Positive Outlook for Global Subsea Development, Deepwater Strengthening

There are 2,511 identified pending, probable and possible subsea production wells forecast (base case) worldwide over the next six years. Some 18 percent of these subsea completions will be installed in North America, 30 percent in Africa/Mediterranean, eight percent in Asia-Pacific, 26 percent in the North Sea and 18 percent in Brazil.

These subsea projects are in various development stages, including: 23 percent at the pending/construction stage, 11 percent bidding, 9 percent in detailed engineering, 16 percent at the front-end engineering design (FEED) stage, 16 percent of the wells probable and 26 percent possible indicating possible development in the future.

Quest Offshore estimates that there will be about 335 subsea completions installed this year worldwide growing to 364 in 2003 and 372 in 2004 (Base Case). The Gulf of Mexico (GOM) will account for about 18 percent of this activity or 188 subsea completions over the next three years. Last year, according to Quest Offshore's survey of operators and suppliers, there were about 260 subsea trees installed globally.

Several major contract awards for subsea production trees have materialized over the last 12 months, 307 in total, which are keeping the world's five main subsea manufacturers satisfactory utilized. Including the 307 subsea trees booked last year, there are presently 571 trees pending construction for installation between 2002 and 2007, plus 302 subsea trees bidding and 219 in the detailed engineering phase.

ABB, Cameron and FMC are dominant suppliers of subsea production hardware to the worldwide market followed by Kvaerner (KOP) and Dril Quip. Each of the manufacturers has strengths in specific geographical regions, however, with FMC Technologies possessing a significant majority of the market (last 12 months) in the GOM. ABB meanwhile, has a strong footing in the North Sea with a 37 percent market share (trees booked over the last 12 months) along with FMC (a very strong 32 percent) and KOP (growing at 18 percent). With respect to the burgeoning African market for subsea trees, Cameron has a favorable market position with a 55 percent share following on the heels of several significant ExxonMobil contracts including Kizomba in Angola, Erha in Nigeria and Leased Production System (LPS). With the award of Shell's deepwater Bonga trees offshore Nigeria in early 2001, ABB will supply about 34 trees into the market or a 33 percent share of the 104 subsea trees booked for Africa during the last 12 months. Deepwater Trends The majority (65 percent) of identified subsea wells are in deepwater. With respect to ultra-deepwater subsea production, the present share of subsea trees worldwide over 3,437 FSW (Feet Sea Water) or 1,200 MSW (meters sea water) is 39 percent. Of the remaining subsea wells forecast, 26 percent are planned for installation in 1,650-3,960 FSW (501-1,200 MSW) and 35 percent in 0-1,650 FSW (0-500 MSW).

Gulf of Mexico

The GOM ranks second behind West Africa with approximately one-third of the world's estimated deepwater reserves. The great success of deepwater production in the GOM is due in part to the technological advancements and reliability of subsea production systems.

Despite declining oil & gas prices, deepwater and ultra-deepwater drilling activity in the GOM has held up reasonably well. An analysis of GOM deepwater wells drilled (> 1,000 ft.) over the last two years from January-December reveals a six percent composite increase in activity. According to the Minerals Management Service and Quest Offshore estimates, there were 116 deepwater (>1,000 ft.) wells drilled in 2001, compared with 109 deepwater wells in 2000. This seems modest, but is quite steady compared with the measured nine percent decline in shallow water wells (under 800 ft.) over the same period.

According to Rigzone.com, there are presently eight to nine deepwater drillships under contract in the GOM or a measured 50 percent increase over two years compared with five to six units working in 2000. The market for semi-submersibles also has held relatively steady at about 76 percent utilization with 30 to 32 semis under contract up from an average 27 units working in 2000.

Ultra-deepwater GOM drilling activity (over 3,000 FSW) experienced an extraordinary gain in 2001 with a 43 percent increase compared with 2000. Once these discoveries are commercialized, these projects will be candidates for stand alone subsea development schemes or mixed with dry or wet tree floating production solutions.

Statistics from Quest Offshore's Quest SUBSEA-DATA-BASE reveal a six-year forecast for 459 subsea production wells (trees/completions) in the GOM, and Canadian Atlantic waters. This compares with a five-year average of 22 subsea trees from 1999-2000 or 53 subsea trees in 2001, a robust year.

The Market Has Strengthened

Several major contract awards for subsea production equipment in 2001 have accelerated the pace of activity with 99 booked subsea trees in the GOM last year for installation during 2001 to 2005.

The North American market for subsea suppliers has grown from approximately $600 million over the last six years to an estimated $1.8 billion during the next six years. This market size denotes subsea hardware supply comprising trees, wellheads and controls and excludes costs for flowlines, umbilicals and offshore installation activities.

