A View to a drill

Schlumberger has posted forecast-beating fourth quarter revenues of $10.97 billion versus $10.23 billion in the third quarter of 2011, and $9.07 billion in the fourth quarter of 2010. The company also reported full-year 2011 revenue of $39.54 billion versus $27.45 billion in 2010.

Halliburton had a spectacular 2011, posting revenues of $24.8 billion, a 38% increase over 2010. The world’s second-largest oilfield services company, now headquartered in Dubai, has staked out a leading position in unconventional oil and gas recovery from the explosion of shale activity in North America.

In the Middle East, Halliburton along with fellow oilfield services giants, is now benefitting from increased upstream activity in Iraq as ambitious field development programs get underway in earnest.

Political turmoil in 2011 did dampen some drilling markets. “The Middle East has seen a slight decline in drilling and drilling-related activities in 2011,” says Wesam Al-Heureithi, General manager of Al Shaeen Weatherford, the joint venture between the oilfield services company and Qatar Petroleum.

“This can be attributed to the fallout of the global financial crisis and the instabilities in some of the countries due to the Arab Spring uprisings.”

However, while production took a hit, and rig and equipment movements to and from those markets were disrupted, core Middle East producers require further drilling to meet domestic demand and improve yields from current fields. The GCC drilling market in particular is in rude health.

Kuwait-based Gulf Investment House predicts the UAE will alone spend $98 billion on oil and gas projects.

As part of its heavy crude development plan, Kuwait Oil Company has powered ahead with intensive drilling in the North. From an initial plan to drill 200 wells, KOC has drilled a total of 537 well in the area, with 258 completed in 2011 alone, according to the KOC’s Hosnia Hashim in an interview with Oil & Gas Middle East (page 25).

“Several areas within the Middle East have encountered increased activities and focus for drilling and drilling related services; Saudi Arabia, Iraq and Oman, says Guy Tennant, vice president for Middle East business development at Halliburton.

“These increases can directly be related to emerging markets such as Iraq, unconventional gas exploration and development projects in Oman, and Saudi enhanced offshore and land oil development projects.”

Unconventional Prospects
Henry Hub sport prices have slumped from a high of $4.85 per MMBtu in April to just $2.40 per MMBtu in late January.

The price collapse has been driven by the ‘shale gale’ in the US and several large conventional discoveries, with the price slump already starting to slow shale exploitation in the US.

However, gas project costs track oil, not gas prices, with the result that some of the ambitious projects in the Middle East – even those free from domestic price restrictions – may be uneconomical. The recent withdrawal of Eni and Repsol from the Empty Quarter project in Saudi Arabia is a stark example.

With gas prices reducing sharply on a glut of supply, Halliburton said that a strategic shift away from dry gas and toward oil and natural gas liquids resources would hit its Q1 earnings, but the boos remains positive on 2012 prospects.

“We believe that reduced productivity and increased costs resulting from this relocation will be a short-term disruption for us and that the impact we saw in the fourth quarter will continue into 2012,” said Halliburton Chairman and CEO Dave Lesar.

The emergent trend toward unconventional gas in the Middle East is powered by burgeoning domestic demand, which partly protects regional gas projects from the unfavorable economics of a combination of large capital commitments, new technologies and a protracted slump in gas prices.

Oman is taking strides in unconventional gas development, and will host one of the most ambitious tight gas drilling projects in the world if BP commit to the Block 61 project.

Saudi Aramco has signaled its intentions regarding shale fracking by entering advanced talks to take a $2.2 billion, 30% stake in Frac Tec International, an American firm which has been a major player in the US shale revolution. Aramco aims to be extracting its first shale by 2020 (see page 10), and is current conducting reconnaissance for potential shale plays.

While Aramco CEO, Khaled Al-Falih, says the company will go it alone in shale, other national oil companies may be less sure they have – or can acquire – the expertise needed to follow suit, creating opportunities for the major players from North America.

