OTC-25135-MS

Deepwater Development Strategy

Martijn Dekker, and David Reid, Shell

Copyright 2014, Offshore Technology Conference

This paper was prepared for presentation at the Offshore Technology Conference held in Houston, Texas, USA, 5– 8 May 2014.

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Abstract
The risks and uncertainties related to deepwater oil and gas reservoirs, development concepts, lifecycle
reservoir management and ultimate production continue to increase substantially as the oil and gas
industry pushes into deeper water, more complex environments and frontier unproduced plays/areas.
Given the technical and non-technical risks related to these developments, it is more important than ever
to integrate and align stakeholder expectations and the view of project risks by agreeing on the overall
field development strategy early in the project maturation cycle.
This paper details the importance of defining early in the project maturation process the overall field
development strategy which encompasses project phasing, the reservoir development approach and the
application/deployment of new technology. A framework is proposed as a starting point in setting the
development strategy based on both project complexity and overall schedule drivers.

Introduction
Oil and gas demand is set to grow significantly in the coming decades with deepwater production forecast
to play a prominent role in providing future oil and gas supply[1,2] with substantial growth predicted from
new “frontier” areas. The “frontier” aspect can be in the nature of the reservoir such as unproduced
geology in new or existing basins/plays, deeper reservoirs characterized by higher pressure/temperature
or challenging reservoir fluid properties and impurities. Alternatively the “frontier” nature can be driven
by location, water depth, remoteness from existing infrastructure, extreme environmental conditions or
countries with limited (offshore) oil and gas industry experience. Very often a combination of these
“frontier” aspects are represented in a single project. Current trends in deepwater frontier areas include:
● The Gulf of Mexico (GoM) Operators are moving into water depths approaching 10,000ft,
development wells pushing 40,000ft measured depth to develop unproven/unproduced, often high
pressure/high temperature, plays with significant volume and production potential (Figure 1).
● Significant focus and activity in the South Atlantic Conjugate Margin deepwater area, a significant
emerging deepwater regional play area spanning multiple countries across both South America and
Africa which has already demonstrated prolific discovered volume potential largely from unique
pre-salt reservoirs with significant local content requirements.
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Figure 1—Deepwater Frontier – Water Depth and Well Depth

● Australia which continues to push into deeper and more remote areas in terms of mega-project gas
plays/volumes with the potential to become the biggest global producer of Liquefied Natural Gas
(LNG) by the end of the decade [3].
● Recently the remote East Africa deepwater gas plays with the potential to create a new deepwater
hot spot in an area previously overlooked by the oil and gas industry.
The history of the oil and gas industry has proven time and time again that the perseverance and
ingenuity of the oil field innovators has been able to successfully unlock and conquer new frontier areas.
However, it should be recognized that pushing the new frontier areas inevitably involves significant
uncertainties related to reservoir/fluid properties, production rates, ultimate recovery, complexity in
project execution and long-term reservoir management. All of these factors amplify the risk of being able
to deliver a commercially viable of development. Over the past 15 years growth in the numbers and
complexity of deepwater developments has gone hand in hand with and to some extent enabled by strong
rising oil prices (Figure 2). (With rising development costs and uncertainty with regard to forward oil
prices, the next generation of deepwater developments will require more discipline delivery, improved
risk management to generate the desired outcome in terms of shareholder and societal value.
Defining and agreeing on a well though-out development strategy in the early phase of a project is key
step in managing these risks and uncertainties. Development strategy in this context refers to the project
phasing, reservoir development strategy and approach to new technology. In the excitement following a
large discovery, carefully devising a development strategy can by overshadowed by an appraisal strategy
designed to prove up volumes, support engineering studies related to potential (often favorite) develop-
ment concepts and maturing overall project definition on preferred project concepts to meet project
schedule expectations. For frontier areas especially, this approach can result in false starts and recycle,
often exacerbated by misalignment of the de-facto development strategy with corporate drivers and/or
external stakeholder expectations.
OTC-25135-MS 3

