Daily Archives: April 17, 2011

Florida tourism would not exist without oil and natural gas

Written by
David Mica
 Special to news-press.com

As the one-year anniversary of the Macondo oil spill approaches, we are seeing a reemergence of the decades-old debate on whether oil and natural gas exploration and production should take place off Florida coasts.

What is lost in the debate is the fact that Florida remains the country’s third-largest consumer of energy and that, even as the use of alternative forms increase, the state will continue to need more and more oil and natural gas, without which tourism – the state’s number one industry – and other industries would not exist.

Also lost is the strong safety record of the oil and natural gas industry – and its unprecedented response to the April 20 accident. Before the spill, more than 42,000 offshore wells were drilled safely in the Gulf of Mexico over a span of 60 years.

Following the accident, the industry launched an unprecedented response to the accident, raising the bar even higher on safety standards. Within hours after the accident, the industry began working to try to determine what went wrong and to develop strategies for the future. This led to the release of even more stringent standards, the creation of an enhanced spill response company, and the establishment of a new safety institute to continually evaluate new technology and procedures to recommend best management practices to the industry.

Industrywide task forces were created to identify and learn from any gaps in operations or practices. The government has incorporated a number of recommendations from these task forces into new safety rules and these recommendations have already helped to further enhance the industry’s preparedness.

In July, four of our companies contributed $1 billion to create the Marine Well Containment Company to develop and implement state-of-the-art containment systems to respond rapidly to any spill in the future. Those systems are now in place.

The industry did not stop there. Last month, the American Petroleum Institute announced the creation of the Center for Offshore Safety to build on the existing strong standards and to promote the highest level of safety for offshore operations, through an effective program that addresses management practices, communication and teamwork.

— David Mica is executive director of the Florida Petroleum Council.

( Original Article )


Cuba explores for oil as U.S. watches

Drilling for oil could occur just south of the Florida Keys — in Cuban waters, where the U.S. has little say in operations

By Lesley Clark

WASHINGTON — Less than 75 miles off the Florida Keys, Cuba’s plan to explore for oil and gas in waters even deeper than BP’s Deepwater Horizon well has U.S. officials on alert.

U.S. Interior Secretary Ken Salazar acknowledged this past week that Cuba’s oil and gas explorations are an “issue of concern.’’

“We’re watching it closely,” Salazar said. “Obviously, because it’s located 60 miles off the coast of Florida… it’s an issue that we’re monitoring carefully.”

Cuba is eager to explore for energy off its coast near Havana. The Spanish energy giant Repsol, which drilled an exploratory well in 2004, is expected to drill another five to seven such wells as soon as this fall, said Jorge Piñon, an energy expert and visiting research fellow at the Cuban Research Institute at Florida International University.

Piñon, who attended an oil and gas conference in Havana last week, said the Cuban government is cognizant of its tourism-dependent economy and “is reviewing everything it can from the Deepwater Horizon.” But he acknowledged the country doesn’t have the assets to respond to a spill like the one in the Gulf of Mexico.

“Houston is 900 miles from where the well is going to be deployed and equipment could be there in a matter of hours, but it won’t available because we haven’t sat down with Cuba,” Piñon said.

The Unite States and Mexico — which share the Gulf of Mexico with Cuba — have been meeting to strengthen standards for drilling in the Gulf, but Cuba hasn’t been part of the talks.

The U.S. Bureau of Ocean Energy Management, Regulation and Enforcement has talked with Repsol about its plans in Cuba, but agency director Michael Bromwich says there’s no agreement on a drilling standard. He acknowledged U.S-Cuba policy makes direct talks difficult.

The presidential commission that investigated last year’s BP spill recommended that Cuba and the United States. talk about oil drilling.

A spokesman for the State Department says it hasn’t held any discussions with the Cuban government on oil exploration. “However, we expect any company operating in Cuba’s oil and gas sector to adhere to industry environmental, health, and safety standards and have adequate prevention, mitigation, and remediation systems in place in the event of an incident,” spokesman Charles Luoma-Overstreet said. “We will pursue activities within our legal authority in order to minimize risk to U.S. territory.”

Critics of further engagement with Cuba argue that Cuba has proposed offshore drilling for more than a decade without delivering.

“We’ve seen this dog-and-pony show for 10 years and the fact remains, there’s no drilling,” said Mauricio Claver-Carone, director of a leading pro-embargo lobby, the U.S. Cuba Democracy political action committee. He contends the plans are part of a propaganda campaign by the regime to attract investors and to secure the oil industry’s support for joining the lobby against the embargo. The embargo has already affected Cuba’s operations: It had to secure a rig that didn’t violate the U.S. law that prevents vessels with more than 10 percent of U.S. parts from operating in Cuba.

