Cover Story: Rising Tide

Rising Tide

Off shore oil and wind riding tailwinds amid global turmoil.

Production platform in the Perdido ultra-deepwater corridor, where Shell closed out 2021 with a promising discovery well.

By Jim Redden, Correspondent

Russia’s invasion of Ukraine on Feb. 24 forced the Biden administration into an uneasy détente with the oil and gas producers, urging a ramp up in short-term production. It has also led to an intensifying allegiance to offshore wind and its kin as longer-term alternatives to fossil fuels.

The presidential capitulation came as U.S. oil prices hovered around $100/bbl. and Gulf of Mexico operators, having weathered a demand-wrecking pandemic and a devastating hurricane season, are on pace for what Wood Mackenzie estimates will be record production of 2.3 million bb/d this year, owing to three signi cant deepwater developments coming online.

Even so, operators decry what they view as overreaching regulations, slow permitting and leasing uncertainty — punctuated by the since-resolved judicial invalidation in late January of winning bids in the rst Gulf of Mexico lease sale under President Biden.

Though oil and gas are in the driver’s seat for now, the industry’s widely cyclical history and political uncertainty leave operators hesitant to make the huge spend required, especially for long-horizon deepwater projects.

“At least in the short term, I think we’re going to see a more cautious playbook, even with $100 oil,” said Colin White, Gulf of Mexico oil analyst for Rystad Energy. “This should be the year we surpass the two-million-barrel-a-day mark (in the Gulf), but obviously it’s contingent on how this hurricane season plays out.”

Last year, Hurricane Ida reduced September 2021 Gulf of Mexico oil production by some 500,000 bbl/d.

With production fully restored, 2022 saw commodity prices steadily improving, along with day rates for both deepwater drilling rigs and support vessels. As of March 18, S&P Global’s Petrodata listed 29 drilling rigs under contract in the Gulf for a marketed utilization rate of 82.9%. The majority of active rigs are engaged in development drilling and identifying opportunities to tie back to existing production systems, rather than new exploration.

The active rig count, however, presents an incomplete picture of contemporary activity, given the increased operations now conducted by platform-stationed workover and drilling rigs, said Matthew Rigdon, executive VP and COO of Jackson

Greater Lafourche Port Commission

Vessels line the then-calm waterways of Louisiana's Port Fourchon, well before Hurricane Ida made a direct hit in late August.

Offshore Operators, which owns six fully contracted platform support vessels (PSV). Whereas two production assets historically could share a single PSV, the increase in directional drilling, wireline running, and other assorted operations has increased PSV demand.

“What’s interesting is the amount of activity going on independent of [mobile drilling rigs],” he said. “That’s the real dynamic change in the marketplace.”

The drillship Noble Stanley Lafosse is under contract for Murphy Oil in the Gulf of Mexico for $300,000/day. FIRST OIL

Throughout 2022, first oil is expected from the Shell, BP and Murphy Oil-operated Vito, Mad Dog Phase Two and Khaleesi/Mormont/Samurai fields, respectively, with initial and peak oil production ranging from 80,000 to 120,249 bpd. Shell is also evaluating the reserve potential of the Blacktip North well, discovered on Dec. 8 in the ultra-deepwater Perdido Corridor.

White said more new fields are critical as discovered reserves dwindle. “We’re not seeing a huge amount of exploration activity and the problem is a lot of the underlying fields are going in base decline and we’re no longer seeing the big greenfield investments to replace those,” he said.

To that point, U.S. Bureau of Safety and Environmental Enforcement (BSEE) data lists six new well drilling permits approved for waters deeper than 1,000' over the first three months of 2022. By comparison, BSEE approved 10 new deepwater well permits from Jan. 1-March 19, 2021.

Rystad estimates the Gulf holds some 1,287 awarded, but undrilled, leases, giving wary operators ample places to explore. “There are plenty of opportunities available, but it’s just a matter of when clients will feel comfortable spending the money,” said Rigdon. “Operators are being cautious on spending.”