Figure 2—Oil price, Offshore Cost and Deepwater project starts

While this challenge is common to almost all oil and gas field developments, in deepwater or frontier
areas these challenges are more extreme and the cost structure and technical risks significantly raise the
risk and reward game. Extensive appraisal drilling, extended well-testing and early production systems
which provided upfront reservoir production information prior to a final development concept design can
be cost prohibitive in the deepwater. For example the cost of a single appraisal well in the deepwater is
typically ⬎USD150mln and a typical deepwater early production system will easily exceed a billion
dollars.
This paper discusses both technical and non-technical risks related to a deepwater oil and gas
development and places these in context of the development strategy, which can be used to align critical
stakeholders to effectively agree on how to manage these risks as the project matures. Careful consid-
eration and selection of the appropriate development strategy based on both the complexity and schedule
drivers related to a particular deepwater project will ultimately result in timelier and more efficient
recovery of the global deepwater resources. This will be critical to support the role that deepwater
production will play in meeting the world’s future energy demand.
This paper is part of a series being developed by the authors on “Deepwater Appraisal and Develop-
ment”.
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Challenges in Deepwater Development Continue to Grow

Deepwater projects typically carry inherently more technical risk on top of what are commonly very
complex non-technical risks. As deepwater exploration expands globally into new basins and areas along
with testing new geologies in established deepwater basins, the challenges related to these frontier
environments will increase. Another challenge that deepwater developments face is the schedule element
due to internal and external time pressures coupled with the typical lengthy overall development cycle for
the deepwater. When these risks and schedule drivers are managed properly, deepwater projects can be
very successful for all parties and stakeholders involved from the license operator and owners, the
contractor community constructing the project to the host country’s government and people. Unfortu-
nately the track record of upstream mega project delivery versus plan shows that there is significant room
for improvement[4].
Many studies and papers have been written which identify the key success factors or key contributors
and causes for project failure. It can be argued that in most cases the root cause is the failure to adequately
manage risks within the project timeline. Further we would like to pose that most project failures results
from not managing technical and non-technical risks in an integrated fashion. The overlap and interface
between technical and non-technical risks in the context of real or imposed schedule constraints is the area
where a well-defined and agreed development strategy can be very powerful in managing the overall
project risk.
An overview of some common deepwater technical and non-technical risks and the internal and
external schedule drivers are given below, indicating how they are impacted by the development strategy.

Deepwater Technical Risks

New geologic setting or lack of production analogs Operating in an uncalibrated basin or play may be
the largest technical risk. Understanding of the geology foremost drives the understanding of the
hydrocarbon resource in-place, which is the starting point in determining the scope for possible future
development. Secondly it forms the basis for devising reservoir models that will be used to evaluate
development options and estimate a range of recoverable volumes. In a new geologic setting, the inherent
uncertainties of building a geologic model based on geophysical and well data are magnified due to a lack
of experience in the play. Even if the geologic setting is well understood, the specific reservoirs targeted
for development may not have any producing analogs nearby from which to anchor estimates and model
performance [5]. Although following an effective appraisal campaign there may be sufficient confidence
in the in-place volume range, uncertainty in production rates and ultimate recovery of hydrocarbon can
still expose the development to significant uneconomic outcomes. A comprehensive appraisal strategy is
key in managing this upfront subsurface risk [6]. It should be recognized though that residual risk will
remain and in a new geologic or unproduced setting which may be considerable. The development
strategy can aid in identifying options to manage these risk, for example a phased development or
provisions for enhance oil recovery techniques (e.g. artificial lift, waterflood) which can be used to
mitigate against downside scenarios.
Increasing Water Depth Deepwater fields are found in ever increasing water depth. At the beginning of
the 2000’s crossing the 5,000ft water depth mark stretched industry capability for engineering solutions
and installation equipment. Today, some 10 years later we are on the cusp of exceeding 10,000ft water
depth for deepwater development, with Shell’s ongoing Stones development in the Gulf of Mexico setting
the current record for a production system at 9,600ft. The principal risks related to the increasing water
depth are to mature the designs, fabricate the hardware and the availability of the installation equipment
to handle the water depth within the timeframe of the project. Innovative structural and subsea solutions
are being developed to go into deeper waters, but they all carry the technology maturation and equipment
qualification risks [7,8,9].
OTC-25135-MS 5