Claver-Carone suggested that if the rig — now in Singapore — approaches Cuba, there’d be time for Congress to make it even more difficult and expensive for Repsol to proceed. Florida lawmakers have already filed legislation aiming to block Cuba by making it more difficult for foreign oil companies to do business there.

“I don’t understand why anyone would want to facilitate the creation of a petro-dictatorship 90 miles away,” he said.

( Original Article )


Oil companies new Gulf drilling plans called inadequate

Posted on Sun, Apr. 17, 2011 03:00 AM
McClatchy Newspapers

Oil companies recently turned in their first plans for exploratory drilling in deep waters of the Gulf of Mexico, including new information the government has required since last year’s BP blowout about how they’d try to prevent and cope with another oil disaster.

The oil companies that want to explore the seabed below the deep water say they’ve learned from last year’s accident and have better plans in place than they did a year ago, when an explosion on the Deepwater Horizon drilling rig set off the nation’s worst oil spill.

Environmental groups cited several reasons the plans fall short: The system to capture oil at a broken wellhead still hasn’t been proved in the very deep waters; systemic problems with blowout preventers haven’t been solved, and companies were too optimistic about how quickly they could drill the kind of relief wells that ultimately plugged the BP spill.

The plans for the new exploratory wells come as Republicans use high gas prices to push the Obama administration into speeding up permit approvals and expanding drilling.

Government regulators put three exploration plans up for public review earlier this month. The three plans – from Shell Oil, Statoil, the Norwegian state oil company, and BHP Billiton of Australia – follow the government’s new regulations by spelling out details of what worst-case scenarios the companies expect, how they calculate it, what they’ve done to reduce the risk of a blowout and what they’d do to stop the oil if prevention failed.

The Interior Department’s drilling regulatory agency on March 21 approved the first exploration plan – one by Shell Offshore Inc. to drill three wells at 2,950 feet deep. Interior Secretary Ken Salazar said that it met a “strong new standard for safety and environmental protection.”

Environmental groups express concerns during the review period, which ended this past week.

“We’re being told don’t worry, we have these new safety standards. But when you look at what it is, what they have to prove, it’s not very satisfying,” said Jackie Savitz, director of pollution campaigns at Oceana, an ocean conservation group that opposes an expansion of offshore drilling.

Shell Oil, Statoil and BHP Billiton say they have a new system to cap and contain oil in case of an accident and that they’d be able to drill relief wells faster than the five months BP needed last year for the Macondo well.

The exploration plans must be approved before companies can apply for permits to drill. Regulators have approved permits to drill 10 deep-water wells since a post-spill moratorium was lifted.

Oceana and another group, Environment America, argued in written comments that the companies underestimated the time it would take them to drill a relief well. BHP Billiton said it would take 81 days; Statoil said 62 days; and Shell said 128 days.

The environmental groups argued the time probably would be longer, meaning that more oil would flow over a longer period than the companies’ plans show.

They said that the government should require the companies to dig a relief well at the same time as they dig the exploratory well as a precaution or have a drilling rig standing by ready to dig. The companies told the government they each had two rigs that would be in the Gulf and could be called into service. The environmental groups said those rigs would be doing other work, which would delay them from getting started on a relief well.

The groups also said that blowout preventers can’t be counted on, as shown when the device failed in last year’s accident. They also said it’s not clear how long it would take to contain oil in an accident.

Shell, Statoil and BHP Billiton all are members of Marine Well Containment Co., a Houston-based consortium that says its containment system is ready for deployment, could operate in 8,000-foot depths and could process 60,000 barrels of oil a day.

The plans don’t say how long it would take to cap a broken wellhead. Shell’s plan, for example, says only that the equipment could be brought in rapidly.

Marine Well Containment Co. was formed last July. It owns and maintains a containment system that it says is significantly better than previous systems in the Gulf. Houston-based Helix Energy Solutions Group Inc., whose equipment was used in the BP spill, also has equipment to cap a well in deep water.

“The big change compared to how things were before Macondo is that we now have a capping and containment solution for each and every well. That is a big change,” said Ola Morten Aanestad, a Statoil vice president and spokesman in North America.

He said that the industry and its regulators didn’t approve of drilling a relief well in advance, “because every well has a risk and if you drill more than you need you’re actually increasing the risk instead of reducing it.”

But David Pettit, an attorney with the Natural Resources Defense Council, another group that filed critical comments about the plans, said Marine Well Containment’s system is “not ready for prime time.”

Pettit said NRDC, Sierra Club and other groups mainly argued that the government should do a more extensive environmental impact assessment than it planned to do.

