Why Schlumberger Is Salivating For Subsea Technologies

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Higher oil prices and a gradual decline in easily accessible land-based reserves are prompting oil and gas companies to increasingly look to offshore fields. Over the last 10 years, more than half of all oil and gas discoveries came from offshore locations. Offshore services have also proved to be a redeeming factor for oilfield services companies over the last few quarters, thanks to growth in activity in Africa and the U.S. Gulf of Mexico. Within the offshore oil and gas space, subsea technologies have emerged as one of the most important categories. According to Quest Offshore Resources, a consulting firm, the spending on subsea equipment is expected to grow by 65% this year to nearly $14 billion and the market is only expected to evolve further. [1] This makes it a crucial market for oilfield service companies such as Schlumberger.

Why Subsea Systems Are Important

Production monitoring and control equipment for offshore oil wells have traditionally been placed on floating platforms that lie above the ocean’s surface. However, this is often not viable in the case of ultra-deepwater wells, where the wellhead lies several thousand feet below the ocean’s surface. Additionally, these systems are also vulnerable to storms and bad weather, potentially disrupting production activity and causing safety issues. Subsea production systems on the other hand, are placed on the ocean floor, sometimes as deep as 10,000 feet. [2] These systems are designed to withstand extremely high pressures (up to 300 times that on the ocean’s surface), low temperatures and strong currents at the ocean floor.

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Subsea technologies allow oil producers to operate more efficiently with less weather related downtime, resulting in significant savings. For instance, last year, hurricane Isaac caused the evacuation of nearly 500 offshore platforms in the U.S. Gulf Of Mexico resulting in a production loss of around 5.8 million barrels. With Subsea production, many of these weather related disruptions could have been avoided. [1]

Subsea processing is also emerging as a technology to increase the production from mature fields. ((Rigzone)) Oil companies have been focusing on improving recovery rates of oil from wells since it improves the payback period and returns for oil and gas projects. While subsea technologies are still evolving technologically, they are expected to be a cornerstone of offshore oil and gas production going forward.

Where Schlumberger Stands In the Subsea Space

While the market for subsea equipment has traditionally been catered to by small, specialized companies, Schlumberger has been making a big push into the space off late. The firm acquired Framo Engineering in 2011 and entered into a joint venture with Cameron (NYSE:CAM) to create OneSubsea. (See Also: What The Cameron Deal Could Mean For Schlumberger) OneSubsea, which will become operational from the end of June, would combine Schlumberger’s knowledge of reservoirs, well completion and production with Cameron’s expertise in subsea flow control technologies and should help to offer integrated solutions to customers. The two companies are also working to optimize the subsea systems to improve production and recovery from offshore wells.

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Notes:
  1. Bloomberg Businessweek [] []
  2. Rigzone []