Increasing Reservoir Depth In addition to deeper water, deepwater oil and gas resources are also sought
and found in deeper reservoir horizons. Greater depth brings higher pressure and higher temperatures
which stretch or even exceeding the limits of available drilling, completion and subsea equipment and
material. Fortunately our industry is cross learning from onshore and shallow water high-pressure/high-
temperature (HP/HT) plays where typical risks related to materials and contaminants are understood. In
saying that, the complexity increases further in an offshore deepwater setting. To reach reservoir depth,
complicated well designs are needed and with limited flexibility to adjust the well design while drilling,
ten to twelve casing strings are no longer uncommon to get to the objective section.
Physical Location Risks related to the physical location of the oil field site include harsh metocean
conditions (e.g. hurricanes/typhoons, high currents), seabed topography (e.g. steep slopes, canyons,
furrows) and shallow hazards (e.g. slumps, vents, shallow water or gas flows). Remoteness to existing
infrastructure is another factor adding to the risk as getting personnel and equipment in and out of the field
is more cumbersome. Export of hydrocarbons over long distance requiring new build pipelines or tanker
offloading operations also adds to the complexity and risk to a remote project.
Safety and Environmental Pushing the frontier using new development systems/designs including new
technology, mean that project teams find themselves somewhat in unknown territory. New environments
and changes from normal ways of doing business increase the safety and environmental exposure due to
unfamiliarity. For remote locations, oil spill response can also provide a challenge. This can be managed
via existing safety systems and controls such as HAZOPSs and HAZIDs to systematically identify any
HSE risks and hazards and the required mitigations. However depending on the complexity of the project,
the novel HSE risks should be taken into account in selecting the development strategy. For example a
standard solution or phased approach may reduce the overall HSE exposure as there is available
information about known failure modes.

Deepwater Non-Technical Risk

Qualified Resources As deepwater developments are first created in the minds of people and subse-
quently built and operated by people, the access to qualified people may be single biggest non-technical
challenge. The growth of the deepwater industry, simultaneous pull from the growth in onshore uncon-
ventionals and a large segment of the experienced oil and gas staff pool in the later stages of their careers
there is a significant risk related to adequately staffing projects. When quality resources are in short
demand, a development strategy based on more conventional technology or standard concepts may prove
to be a more robust approach. It should be noted that it is not only attracting qualified people, but also team
integration and venture set-up that pose risks. A related risk is the access to capable and experienced
contractors.
Political and legal framework The high upfront cost and long term nature of oil and gas field produc-
tion puts a premium on a stable and well understood political and legal framework. Uncertainties around
changes in the political, fiscal or legal/regulatory environment pose a significant risk to the project return.
Unless these risks are understood and mitigated, a development strategy with a high upfront cost, such as
a technology loaded, full field, enhanced recovery project should be avoided. On the flip side, in such a
situation an early production system or phased development may assist in mitigating the risk.
Local content This risk is related to the availability of industry capacity, capability and quality
resources. In the long term, without timing pressure, local content tends to be an opportunity by
developing a local industry, tapping in to local resources and expanding the global oil and gas talent pool.
Within the time frame of the project the constraints in local capacity, either in terms of human and
hardware resource availability or the ability to meet the project technical requirements, may pose a risks.
Adjusting the development strategy to meet local content requirements can mitigate this. Alternatively the
6 OTC-25135-MS

discussion on development strategy with local stakeholders can be used as a means to develop and agree
plans to meet the local content requirements for the preferred development strategy.. For example, during
the exploration phase in an area with little developed oil and gas infrastructure, local content may be
developed slowly as local needs and expertise are evaluated. This is also a time where workforce
development programs can begin to be designed. The first priority for the oil and gas developers is to
ensure that every activity is safely conducted by those whom have the experience and training to do so.
It is important to discuss the needs of the industry and the local availability and training locally to plan
for a successful program.
Highly aware stakeholders In today’s highly connected information society, transparency and publicly
available information has increased significantly. Although this is generally a positive development, it
requires that a much broader set of stakeholders be actively engaged. Many if these new stakeholders will
have little, if any, understanding of the oil and gas industry. Engaging and listening to local stakeholders
upfront will provide valuable information in developing the long-term development strategy and may help
minimize opposition to the development of the project based on lack of information and opportunity to
provide input. A clear communication strategy and plan is certainly required for every deepwater
development.