The Bureau of Ocean Energy Management, Regulation and Enforcement has 30 days to decide on whether to approve the plans or ask for more information. The agency must look at the amount of oil the companies think could flow and the specific characteristics of the well and decide whether they have the right equipment to be able to stop the flow at the wellhead, drill relief wells and clean up.

Democrats on the House Natural Resources Committee on Wednesday offered amendments that they said would improve safety by requiring measures to prevent blowouts, but the amendments failed.

The Republican-controlled House of Representatives is expected to pass legislation that would set deadlines for permit approvals in the Gulf of Mexico and open waters off Southern California, much of the Atlantic Coast and parts of Alaska to offshore drilling.


Republicans argue that President Barack Obama’s restrictions on drilling are leading to higher gasoline prices.

If the U.S. were to step up domestic oil production, would it make a difference on the price of oil? That’s debatable and in some senses not completely knowable.

The price of oil is a global price, set by financial markets and not end-users or oil producers, although both can influence the price depending on circumstances. Oil prices went up to $114 a barrel this month because of unrest in Libya, even though Libya isn’t a major producer and Saudi Arabia stepped in to replace the lost production.

In 2009 and 2010, the U.S. boosted domestic oil output – thanks mostly to deepwater drilling – after years of net declines. Oil prices peaked in 2008 and then collapsed along with the economy later that year. With the economy recovering, oil prices are back over $100 a barrel despite the greater U.S. supplies.

So if the U.S. was pumping another 500,000 barrels per day of domestically produced oil, few analysts think it would significantly lower oil prices.

That’s not to say that additional U.S. supply would have no effect.

“It’s definitely part of the equation,” said John Kilduff, a veteran energy trader with Again Capital in New York.

Kilduff and other traders think additional U.S. supply gets cooked into a complex equation that includes not only the risks of oil supply disruption in production regions globally but also the strength or weakness of the U.S. dollar. A less risky source of supply helps boost expectations of adequate supply, but this is weighed against other global factors such as risk and developments in currency markets.

( Original Article )


New rules threaten drillers’ survival

USA Today

ABOARD THE ST-204B PLATFORM, GULF OF MEXICO — This oil-and-gas platform once bustled with activity. More than a dozen workers toiled aboard it round-the-clock to corral the 12,000 barrels of high-grade crude gushing up each day from reservoirs below.

Today, the platform, 43 miles off Louisiana‘s coast, is eerily quiet. Six workers periodically check on pumps and diesel engines. Only six to seven barrels trickle in a day.

The reservoir is nearly empty, and without new federal permits to poke new holes in the surrounding area, the platform is rendered nearly dormant, say officials at Pisces Energy, the platform’s owners.

“We’re just trying to maintain until we get the permits and get the drill back out here,” says Sammy Breaux, the platform’s lead operator. “We’re day by day.”

Tightening of regulations for offshore drilling following last year’s BP oil disaster in the Gulf of Mexico has lengthened the permitting process and brought tighter scrutiny to offshore drilling. But the new process is strangling small independent companies such as Pisces, which need to continually pump to survive, analysts and industry leaders say.

More than just squeezing profits, the increased federal scrutiny threatens the culture of wildcatters — independent oil companies that seek crude and natural gas in areas where typically no one else is looking. Wildcatters have delivered crude to U.S. consumers for more than a century, says Diana Davids Hinton, a history professor at the University of Texas of the Permian Basin who has written books on wildcatters.

“It puts things in a very gloomy perspective for wildcatters,” she says.

Wildcatters have been chasing oil seeps in the region since crude first bubbled up in Spindletop, Texas, in 1901, Hinton says. Wildcatters, then hard-charging, daring frontiersmen, sought oil anywhere they found a seep or in places others wouldn’t dare, such as hillsides.

“Some wildcatters made just completely random tests that worked out,” Hinton says.

By the 1920s, wildcatters were using geology to seek oil. They formed businesses and followed the oil rush into Louisiana’s marshes, and more recently, the deeper stretches of the Gulf, she says. Today, the wildcatter’s dusty image of a wrangler charging over the Texas plains has been replaced by men in suits controlling million-dollar drilling rigs and working out of glimmering Houston high-rises.

Wildcatters nearly disappeared during the 1970s and ’80s, when crude prices crashed and left much of the market to multinational companies, Hinton says.

Their numbers may quickly dwindle again under the current regulations, she says.

“There would be a real important sector of the industry that would be lost if the ranks of independents were thinned down to the bone,” Hinton says.

