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Bloomberg Businessweek

Oil Companies Race to the Bottom of the Sea

By David Wethe on May 30, 2013

http://www.businessweek.com/articles/2013-05-30/oil-companies-race-to-the-bottom-of-the-sea

The oil field of the future is taking shape 2 miles undersea. As exploration crews search for new deposits

at ever-greater depths offshore, the industry is grappling with the technical challenges of piping crude and

natural gas through more than 10,000 feet of water. Thats spurring a drive to anchor production

equipment directly to the seafloor, rather than placing it on expensive floating platforms that can be

buffeted by powerful storms.

Professors at the University of Houston, which this fall will launch a graduate program in subsea

engineering, envision an underwater oil city overseen by swimming robots. Subsea engineering is like a

new frontier, says Matthew Franchek, whos heading the program. We can at least walk on the moon.Youre not walking in subsea.

Its a vision that could become a reality within six years, says Tore Halvorsen, senior vice president for

subsea technologies at FMC Technologies (FTI). Companies realize that to bring down operating costs,

they have to do something drastic, he says. FMC and others are designing equipment that can withstand

depths of 10,000 feet or more, where temperatures drop to just a few degrees above freezing and pressures

are 300 times greater than at the surface. Spending on subsea valves, pipelines, cables, and other gear will

reach a record $13.8 billion in 2013, a 65 percent jump from last year, according to research consultant

Quest Offshore Resources.

Energy companies would save billions of dollars and extract more oil from their wells if they could

operate more efficiently in ultradeep water. For starters, there would be no downtime from weatherdisruptions. Last Augusts Tropical Storm Isaac forced the evacuation of 499 offshore oil and gas

production platforms in the Gulf of Mexico, costing companies about 5.8 million barrels of lost output.

Martin Craighead, chief executive officer at Baker Hughes (BHI), a leading oilfield services provider,

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says a 1 percent improvement in oil recovery translates into a $3.2 billion increase in the value of some

projects.

Since 1961, when Royal Dutch Shell (RDS/A) first figured out how to place the wells pressure-control

valves directly on the seabed, the industry has been working to untether other equipment from the

production platform. In current setups, cables and electrical lines snake up to the surface. Long strings of

pipes, called risers, carry the oil, which is often mixed with natural gas, up to floating production vessels

the length of three American football fields, where workers and machinery separate, clean, and processthe oil, gas, and water. Oil is loaded onto tankers, and gas is sent back down to the seafloor and pushed

through pipelines to the shore, while water is discarded.

Moving all of those operations to the seafloor would eliminate some of that up and down travel through

the ocean, says FMCs Halvorsen. The company has booked $4.6 billion in future orders of subsea

equipment and projects an additional $2.5 billion in revenue from installation, maintenance, and other

services. Oil producers could do away with the massive, floating platforms that can cost as much as

$1 billion to build or purchase. Without the need to ferry workers by helicopter to offshore sites and house

and feed them there, operating costs would drop.

To build the integrated system the industry envisions, a network of remote monitoring sensors will be

needed to transmit data and instructions between the surface and seafloor. Swimming robots, which are

now tethered to ships on the surface, will monitor the equipment and perform maintenance, while a new

offshore electrical grid will power the submarine operations.

Schlumberger (SLB) and Cameron International (CAM) last year announced the creation of a venture

called OneSubsea that blends the formers expertise in oilfield services with the latters mechanical

knowledge of valves, pumps, and other gear. OneSubsea CEO John Carne says the partners are working

on a technology to boost recovery that tracks and controls the flow of oil as it journeys from the pores of

underground rock miles underwater to the surface. Other than having essentially mechanical

hardwaredumb ironon the seabed, which is just turned on and off, which is really what happens

today, you need to be able to control that, influence it, and manage that in real time, he says. The

technology exists today. Its just that its not brought together in one beautiful system.

Siemens (SI) is assembling an underwater grid that will include onshore generation plants running as

much as 100 megawatts of electricity through power lines along the seafloor to the oil fields. It should be

ready by the end of next year, says Adil Toubia, head of Siemenss oil and gas business. Well be the

engine to drive this, he says.

The world got to see submarine robots in action three years ago, during BPs (BP) oil spill in the Gulf of

Mexico, when remote-control vehicles were dispatched to troubleshoot the broken machinery of theMacondo well 5,000 feet underwater. The next generation will have to be far more advanced, with better

sensors, gauges, and programming, to enable them to evaluate and respond to their surroundings, says

Larry Madin, director of research at Woods Hole Oceanographic Institution. Shell is developing flying

nodes, essentially tiny aquatic drones. Powered by batteries and guided by GPS, schools of nodes will

swim down and collect seismic data on the seafloor that will be used to generate better images of the

underground oil reservoir.

Subsea development is still in the middle innings, says Stephen Trauber, vice chairman and global head

of energy at Citigroup (C). Its huge and expected to stay strong.

The bottom line: Spending on subsea gear will hit $13.8 billion this year, spurred by the industrys drive

to boost offshore production.

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