Schedule Drivers and Pressures

The third attribute that poses a challenge to deepwater developments is the schedule element. It can be
argued that given infinite time in the early phase of the project that all the deepwater risks and challenge
can be resolved to open the way to the theoretically highest value development strategy. Almost all of us
will recognize that unlimited amounts of study money, time and dedicated resources are not a reality in
either our personal lives or in the business environment. Schedule and time play an equally important role
to technical and non-technical risks, in particular the timing pressures coming from the various stake-
holders to meet their expectations. I am not sure what you are referring to here. It is worth distinguishing
between internal and external schedule drivers as these can been seen from different perspectives.
External Schedule Drivers External schedule drivers often come from the oil and gas concession terms
which can stipulate a predetermined limited license term. The uncertainty of value beyond the license term
can obviously influence the view on development strategy. Further the concession terms may dictate the
duration for the exploration, appraisal or development and production phases. Even when not explicitly
dictated by the license terms, governments are more likely than not expecting expeditious development
of discovered resources. There generally is some flexibility in the timing of the development to achieve
the highest long-term value for both the oil companies and resource holders by open dialogue between the
regulator/government and oil companies. However, increasing transparency and awareness of third party
stakeholders makes it critical that the third party stakeholders share in the importance of providing enough
timing flexibility to enable a sound development. Otherwise the space for host governments to move
beyond the sometimes rigid regulatory framework can be limited. In conclusion, for most deepwater
projects external timing pressures are very real.
Internal Schedule Drivers Theoretically internal schedule drivers are fully in the control of the oil
company. Driven by a long term corporate strategy, rational decision-making and sound portfolio
management, the schedules for individual projects should roll out. This is an ideal environment but is not
always the actual environment; economic cycles, oil and gas price gyrations, lumpiness in discovery
volumes across a diverse portfolio will often result in internal schedule drivers to improve declining
production, maintaining cash flow generation and managing investment levels. Further once significant
amounts have been invested as part of lease bonus payments and high cost deepwater exploration and
appraisal wells, time value of money asks for revenues in not too distant a future in order to achieve
competitive life cycle returns. This is particular relevant for deepwater developments, where the drilling
OTC-25135-MS 7

Figure 3—Role of Development Strategy: Integrating Technical Risks, Non-Technical Risks and Schedule Drivers