Project Round Up

Noble Affiliates' (Samedan's) Lost Ark development consists of East Breaks 420, 421, 464, 465 located in 2,750 FSW (920 MSW), which will connect to a platform 27 miles (45 km) away at East Breaks 110.

Kvaerner Oilfield Products (KOP) seized the contract to supply an electro-hydraulic multiplex control system. Platform equipment includes a hydraulic power unit to generate hydraulic pressure for operating the subsea tree valves, manifold valves, and the SCSSVs; a master control station; an uninterruptible power supply; and a topside umbilical termination assembly. Subsea equipment includes a subsea umbilical termination assembly, flying leads, and a subsea control module. Samedan Oil inked a Letter of Intent (LOI) with Global Industries' (CHICKASAW) for its Lost Ark pipeline at East Breaks Block 421. Project workscope comprises the installation of one 26 mile, six-inch dia. rigid steel flowline. The 1,100-ton umbilical (CSO-DUCO incorporating both Super Duplex and Carbon Steel Tubes, six in total) will be tied-back to a platform at East Breaks Block 110 in 660-700 FSW including saturation diving work and the installation of a new riser at the platform.

A record setting deepwater development presently underway in the GOM is TotalFinaElf E&P USA, Inc. (TFE) Canyon Express Project. Workscope includes a single Methanol Distribution line and the deepest installed flowlines (2 @ 12-in. dia.) and Electro-hydraulic Umbilical ever, in up to 7,200 FSW. Kvaerner Oilfield Products (KOP) is designing, manufacturing and supplying the subsea controls and a single continuous length subsea umbilical. The route length initiates from Marathon's Camden Hills prospect (MC 348) and is then routed to TFE's Aconcagua prospect (MC 305). The pipeline is linked further to BP's King's Peak development (MC 217) and finally onwards to the Canyon Station Platform at Main Pass 261 for termination on the shelf in 1,132 FSW. Sonsub Clough Partnership's MSV MAXITA (soon to be Saipem 100 percent) is installing the primary Canyon Express 57 mile (91 km) super duplex umbilical plus over 20 km of infield umbilicals. The umbilical system will control four subsea wells at the King's Peak field, three to four subsea wells at the Aconcagua field and two subsea wells at the Camden Hills field. Transocean Sedco Forex's drillship Discover Spirit will install and complete the ~10 Canyon Express subsea wells. TFE estimates completion costs at approximately $21-30 million per well.

Africa/Mediterranean

West Africa is certainly a bright spot for deepwater exploration and development around the globe. It ranks first in estimated deepwater reserves with approximately a 38 percent share of deepwater reserves. West Africa also possesses the world's largest deepwater fields with an average deepwater field size ranking significantly above the rest with Brazil a distant second and the Mediterranean a close third. Quest Offshore estimates a significant 735 subsea wells forecast for Africa and the Mediterranean regions. This represents approximately 29 percent of the world market.

African Project Highlights

Bonga is the first deepwater development offshore Nigeria in 3,609 FSW (1,100 MSW). The biggest contract went to AMEC in the U.K. — a $435 million contract to build the process system for the massive Bonga Floating Production Storage and Offloading (FPSO). The fabrication and assembly of the 225,000 BOPD process deck, expected to weigh in at 17,000 tons, will be centered at AMEC's Wallsend yard on Tyneside. The FPSO hull, designed for storage capacity of 2 MBO, is being fabricated at Samsung in South Korea and is due to arrive in the U.K. during Q3 2002. Early last year, ABB seized a final $180 million contract for the subsea production hardware. Delivery for the equipment will begin in mid-2002 and carry on through 2009. As a result of the contract, ABB is building a $2 million subsea operations base at Onne. Shell International ordered 29 conventional deepwater trees plus the control system and five manifolds. An added bonus for ABB is supply of the control umbilicals, subcontracted to Kvaerner, and the gas lift risers. Single Buoy Moorings (U.K.) Ltd. is executing the main contract for the mooring and installation of Shell's Bonga FPSO system.

ExxonMobil is well under way with its $3.1 billion deepwater Kizomba A development offshore Angola in up to 4,022 FSW (1,219 MSW). The development scheme for Kizomba Phase 1 incorporates a TLP plus FPSO, 32 dry production wellheads, approximately 28 Cameron spool trees to be utilized for re-injection of the gas into the reservoir, and crude export to a surface buoy.

Elsewhere offshore Angola, BP issued pre-qualification documents for the Engineering, Procurement, Installation and Commissioning (EPIC) of umbilicals, flowlines and risers for its Block 18 Greater Plutonio development offshore Angola in 1,300 MSW.

An FPSO, Spar or TLP and multiple subsea well development scheme is being evaluated for the multi-field development.

North Sea-U.K.

Quest Offshore forecasts 341 subsea wells in the United Kingdom (U.K.). As a mature province, the U.K. North Sea has become increasingly dependent on more numerous, but smaller fields where subsea developments play a large role.