Halliburton says its work in America has a direct bearing on its ability to have success in unconventional recovery in the Middle East

Saudi Strength
National Oilwell Varco is bullish on Saudi, which despite completing a $100 billion round of capital expenditure on the sector in 2010 shows little sign of holding back on field developments.

“Business is going well,” says Keith Legget, vice president of operations in MENA at NOV. “We have been looking forward to adding greater support in Saudi Arabia and we are achieving that now. There is ongoing expansion activity that is continuing into 2012 and beyond.”

Leggett does not confine his optimism to Saudi. “There is a feeling of upturn, of progress and growth in several areas in MENA,” he says. “Certainly in Saudi Arabia there is considerable growth and that looks to be continuing in 2012. There is strong demand for more rigs to develop new fields in Saudi in addition to in-field expansion and maintenance.”

The trend for enhanced oil recovery is also driving demand says Leggett, with a need for the latest innovative tools and techniques to keep Saudi and other GCC well pumping more oil for longer.

“There is a definite requirement to drill deeper, longer and lateral wells which require more powerful top drives,” he says.

Iraq
Then there is Iraq. Deputy Prime Minister Hussain Al-Sharistani said on 23 January that the Oil Ministry is targeting production for export of 500,000 barrels per day in 2012, following 2011’s increase of the same amount.

The target seems modest given Baghdad expects exports to increase by 400,000 bpd with the imminent opening of a new oil terminal in Basra.

2011 saw huge drilling awards, some of which got under way before 2012 – Iraq’s third year of formalised field development – even begun.

Baker Hughes has already begun drilling at the Lukoil-operated West Qurna 2 concession, where the American company will eventually drill 23 wells, and is spinning the bit in Zubair for an Eni-led cosortium.

Schlumberger is in the process of drilling 15 wells at West Qurna 1 for ExxonMobil and 11 wells at Badra for Gazprom. At Iraq’s prize field Rumaila, Daqing Oilfield Sevices is working on 15 21 wells for joint operators BP and CNPC.

There is also the issue of complex geology. Drilling in Iraqi Kurdistan is famously tricky, with awkward tectonics increasing drilling times, and companies having to leverage all their expertise to avoid bit breakages, downtime and fishing expeditions.

Brod Sutcliffe, president of the services division of Cougar Drilling Solutions, says that the cost-competitiveness of the market in Northern Iraq belies the complexities involved in drilling.

“Though the directional drilling business has become very competitive in Iraq, the drilling is quite challenging, especially approaching the Zagros belt,” Sutcliffe says.

“There are frequent issues associated with tectonic stresses, including geomechanical stability and large variations in formation pressures, leading to some exploration wells in northern Iraq becoming amongst the most expensive well drilled anywhere.”

Consolidation
It has been the major operators, led by giant independents and supermajors, that have powered the drilling market. A recent Deutsche Bank note to investors stated that the percentage of rigs operated by large oil companies has doubled since 2007.

These operators are more likely to go to the top oilfield services companies, raising the prospect of more consolidation in the sector.

A telling example of this trend was Schlumberger’s acquisition of Smith International in 2010, and their joint venture with National Oilwell Varco on drillpipe development. Schlumberger has since pushed the trend further by agreeing to partner with EPC giant Petrofac on joint bids for future combined oil services and infrastructure projects, with focus squarely on the region’s National Oil Companies.

Looking ahead
“Two themes will dominate the upstream markets in 2012: drilling efficiencies and better reservoir understanding,” says Tennant, who says that “drilling efficiencies that optimize performance and decrease drilling days on location, enhanced reservoir characterization focused on sweet spot identification, better wellbore placement to maximize reservoir contact, and shale and tight gas technologies that successfully unlock the reservoir” comprise these trends.

“Enhancing drilling performance, shale and tight gas fracturing technologies, improved reservoir characterization and HP/HT knowledge will be the required in 2012, and beyond,” says Tennant.

“Several countries in the Middle East have developed development strategies focused on unconventional gas development.” These demands incentivise smaller drillers to team up or merger with larger firms to remain competitive.