of appraisal wells and the evaluation of well data and seismic typically take a long time. Lastly, and
arguably an external driver, market expectations play a role. We could argue that market pressure based
on a short-term horizon should not come into the picture given the long term nature of deepwater oil and
gas investments, but that is a discussion beyond the objectives of this paper.
Through the discussion of schedule drivers it is apparent that a development with no timing pressure
is an extremely rare occurrence. National oil companies on their home turf or large international oil
companies who are capital constrained may find themselves in this lucky position, but due to global
competition and capital allocation even these positions are likely short lived. Therefore, rather than
ignoring schedule pressure as an unwanted condition, it is better to recognize the existing internal and
external schedule drivers and the degree of time pressure and use it to define a development strategy that
is best suited to meet the schedule demands.
Role of the Development Strategy
Integration of risks and schedule to align stakeholders
The preceding summary review of typical deepwater technical and non-technical risks and schedule
drivers should provide a selection of insights on the growing challenges for deepwater developments and
how a carefully considered development strategy can aid in managing these issues. It becomes apparent
that a development strategy which addresses a portion of the technical risks may not be the best to manage
non-technical risks; in particular those related to external stakeholders and in the context of very real
timing pressures. For example a phased development based on understanding reservoir performance and
testing new technologies before full scale implementation will maintain exposure to changing regulation
and fiscal/license terms that could eliminate ultimate full field development success. Similarly a large
scope development strategy based on a new technology and full-scale development may clash with a
constraint in qualified resources in the development location. As depicted in Figure 3, it is at this
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intersection of technical, non-technical risks and schedule drivers that the definition of the development
strategy needs to occur.
Selecting a development strategy will mean making some tough decisions. However, instead of one
stakeholder picking the development strategy (typically either the field operator, or the resource owner),
selecting the strategy is a unique opportunity to engage all stakeholders and provides a platform to align
stakeholder expectations in view of the unique risks facing the field development. In fact, the engagement
process and alignment in itself will often go a long way in mitigating many of the stakeholder related
non-technical risks.
Timing of selecting the development strategy
Given the importance of a well understood and agreed development strategy, it stands to reason that the
strategy should be set early in the project maturation process. However, too early in the maturation
process, basic information about the field, the business environment and key stakeholder expectations and
issues are missing and these are key ingredients in defining the development strategy. Therefore, we
advocate that the development strategy is not set until field appraisal activities are substantially progressed
and a good technical and non-technical risk assessment and stakeholder mapping exercise has been
completed. This is typically towards the end of feasibility phase as the project commences the concept
selection phase. This does not mean however that the development strategy should be ignored earlier on.
On the contrary, once there is sufficient understanding of the opportunity, thinking about development
strategy options needs to front and center in determining the appraisal program and shaping activities.
Determining the development strategy has historically not been included as a separate activity or step
in the project maturation process and is rolled up in the concept selection process. As hopefully has
become clear, the development strategy is something different than the development concept: the former
sets the high level, long-term strategy to maximize value from the opportunity with a strong focus on
aligning key stakeholder interests, the latter is typically more focused on the hardware choices for the first
phase(s) of development through a lens of near-term value and doability. When setting development
strategy and concept selection are combined, the strategic value and long-term vision can be lost.
Furthermore the universally used process of evaluating multiple development concepts, overlaid with
different reservoir exploitation options (e.g. primary versus enhanced oil recovery) and phasing options
typically leads to a bewildering range of outcomes if compared against multiple subsurface realizations.
This is a labor-intensive process and in the end it will be hard to see which option is superior, not least
because the inputs have wide uncertainty bands, most notably recoverable volumes and CAPEX estimates.
Further, mixing development phasing alternatives and development system concepts makes it harder to
pick the “winner”. It is therefore recommended to select the development strategy towards the end of
feasibility phase or very early in the concept selection phase to set the framework and boundary conditions
wherein the development system can be selected.
Framework for Selecting the Deepwater Development Strategy
It should be evident that many factors need to be considered in defining and selecting the development
strategy. The project business and regulatory context, preferences from key stakeholders (including the
project developer, the resource holder and the local community), the unique project technical aspects and
risks will all play a role. As a starting point, however, we suggest that for the purpose of selecting the
development strategy, as a first pass a project can be characterized using two dimensions: project
complexity and schedule drivers.
Intuitively it makes sense that a simple project without any time constraints will or should follow a
different strategy than a very complex project under conditions that require the project to progress within
a set time frame. We will expand on the dimensions of project complexity and schedule drivers before
providing a framework of how the combinations of these two dimensions can provide a first suggestion
for a development strategy.
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COMPLEXITY FACTOR LOW COMPLEXITY HIGH COMPLEXITY

Reservoir Architecture Known basin, play, geology, New Basin, play, geology
Reservoir Fluids Light oil, no/limited contaminants Heavy oil, contaminants (e.g. H2S, CO2, metals)
Production Analogs Accessible, local production analogs No direct production analogs
Recovery Technique Primary Recovery, no artificial lift Enhanced recovery (e.g. waterflood, gas injection),
artificial lift
Well spacing Low well density High well density
New Technology Requirements Existing technology, enhancing technology only New Technology as enabler for development
Location Close to existing infrastructure Remote from existing infrastructure
Local Oil & Gas experience Established deepwater production heartland No existing deepwater production
Environmental conditions Calm/benign metocean conditions Harsh metocean conditions
OVERALL PROJECT COMPLEXITY LOW ß à HIGH