US Gulf PSV 4,000+ dwt fleet US Gulf PSV 4,000+ dwt fleet 120

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Source: IHS Markit Cold Stacked Fleet

© 2022 IHS Markit

Source: IHS MarkitDAY RATES SOAR

Regardless, rig and vessel owners are signing new contracts with day US Gulf PSV 4,000+ dwt fleet rates that make up for some of the cash bleeding over the past few years. Deepwater driller Transocean said new contracts for ultra-deepwater oaters stipulate rates more than $100,000/

day higher than the original contract. US Gulf PSV 4,000+ dwt fleet CEO Jeremy Thigpen pointed to the Deepwater Conqueror drillship that 120 was signed up for an additional Chevron Gulf of Mexico well at a $335,000 day rate. “We are also observing a considerable uptick in direct negotiations to secure ready-to-work assets in the region. With the active eet contracted through the better part of 2022, we anticipate supply will remain tight,” Thigpen told analysts on Feb. 23. Restructured Noble Corp., which recently combined with Maersk Drilling, said on Feb. 16 that Murphy Oil had exercised the rst two of ve one-well options for the drillship Noble Stanley Lafosse for $300,000 per day. A similar trend has unfolded for deepwater support vessels, said Richard Sanchez, senior marine analyst II for S&P Global. “We’re seeing much stronger rates. Last year, we were looking at around the $15,000 per day range,” versus twice that now. On March 9, Tidewater agreed to buy Swire Paci c Offshore to form the largest global support vessel eet. “Vessel supply continues to tighten, which has been evident in the large vessel classes over the past few quarters and is now also re ected by the quickly reducing supply of easy-to-

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Jan 2016May 2016Sep 2016Jan 2017May 2017Sep 2017Jan 2018May 2018Sep 2018Jan 2019May 2019Sep 2019Jan 2020May 2020Sep 2020Jan 2021May 2021Sep 2021Jan 2022 Source: IHS Markit Cold Stacked Fleet © 2022 IHS Markit ALLAMERICANMARINE.com Sales@allamericanmarine.com | 360.647.7602 Pictured: Sea Change - North America’s first Hydrogen-Fuel Cell Powered Commercial Vessel Cold Stacked Fleet 00 Jan 2016May 2016Sep 2016Jan 2017May 2017Sep 2017Jan 2018May 2018Sep 2018Jan 2019May 2019Sep 2019Jan 2020May 2020Sep 2020Jan 2021May 2021Sep 2021Jan 2022 Jan 2016May 2016Sep 2016Jan 2017May 2017Sep 2017Jan 2018May 2018Sep 2018Jan 2019May 2019Sep 2019Jan 2020May 2020 Source: IHS Markit Cold Stacked Fleet © 2022 IHS Markit Source: IHS Markit Cold Stacked Fleet

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The U.S.-flagged Southern Tide, a 6,330 dwt PSV, re-located to Suriname-Guyan in March

reactivate ships in the mid-sized vessel classes,” said Quintin Kneen, Tidewater President and CEO.

Between January and early February, privately held Hornbeck Offshore in two separate transactions added 13 offshore support vessels (OSV), ranging from 3,200 to 4,750 dwt. Available high-spec vessel capacity has been further strained by relocations from the Gulf to the growing Suriname-Guyana deepwater theater. Sanchez said some 23 U.S.-flagged PSV and anchor handling tug supply (AHTS) boats are now working in the Caribbean hot spot.

In addition, emblematic of a nationwide predicament, vessel owners also are struggling to locate and keep qualified mariners, with inter-company poaching now standard operating procedure.

“Right now, labor costs for both contractors and vessel owners are going up significantly, if you can find someone,” said Sanchez. “Drillers are back to poaching dynamic positioning officers and other hard-to-get people from the boat companies, which further drives up the cost for the boat owners.”

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On March 18, following a nearly two-month hiatus, the Biden administration agreed to resume leasing of federally controlled waters and land, after modifying how the government would calculate the societal cost of greenhouse gas emissions. The decision effectively grants high bidders the 308 blocks they bought in Gulf of Mexico Lease Sale 257 in November, which a federal court voided, citing faulty regulatory environmental analysis.

At the same time, the American Petroleum Institute (API) called for the administration to accelerate the long delayed five-year offshore leasing program to remove the uncertainty the industry says is hampering future investment.

There is no such ambiguity, however, in the offshore wind program, where BOEM plans up to seven potential federal lease sales this year. The record-shattering New York Bight sale of Feb. 23-25 set the stage for similar offerings on tap for the Central Atlantic, Gulf of Maine, the Carolinas, California, Oregon and even the oildominant Gulf of Mexico.

The New York Bight offering drew $4.37 billion in high bids for six lease areas covering some 480,000 aquatic acres between New Jersey and Long Island, N.Y. According to

BOEM, Bight Wind Holdings LLC, a consortium of RWE Renewables and National Grid, topped all provisional bidders, offering $1.1-billion for 125,964 acres.

The lessees will join a growing suite of Upper East Coast wind farms under various stages of development, including leases controlled by subsidiaries of traditional oil and gas producers Equinor, BP and Shell.