Offshore Drilling
Offshore can also be tricky, as RAK Petroleum discovered late last year. The company had to suspend drilling at the Saleh-5 well offshore Ras Al Khaimah when Noble’s Roy Rhodes encountered problems. RAK plans return to drill Saleh 5 another day, but the episode cost the company $24.5 million.

“Qatar has some of the most challenging wells worldwide,” says Al-Heureithi. “The longest extended-reach well on record was recently drilled in Al-Shaheen Field offshore Qatar. The total depth of the well was 40,520 ft and the total step-out from the surface location was 35,770 ft.

The Middle East region also has some of the most difficult high-pressure high-temperature wells (HPHT) which require special tools and techniques to successfully drill, complete and produce those wells.”

High Pressure
HPHT has been a boon for Halliburton. “Halliburton’s reservoir characterization, unconventional experience and operational expertise in shale gas, tight gas and HPHT activities will continue to deliver successes going in 2012,” says Tennant.

The trend for HPHT in the region shows no signs of slowing. “We see increased interest in HPHT,” adds Tennant. “Shale and tight gas development programs drive new technical challenges as a result of longer, deeper, hotter well bores targeting new reservoir horizons.”

In such environments, outages are a risk. In addition to expertise, advances in downhole technology and monitoring are keeping these risks at bay.

“Due to the increasing complexity of the wells and the complicated hydrocarbon reservoirs we need to drill then in, the emphasis will be on technologies and services that enable reaching the difficult well targets in a safe and economical manner,” says Al-Heureithi.

“Technologies such as rotary-steerable drilling, light weight cementing and advanced well logging will continue to be in greatest demand in 2012. The drilling scene and the industry in general will see increased automation and collaboration environments.”

The Drilling Year Ahead
“The drilling outlook for 2012 is to see an increase in drilling and workover rigs which will mean an increase in services required by the operators in various areas of the oil and gas industry, says Al-Heureithi.

“Al-Shaheen Weatherford is looking at a more active future in 2012 and beyond. The company’s workforce and equipment will be increased.”

“The Middle East has always been a very competitive, technically challenging market,” says Tennant. “However Halliburton is very excited by the prospect of near and long term growth opportunities across the region”

With professional services firm Deloitte predicting regional spend on drilling to increase from $10 billion to $24 billion by 2014, there are no shortage of opportunities for drillers. New markets will provide healthy margins, while there is still good money in drilling faster and safer with a minimum of non-productive time.

“Saudi Arabia and Iraq will lead demand in drilling services due to rig count increases both on- and offshore,” says Tennant.

“Customers continue to demand technologies that maximize return on investment, in terms of well rates and well integrity,” says Al-Heureithi.

“The repercussions of the Gulf of Mexico blowout in April 2010 led to more stringent safety and operational procedures and customers are now demanding more fail-safe equipment and technologies.”

Drilling delight: AlMansoori says business booming
UAE’s AlMansoori a highlight among local drillers

AlMansoori, a UAE-based oilfield services company, began drilling in 1992 and has since grown to a multi-faceted firm which has directionally-drilled over 900 wells in the Middle East.

Initially offering wireline services to the oil industry, AlMansoori has since expanded under Nabil Alalawi, its long-standing CEO. The company now offers services from production testing and production logging to drilling workovers and technical and safety training services in 20 countries around the world.

Relationships have been crucial. “As an organisation we have been really fortunate to have the ADNOC group of companies as a key client,” says Alalawi. “We have been insulated from the real lows the industry has suffered because we have been engaged in five, seven and nine year contracts with the ADNOC group. Their patronage has enabled us to develop at the rate we have.”

Alalawi continues to lead AlMansoori into new frontiers. An office was set up in Kampala, Uganda in 2011 with other companies such as Tullow Oil and Schlumberger recognising the region’s potential and making the move to East Africa shortly after.
The company currently employs in excess of 2,000 employees now in
19 countries.

The company has enjoyed year-on-year growth, with Alalawi targeting 25% growth for 2012. And with increased industry confidence and a rise in activity, particularly in the UAE, Saudi and Iraq, he believes this target should not be difficult to achieve.