Project Complexity
Complexity can be driven by political, organizational or the commercial setting of the project, however
in the context of selecting a development strategy, project complexity is foremost related to the inherent
technical complexity of the project, i.e. the complexity that results from the reservoir and reservoir fluid
characteristics and the physical location of the field. We should recognize that all deepwater projects are
technically complex when mapped against the full spectrum of onshore and offshore oil and gas projects.
Therefore the term low project complexity used herein, is defined in the context and relative to other
deepwater developments. The overall technical complexity is closely related to the risks identified earlier:
Some of the factors above, such as recovery technique, well spacing or new technology requirements
are arguably development choices. They are included here as they may be required to get to an acceptable
economic recovery from the target reservoir. Figure 4 portrays the relation between the cost related to
project complexity and the required recovery to justify the investment. To meet the same risk adjusted
return, frontier deepwater developments require a higher recovery than production from know basins,
proven technology or shallow water.
By taking the different complexity factors into account, an overall complexity for the project can be
assessed. No fixed formula or weighting is proposed to arrive at the project complexity as the complexity
is as much function of the degree of complexity of each component as the experience of the consortium
responsible for developing the field. For example an operator with limited experience in enhanced
recovery projects may rate a WAG (water-alternating-gas injection) development in harsh metocean
condition much more complex than an operator who is already operating both WAG and other develop-
ments and in harsh conditions. Therefore it is suggested to include experienced development experts in
the assessment of the project complexity to arrive at a realistic view of the complexity both in absolute
terms and in relation to the operator and its project team experience and capabilities.
Schedule Drivers
It has been documented in numerous benchmarking studies that schedule driven projects, especially those
with aggressive execution schedules are very likely to under deliver when compared to targeted
outcomes[10]. Schedule pressures are an inevitability on almost every oil and gas project so the key issue
to address is how we address the schedule pressures both upfront and as they present themselves as the
project progresses. We should be careful not to only limit schedule pressure to the execution phase of a
project – in reality schedule pressures begin before the discovery well is drilled and continue throughout
the entire project lifecycle. Typically these time based pressures come from:
Development Strategy Framework
Combining the project complexity and schedule drivers provides a useful framework to identify a starting
point for the development strategy, in particular the phasing aspect and the use of new technology or
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Figure 4 —Required recovery for economic development related to development complexity cost

SCHEDULE DRIVER LOW TIME PRESSURE HIGH TIME PRESSURE

External
License Duration License term in line with or beyond field License term significantly less than full field
production life production period
License Timing Stipulations No or limited stipulation on when a Short time allowance to complete exploration,
commitment to development is required appraisal before commitment to development
Local Expectations Long term, value driven Short term, production driven
Political/Regulatory stability Stable Unstable
Internal
Cash flow generation Strong balance sheet and cash flow Need for near term production/cash flow
Life cycle returns Limited, low cost pre-investment Extensive, high cost pre-investment (appraisal,
(appraisal, engineering) engineering)
Market Expectations No market pressure High market pressure
OVERALL SCHEDULE DRIVER LOW ß à HIGH

deployment of a standard development concept. In looking at complexity and schedule drivers, six
archetypes have been identified (see Figure 5):
A more detailed description of the archetypes follows below:
Low Project Complexity Archetypes
Low Schedule Drivers: Full Field (Bespoke) Development
In the absence of significant time pressure and with a relative low complexity project, in particular in case
of a reasonably well-understood reservoir, time can be taken to plan for a full field development from day
one that is tailored to the unique aspects of the field or area under consideration. It is generally understood
that building the full field facilities as part of single project offer meaningful savings. Provided there are
limited surprised later in field life a field specific development solution can result in maximum value for the
OTC-25135-MS 11