Danish offshore wind developer Ørsted and Eversource, a New England utility, jointly hold one of the largest portfolios and have begun initial construction on two commercial-scale wind farms off New York. A third, off Rhode Island, is in the permitting stage. When completed, it is estimated that the trio will generate 1,714 MW of power. Sunrise Wind, the largest of the three at 880 MW, is expected to begin operation in 2024 off Montauk, N.Y. The consortium’s 130-MW South Fork Wind project off Long Island is eyeing a year-end 2023 start-up. Meanwhile, the consortium is working on permits for the Revolution Wind development off Providence, R.I., in hopes of delivering 704 MW of electricity to Rhode Island and Connecticut in 2025.

Elsewhere, the high-pro le Vineyard Wind Farm off Martha’s

Ørsted A/S

Sister SOVs Edda Mistral and Edda Passat on duty at the Ørsted Race wind farm in the UK North Sea. Ørsted has a heavy presence in the U.S. northeast off shore wind sector.

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Vineyard, Mass., remains on track for a 2023 start-up. A consortium of Avangrid Renewables and

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ners is developing the 800 MW commercial-scale project.

The Interior Department completed its environmental review of the Carolina Long Bay lease sale proposal in late March. The lease sale won approval and a wind energy auction for two leases — one offshore North Carolina and one offshore South Carolina — is scheduled for May 11.

VESSEL DEMAND

According to the American Bureau of Shipping (ABS), a considerable number of specialized installation and support vessels will be required to help meet the Biden administration’s wind energy aspirations.

“There are estimates that approximately 110 specialized vessels will be needed to support the government’s goal of 30 gigawatts by 2030,” Greg Lennon, VP of Global Offshore Wind, said during an ABS webinar on Feb. 17.

Edison Chouest Offshore, for one, expects to deliver the first Jones Act-qualified wind farm service operations vessel (SOV) to the northeast in the summer of 2024. The 260' ECO Edison, which is being constructed across ECO shipyards in Louisiana, Mississippi and Florida, will support the Ørsted and Eversource wind farms.

While the role of wind farm SOVs bear similarities to their oil and gas counterparts, “the internal structure of an SOV is very bespoke,” said Braid.

“The underdeck of an SOV is this giant warehouse, connecting to an elevator system that goes up to an articulated gangway that transfers technicians directly to the transition point to the wind turbine,” he said. “If you covert an existing OSV for use at a wind farm, you need to either pull out

U.S. LNG EXPORTS HELP FILL SUPPLY GAP

The Ukrainian invasion further aggravated the gas supply shortfall, leaving Gulf Coast liquefied natural gas (LNG) exporters scrambling to meet growing European and Asian demand with terminals expanding and new facilities on the boards.

The U.S. is the world’s largest LNG exporter with most of the capacity concentrated off Louisiana and Texas. On March 1, a fifth export terminal officially joined the ranks as Venture Global LNG of Virginia and Tokyo-based

JERA Global

Markets Pte. Ltd loaded the first cargo from the fast-tracked Calcasieu Pass The Malta-flagged Minerva PSARA LNG tanker taking on LNG export facility cargo at Cheniere Energy's Sabine Pass export terminal in in Cameron, La. At late 2021. total capacity of 10 MTPA, the facility holds the global greenfield speed record, having gone from final investment decision to production in 29 months, according to Venture Global.

Venture also began construction last year on the 20-MTPA Plaquemines LNG terminal in Plaquemines Parish, La., and expects to do the same next year on the CP2 LNG facility, also in Cameron Parish, La. The greenfield terminals are included in two 20-year sales and purchase agreements Venture signed with New York-based global LNG buyer New Fortress Energy Inc. on March 16.

Earlier this year, the nation’s largest LNG exporter, Cheniere Energy, completed construction of the sixth processing train at the pacesetting Sabine Pass export terminal in Louisiana. Cheniere exported 2,018 TBtu from the Sabine Pass and newer Corpus Christi, Texas, export facilities in 2021, a 46% increase over 2020.

The U.S. Energy Information Administration (EIA) projects U.S. LNG exports will average 11.3 billion cubic feet per day (BCFD) in 2022, up 16% from last year. — J. Redden

Cheniere Energy Inc.

the mud and brine tanks or you lose a lot of space.” As for wind developers eventually moving into the Gulf of Mexico, Chett Chiasson, executive director of Port Fourchon, sees no compatibility issues with traditional oil and gas assets.

“It is my position and that of my board of commissioners that moving forward it will take an all-of-the-above approach, including the development and use of offshore wind, to meet the energy needs of this country,” said Chiasson, who is also executive director of the Greater Lafourche Port Commission. “Furthermore, Port Fourchon is positioned perfectly to meet and exceed those needs as a service supply port.”