful performance!
NYSE: DVN www.devonenergy.com page 42 of 46
Flexibility CriticalWrapping up
a. Delays in the traditional Definition project stage for Lower Tertiary prospects in GoM call for something new in the industry. Old desire to “git ‘er done” being stymied for good technical reasons and for traditional economic choices;
b. FPSOs being re-locatable are well suited to “try it and learn” –mitigating development risks and improving project economics;
c. GoM needs FPSOs with maximum technical and commercial flexibility to deal with future reality, knowing that initial ideas on production requirements will probably be wrong!
d. Can we create even more flexibility than “generic” FPSOs of recent years? Expandability?
e. Fertile waters for operator initiatives and fresh thinking in FPSO contractors – critical for FPSOs to happen in GoM UDW.
NYSE: DVN www.devonenergy.com page 43 of 46
Integrity
A few good people;
Old fashioned values & good business sense today;
Long term working relationships;
Values and value.
NYSE: DVN www.devonenergy.com page 44 of 46
Acknowledgements
My thanks is due to Devon management for permissionto freely discuss the issues here.
Recognition is also due to colleagues for their ideasand assistance in reviewing and assembling theinformation in this presentation:
Dave BozemanScott CoodyMelany Boughman
NYSE: DVN www.devonenergy.com 45 of46
Questions?
peter.lovie@dvn.com
001 713 265 6489 office
001 713 419 9164 cell
Thank You