Figure 5—Development Strategy Framework

Low Project Complexity High Project Complexity

Low Time Pressure Full Field (Bespoke) Development Industry Follower

Medium Time Pressure Standardized Development Approach Phased Development
High Time Pressure Off-the-shelf Development Early Production System

reservoirs developed. This may also be a situation where value enhancing new technology can be
included, as sufficient time is available to mature and test the technology as part of the project maturation
process.
The main driver in this archetype is maximum value from a well understood development.
As mentioned limited time pressure is rare and a low complexity deepwater project with limited time
pressure is even rarer.
Medium Schedule Drivers: Standardized Development Approach
Medium time pressure and a low complexity project allow some time to prepare a project specific design
concept but lever a standard approach in terms of replicating system components (such as the subsea
system or host modules), contracting strategy (such as in-house design, using same contractors) or same
project organization structure[12]. This strategy may include a few selected new technologies, provided
they can be matured in the standard project schedule.
The main driver for this archetype is a balanced approach to value and pace.
The Mars B/Olympus TLP project fits this archetype, building on the long history of Shell TLPs in the
Gulf of Mexico in 1990’s, tailored to today’s requirements to exploit well understood in production
reservoirs.
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High Schedule Driver: Off- the-Shelf Development

With significant time pressure but low complexity, an off-the-shelf development solution can be picked. In
fact with limited time to fully develop the project definition prior to execution, a standard off-the-shelf
development will give the best shot at a successful project. This strategy accepts that the development is
not optimized for the specific field, but by reducing the time between discovery and first production, good
returns can be achieved. However, this assumes that a standard solution for the field is available (which
is implied by the low complexity, i.e. this is not the first development in a new, unknown area) and that the
field does not turn out significantly different than expected. If this is not the case, an off the shelf
development strategy is not be advocated. By definition this strategy does not include any new technol-
ogies (but it may include project and system process improvements or latest generation equipment
packages).
The main driver for this archetype is generating cash flow at pace. The series of spar developments
in the Gulf of Mexico by Kerr McGee and other independents in the 2000’s would fit this archetype.
High Project Complexity Archetypes
Low Schedule Drivers: Industry Follower
With no or limited time pressure and a very complex project, particularly complexity related to difficult
reservoirs requiring new technology, the best strategy with limited time pressure may be to wait. Over time
a better understanding of the geologic setting and potential production performance may be developed,
either by appraisal (including production testing) of the field or by production from similar reservoirs in the
basin or other parts of the world that are analogous. Similarly the technology required to develop the field
may be developed and matured for other application and could become available as proven technology
over time. Another perspective is that joint industry projects, pilot programs and academic collaboration
initiatives may be needed to unlock the project. The main driver in this archetype is derisking, either by
extensive appraisal, waiting on establishment of production history in the basin, industry technology
advances, rising oil and gas prices or a combination thereof.
Given the prevalent leasing regimes for deepwater, typically the time is not available to wait for the
project to become less complex and it is hard to find clear examples of this strategy in deepwater, however
they are out there. What tends to happen in these examples is that difficult and complex projects that lack
the materiality or economic returns to move forward with a commercial development default to a de-facto
“industry follower” strategy as the project recycles and stalls in the project maturation process either to
finally emerge as a viable project (due to technology, oil price or reduced complexity) or being dropped
from the portfolio. In the latter case, the field is often picked up by another operator with a new time line.
Medium Schedule Drivers: Phased Development
Faced with time pressure a good strategy to develop a complex field is to break up the development in
phases, for example, in terms of area, recovery technique or technology application. This allows the
segmentation of complexity and taking on separate development phases that individually are less
complex. This strategy provides the opportunity to learn from the field and expand and modify the
development based on these insights. In contrast with the Industry Follower approach, this strategy does
bring in early cash flow. An example of this strategy is to start development of the most prolific parts of the
field, adding production centers to the other parts of the field contingent on successful production from the
first phase. Another example is to deploy in the first phase only those new technologies that are necessary
to develop the field, leaving other value enhancing technologies to later phases. It should be noted that
for deepwater projects, the first phase only would already be a significant project with costs typically above
three billion dollars.
The main driver for this archetype is to reduce risk and complexity while maintaining pace in a material
play area. Given the high complexity of deepwater and the implicit time pressure in almost all deepwater
concessions, the phased development approach is a popular strategy and a significant part of deepwater
development include some form of phasing. There is however a wide range of the degree of phasing as
OTC-25135-MS 13

