top of page

Meeting Deepwater Oil & Gas Challenges in Africa with Africa-centric Rigs and Alternate Technology

                                                         By Sunny Oputa

West Africa, Brazil and Gulf of Mexico which are considered as the golden triangle for deep/ultra deep water oil and gas exploitation and have proven prolific geology. The expected discoveries in these three zones are estimated to increase global oil output by 13% in 2020. International Energy Agency (IEA) reports that a minimum of about 10% of the global remaining recoverable conventional hydrocarbon could be found in source rocks beneath the ocean surface in deep water and experts have it that the world deep water basins are under-exploited.


Deep water activities in Gulf of Mexico, Brazil and West Africa have continued to soar, though GoM has more activities. The three zones have proven the possibilities of large finds in one place with millions and billions barrels of recoverable oil equivalent. Deep water exploration and production is very expensive and require lot of resources – physical, financial and human.  Successful E &P ventures in deepwater fields always yield high profitability. Availability of infrastructures, technological advancement, rich human capital and access to funds has helped in accelerating E&P activities especially in the Gulf of Mexico. However, slowed operations in West Africa’s deep water market may hinder economic boost which the expected massive revenue from deep water productions would have injected into its economy.

According  to Roman Kilisek, writer for Breaking Energy, “the key to unlocking reserves are experience, engineering innovations in deep-sea drilling and advances in technology – i.e. increased computer capacity as well as new seismic equipment – all together allowing for exploration of previously out-of-reach subsea layers of rock.” One of the major challenges mitigating the growth of deepwater hydrocarbon development in West Africa is the high cost of daily rental of rigs and the problem of thinking outside the box when it comes to choosing technology and process.

The daily cost of renting a rig which averages almost $520,000 exorbitantly increases Capex and adds up with skyrocketing operational expenditure which deters investors from venturing more in the exploitation of the West Africa deep water basin.  It also cost a lot of money to move a rig from United States or Asia to Africa. Power Hedge, on commenting on the profitability of ultra-deepwater drilling wrote, “if only one rig in the region or world is available to work and several operators want to hire it then the day rate will be higher due to the operators bidding against each other.” According to Hedge this scenario typifies today’s market outlook.


Recently, weakness in the oil price globally seems to have forced the daily rate of rigs to be declining. The expected soft market which most industry players hoped for has not materialized fully especially in West Africa where the current daily rate could be considered fair for major oil companies and not favorable enough for independents and local companies to participate. Since 2nd quarter of 2012 to early 2013, the rates for ultra-deep water rigs have dropped from $650,000 to be at the range of $550,000   - $625,000.  The rates for some older rigs and those that could be used in shallow deepwater ranges from $250,000 - $400,000. Rune Lundetrae, the chief financial officer of Seadrill, the global number one driller as per market value once said,” daily rig rates across the globe would continue to fall…but the difference between old and new rigs would always create the difference in rate favoring newer vessels.”


For deep water oil and gas activities to increase in Africa, encouraging developments of large and marginal fields, and also having inclusive participation of major oil companies, independents and burgeoning local entrepreneurs, the daily rate of Ultra-deep water rigs should be around $350,000 and older rigs and ones suitable for shallow deep water drilling should be obtained at a daily rate ranging from $100,000 - $150,000. At this rates capex and opex will be reduced drastically for companies , profitability will be at a comfortable level and this would also help to bring the price of barrel of oil to the “beautiful price” of $70 a barrel preached by the Saudi Oil minister which could be good for investment.


 It could be difficult to achieve the above expressed daily rate in Africa as challenges of geopolitical risk which is more prevalent onshore is making major oil companies and large cap independents to head offshore for oil production. Since 2004 productions by major oil companies declined by 2% though amid 10% revenue increase which toughens out with a margin less than 2000 results. While initial investment in deep water drilling is high, many companies consider operational cost to be low thereby making robust profitability a strong attraction. Also many onshore fields are ageing, this has made offshore which is under-exploited and has significant reserves of recoverable oil in the world has become the new paradise. Added to that is that old rigs are been taken out of the market and avalanche of changes in petroleum laws which could impact investment decisions in the region.  The cost of building a new rig is almost $700million. The price of new rigs which are in higher demand would always spike daily rates.


Dr. Keith Millheim, an expert in drilling technology and petroleum engineering said that the impact of economics cannot be neglected in decision making on the choice of process and cost effective technology if marginal fields in Africa are to be developed and deepwater exploitation fully tapped in the region.


In order to accelerate activities and local participation in West Africa’s deep water and ensure development of most of the marginal fields which have been abandoned by the majors for not been commercial enough, African national governments must collaborate seek investment and partnership to build rigs which are Africa-centric. These rigs which could be built at lower cost, appropriate to the climate and geology will remain in Africa and could be taken around the region for projects. This will strategically reduce cost.  Africa for a long time has been fixated with traditional drilling processes as a result of the technology which was presented to them. This is the time to start thinking outside the box as United States did and develop alternate technology and vessels to reduce cost.



Related Stories:


Deep water oil challenges

Deep water



bottom of page