U.K. Project Highlights

The UK's Oil and Gas Directorate approved a further $244 million in development for Madoes and Mirren using a total of five new wells tied back through multi-phase pipelines into the existing Central North Sea Eastern Trough Area Project (ETAP) infrastructure. Shell-operated 22/23b Madoes will be tapped with three horizontal subsea wells tied to a subsea manifold. Multi-phase production will be exported via a 12-mile (19 km) pipeline to the Central Processing Facility within the ETAP complex, which is situated over the Marnock field. BP-operated 22/25 Mirren will use two horizontal subsea wells and export via a second subsea manifold and another multi-phase pipeline 7.5 miles (12 km) into the system. Oil and gas from the new fields will be exported via the Forties Pipeline and Central Area Transmission Systems. BP expects first production in early 2003.

Shell U.K. Exploration and Production is developing its Penguin field, 93 miles (150 km) northeast of the Shetland Islands, with four horizontal wells at a cost of $333 million. Successful results from these wells will result in the drilling of up to five additional horizontal wells, increasing total investment to $507 million. Penguins cluster comprises a group of five fields with reserves of oil, gas and condensate estimated at about 90 MBOE.

North Sea-Norway

The Norwegian North Sea sector comprises 311 forecast subsea wells from 2002 to 2007 or 12 percent of the worldwide total. For 2002, the Norwegian Petroleum Directorate (NPD) sees investment hitting around $5.9 billion, of which spending on production wells will comprise around half of the total, and investment in new facilities around 25 percent. The NPD anticipates a 15 percent increase in overall spending in 2003 and 2004 to an estimated $6.7 billion annually and sees average spending of $24.7 billion during 2002-2005, excluding investments in ongoing operations and exploration. Investments for the most notable development targets include the following:

Statoil's $4.5 billion Snow White development, for which bids are imminent;

Norsk Hydro's $2.8-3.3 billion Ormen Lange development, for which bids are expected to be called either late this year or in 2003;

BP's $1.6 billion Skarv development, for which bids are expected to be called in late-2002 or 2003.

In addition, a number of smaller oil and gas fields such as Svale, Norne expansion, Skirne and Byggve are expected to be developed during 2002 to 2005.

Project Round Up

Partners in Norway's Barents Sea Snohivit (Snow White) field submitted a Plan for Development and Operation (PDO) to authorities for approval, following tax concessions by the finance ministry.

Workscope comprises pipelines, subsea production facilities, receiving facilities and a gas liquefaction plant.

Field development work is slated to begin in the spring of 2002, with production to be brought on stream in 2006. Engineering, Procurement and Construction (EPC) contracts in the first phase of the $6 billion Snow White (Snohvit) LNG project are soon to be issued to fabrication contractors and subsea facilities suppliers.

Design work for a newbuild steel barge, measuring at 492 x 164 x 30 ft. (150 x 49.9 x 9.1 m), on which the LNG plant will be built is close to completion, and a contract for the construction of the barge is likely to be awarded by the first half of 2002.

The $500 million-plus facility will accommodate up to 38,580 tons of topsides and can produce up to 203 BCF of LNG per year. Phase one of Snow White will comprise eight subsea production wells and one carbon dioxide injection well. Drilling and completion of these wells will be carried out in 2004 and 2005, with production to start in 2006.

A further eight subsea wells for Askeladden and five subsea wells for Albatross are intended for later phases. Requests for Quotes (RFQ's) for the subsea facilities and 66 mile (106 km) 27-inch dia. export pipeline from the field are imminent with contract awards anticipated in 2002 or early 2003. Kvaerner Oilfield Products (KOP) received a Letter of Intent (LOI) worth $110 million to provide equipment for ten subsea wells, production controls and support structures for the Statoil-operated Kristin field.

Workscope includes the delivery of wellheads, valve-trees and subsea production control systems for ten wells plus four, four-slot wellhead templates. KOP in Houston will provide high-pressure components for the valve-trees, and Kvaerner in Aberdeen will build control systems.

The company will assemble the wells at its Tranby site outside Oslo, Norway. The templates will be built at Kvaerner's yard in Egersund, Norway, where it will also undertake integration testing of the wellhead equipment.

Asia Pacific

Quest Offshore forecasts 203 subsea completions during the next six years in the Asia Pacific led by 17 projects in Australia comprising 138 subsea trees and nine projects in Indonesia comprising 72 subsea wells. Woodside, Western Australia Petroleum (Wapet) and BHP Billiton are the most active operators in Australia. Woodside Petroleum plans to invest $2.54 billion in growth projects by end 2005, including the Laverda/Enfield oil project by end-2002 offshore Western Australia and the Greater Sunrise gas project in the Timor Sea.