can be seen in Shell’s examples of phased developments: Parque das Conchas (BC-10) in Brazil [13],
Perdido [11,14]and Stones [11,15] in the Gulf of Mexico and Petrobras’ Marlim development in Brazil [16].
High Schedule Driver: Early Production System
Given the high cost structure in deepwater, an early production system is an expensive way to de-risk a
deepwater discovery. With significant time pressure (e.g. lease expiration) and a very complex field with
a lot of upside potential, this may however be the right strategy. The main driver is to manage long-term
production risk and obtain critical subsurface information on a material scale development from which to
learn and optimize about future development. This strategy makes particular sense for a mega discovery,
where the early production system cost to obtain quality information on the field, is low in comparison with
the ultimate value of the full field development, and the early production information provides significant
opportunities to optimize and enhance value for the full field development. Alternatively this strategy is
suitable for a portfolio of similar type field developments where the cost of the early production system can
be shared amongst multiple fields, or the benefits of the early production information of one field provide
valuable insights for the entire portfolio. Petrobras has been successfully following this strategy in Brazil
across both the post salt and more recently in establishing early production from the prolific Pre-Salt play.
The development strategy archetypes do not explicitly address the preferred reservoir exploitation
strategy which is a key part of the overall field development strategy. As discussed earlier, the selection
of the reservoir development plan and recovery technique is often dictated by the reservoir characteristics
in order to achieve the requisite deepwater high rate/high ultimate wells for an economic development. In
the absence of the need for more complex recovery techniques it stands to reason that under time
pressure or facing an already complex project, a development team should consider deferring enhanced
recovery options until a later phase. In situations with limited time pressure or a less complex project,
enhanced recovery options should be included in the evaluation of development options.
From this review of the six archetypes, it should be obvious that there are still considerable choices and
options within each archetype. In framing the important discussion around development strategy, starting
with these archetypes will allow the development team to structure the strategic options from which to
engage stakeholders and to move the development forward.

Closing Comments
Deepwater production will play a very important part in meeting the world’s future energy demand. The
challenge for the oil and gas industry is to meet this demand safely, efficiently and profitably. This is not
an easy challenge in deepwater given the limited margin for error. The technical complexity and
multibillion dollar development cost require a robust development strategy that allows a project to deliver
the promised value within the constraints of timeline. Given that the trend is for fiscal terms, regulatory
requirements and local expectations for deepwater project to get more challenging, it will be more
important than ever to start on the right path to develop a deepwater field.
This paper has provided a window into the multidimensional aspects that need to be considered in
selecting a congruent development strategy for a deepwater project. Many of the major decisions require
solid data, analysis and good judgment. It should therefore be no surprise, that the authors strongly
advocate that development strategy is the terrain of seasoned development experts. We recommend that
a development team draws on in-house, joint venture partner and industry experience and expertise to help
shape the development strategy. An area where industry and field operators can improve is to include and
work closely with fabrication, installation contractors and hardware providers much earlier the hydro-
carbon maturation process. Together, between resource holders, operators, contractors, service providers
and vendors, there is an opportunity to create enhanced value across the entire value chain to meet the
challenges of the future.

Nomenclature
Abbreviation
14 OTC-25135-MS

CAPEX Capital Expenditure

DW Deepwater
EOR Enhanced Oil Recovery
GoM Gulf of Mexico
HAZID Hazard Identification study
HAZOP Hazard and operability study
HP/HT High Pressure / High Temperature
HSE Health, Safety and Environmental
JV Joint Venture
TLP Tension Leg Platform
WAG Water-Alternating-Gas injection

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