Going where
others won’t

W&T Offshore, a wildcatter based in Houston, has drilled for oil and natural gas in the shadow of the majors for 25 years, following the larger companies from Louisiana’s marshes to deep offshore in the Gulf, says Tracy Krohn, founder and CEO. The company survives by tappingareas the bigger firms overlook or don’t want, he says.

The new approval process has slowed W&T’s operations to a crawl, he says. The company is awaiting approval for three shallow-water permits and one deep-water permit. The regulations make it near impossible for smaller firms to chase reservoirs from one area of the Gulf to the next, he says. W&T is shifting part of its operation to onshore natural gas drilling.

“We can’t replace our (offshore) reserves drilling under the current process,” Krohn says. “Nor can anyone else.”

Federal regulators say they’re taking steps to prevent a repeat of last year’s disaster, in which the Deepwater Horizon rig exploded and sank off Louisiana’s coast, killing 11 crew members and unleashing the largest oil spill in U.S. history. The rig was leased by BP, which has assumed the bulk of the responsibility for the spill. BP was widely criticized for not sufficiently planning for the catastrophic event.

The stepped-up regulations since the spill include requiring companies to file safety and environmental plans that were voluntary in the past, as well as increased scrutiny of drilling plans by officials at the Bureau of Ocean Energy Management, Regulation and Enforcement, which oversees the industry.

The increased scrutiny hasn’t slowed the permitting process all that much, agency director Michael Bromwich says. The agency is approving about six permits per month, just under the eight per month it was averaging pre-spill, he says. It has approved 39 shallow-water permits and six deep-water permits since the spill.

“We think these changes, revisions, reforms were extremely necessary to make drilling safer,” Bromwich says. “If the impact is falling on smaller companies, it certainly was not an intention of ours.”

Squeeze is on

Multinational companies such as BP and Exxon are better at absorbing the higher costs associated with the delays caused by increased regulation than smaller, independent companies, says Brian Uhlmer, a Houston-based analyst at Global Hunter Securities.

Some independents are pulling out of the Gulf as a result of the delays, he says. The culture of wildcatters — who rely on incoming cash flow to finance their next venture — is seriously threatened, he says.

Harder to start small operation

Since the spill, the number of mobile offshore drilling rigs operated by independents has dropped from 47 to 32, according to ODS-Petrodata, a Houston-based energy analysis firm. One company, Houston-based Seahawk Drilling, filed for bankruptcy in February.

“It really gets rid of all the small guys,” Uhlmer says of the new regulations. “The chances of forming a small company and growing it and having it become a major player in deep water is very, very low now. It was hard enough before. Now, it’s near impossible.”

Bill Gray, CEO of Pisces Energy, says much of his operation in the Gulf has stalled while the company awaits approval for several new permits to drill, including one for the ST-204B platform.

Meanwhile, the new regulations have forced Pisces to increase the insurance coverage on one of its rigs from $35 million to $150 million, saddling the company with much higher premiums, he says.

“We’ve been very frustrated,” Gray says. “We knew there’d be an impact and uncertainty from the (BP oil spill). We didn’t think it would last this long.”

Busy waters now calm

Aboard the ST-204B, Terry Ferris, a contract operator, checks the reading on the flow analyzer, which measures the amount of crude pulled up that day from the reservoir 153 feet below the surface of the water. The digital reader shows: “0000.”

“Not good,” he says.

Ferris says he’s also noticed a lack of activity in the waters around him — prime oil-producing grounds once swarming with barges moving crude-filled tanks to shore and helicopters shuttling oil executives from one rig to the next.

“You don’t see the boat activity. You don’t see the helicopters. You don’t see the drilling,” says Ferris, who has been working on offshore rigs for two decades. “This is about as low as I’ve ever seen it.”

ATP Oil & Gas, a Houston-based independent production company, had to move rigs out of their deep-water locations after the spill, says Jerry Schlief, a chief consultant for the company, which is awaiting approval on three Gulf drilling permits. The expense of moving rigs, delays and loss of revenue from dormant platforms have cost the company more than $350 million, he says. Company officials recently announced plans to shift operations to offshore Israel, he says.

“This new process is just killing us,” Schlief says.

More paperwork, less activity

One person who has been unusually busy in the Gulf since the spill is John Martin, a contract inspector who works with many independent firms. Martin has recently inspected several rigs to make sure they comply with new regulations.

Though business has boomed, Martin says he feels for smaller companies, which have struggled under the new requirements.

On a recent afternoon, Martin toured the ST-204B platform, checking off items on a clipboard. His increased visits to that and other platforms are costing companies such as Pisces millions of dollars and threatening a way of life, he says.

“It’s not fun anymore,” Martin says. “There’s less opportunity and more paperwork. A lot of these companies are barely hanging on.”

( Original Article )


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