Monthly Archives: August 2011
Louisiana official reports activity on third possible shale play
WASHINGTON, DC, Aug. 31
By Nick Snow
OGJ Washington Editor
Oil and natural gas producers have begun work on developing a third shale play in Louisiana, giving the state one proved and producing formation and two that are being watched closely, according to Scott Angelle, secretary of Louisiana’s Department of Natural Resources.
The new area in northern Louisiana and southern Arkansas is referred to as the “Brown Dense” or “Lower Smackover” and is believed to be a limestone layer at the base of the Smackover formation, a long-time source of traditionally producer oil and gas in northern Louisiana, Angelle said Aug. 31.
He said the Brown Dense joins the Tuscaloosa Marine shale as the second half of a Louisiana dense-rock play duo believed to have production potential similar to Louisiana’s Haynesville shale and the Barnett and Eagle Ford shales in Texas. The Tuscaloosa Marine shale is believed to underlie much of central Louisiana, with exploration under way in areas from Vernon Parish to East Feliciana Parish, Angelle said.
He said initial development of the Brown Dense—generally believed to underlie northern Claiborne, Union, and Morehouse parishes—has barely begun. Southwestern Energy Co., Houston, has begun to drill its first well in the Brown Dense in Arkansas, and has announced it will seek a permit to drill a second in Claiborne Paris by yearend 2011, Angelle said (OGJ Online, July 29, 2011).
In Southwestern’s second-quarter earnings teleconference on July 29, the company’s Pres. and Chief Exeuctive officer Steve Mueller said the company had, to date, invested $150 million, or $326/acre, on undeveloped Brown Dense acreage, with an 82% average net revenue interest. “We’ll begin by targeting the higher gravity oil window under our lease, which we believe could be 45-55° gravity range,” he said.
The right mix
Southwestern has reviewed the Brown Dense extensively across the region and has indications that it has the right mix of reservoir depth, thickness, porosity, matrix permeability, ceiling formations, thermal maturity, and oil characteristics, Mueller stated.
The area’s porosity is 3-10% and it has an anticipated 0.62 psi pressure gradient, making it overpressured, he said.
“We have assembled log data on 1,145 wells covering five states to evaluate the Brown Dense and acquired over 6,000 miles of 2D seismic and have gathered and analyzed rock data from cores and cuttings from 70 wells that penetrated the Brown Dense zone,” Mueller said. “At this point, we currently have more data about the Brown Dense than we had on the Fayetteville shale when it was announced.”
He said Southwestern hopes to spud its first Brown shale well in Arkansas during the third quarter and the second, in Louisiana’s Claiborne Parish with a planned vertical depth around 8,900 ft and a 3,500 ft planned horizontal lateral, later this year.
“We plan to drill up to 10 wells in 2012 as we continue to test this concept,” said Mueller. “This formation has sourced several large conventional oil and gas fields and our hope is to use horizontal drilling technology to unlock at least as much potential. Positive test results could significantly increase our activity in this play over the next several years.”
Devon’s activities
Angelle said Devon Energy Corp., Oklahoma City, also has acquired 40,000 acres in the Brown Dense and plans to drill a test well there. The independent has received a permit for a well targeting the deeper Smackover in Morehouse Parish, the Louisiana official said.
He said that Devon also is active in the Tuscaloosa Marine shale, with 250,000 acres leased, and plans to drill two wells. About a half dozen wells targeting the Tuscaloosa Marine—long thought to contain substantial reserves, but previously considered uneconomical—are currently in the process of being drilled or securing permits, Angelle said.
The increased activity will create more water demand for hydraulic fracturing, noted another Louisiana official, State Conservation Commissioner Jim Welsh. The decline in water use in the Haynesville shale play, however, may more than offset the increase in water use in the Tuscaloosa Marine and Brown Dense, at least in their early stages.
Producers drilling in the Brown Dense formation have informed the state’s conservation office that they intend to use surface and recycled water for their overall project needs, in conformance with guidelines issued for nearby areas experiencing stressed groundwater conditions, he said.
The anticipated Brown Dense development area underlies the Sparta Aquifer, where water levels have recently improved following combined state and local efforts to manage groundwater use, Welsh said. “We are still discouraging new high-volume users from using groundwater in that area, and are giving guidance for alternative sources for water,” he added.
Finke: Profit is not a dirty word
By Ron Finke
Independence, MO —Why do we allow companies to have any profit at all? If a company makes a profit, doesn’t that mean that it charged more than it should have for its products?
This fiscal year ending Sept. 30, our federal government will pay out $2.2 trillion just for safety net and interest expenses, 97 percent of its total intake. The government needs money so shouldn’t we just raise taxes on companies that have excess profits?
Speaking of excess profits, everyone knows that gasoline prices are too high. Exxon Mobil had revenue of $424 billion in the past year and almost $38 billion was left over after interest, taxes and depreciation. What good is that doing society?
Exxon Mobil pays $9.1 billions of that net profit to its shareholders as a dividend, $1.88 per year per share, amounting to 24 percent. Almost half of its shareholders are institutions like pension plans, universities and other foundations. That might be doing some good.
In 2009 , the oil company paid $7.7 billion in U.S. taxes but no federal income tax. Why? It paid more than $15 billion of income tax to other countries where it gets its oil. Worldwide Exxon paid $78.6 billion in total taxes before we see any leftover profit. Nigeria makes out pretty well since it charges up to 85 percent of profit from its Exxon Mobil oil production.
If Exxon could pump more oil in the U.S., our government would get more income and other taxes. Since oil pumped and sold is gone, the behemoth looks for new oil everywhere. A few years ago, it and Norwegian Statoil began exploring in a new, deeper area of the Gulf of Mexico. It can only do that after paying the U.S. government for permits. The Department of the Interior now claims Exxon Mobil abandoned three of its five permits when it requested a short suspension of activity to upgrade its equipment for new safety technology and was a little slow in signing new contracts with Chevron as a new partner.
Oh, did I mention that the finding is estimated to be a billion or more barrels of oil? Or that the exploration had already cost $300 million (that came from profit leftover from previous years and sales)? Exxon is ready to start but our government has stopped Gulf drilling by regulation. The rigs have begun to be moved to Brazil and Africa.
There is a new steel plant in Youngstown, Ohio, already producing drill pipe for our domestic production. Perhaps it could make steel for something else, but I don’t know what.
Exxon Mobil will begin paying about $10 billion in royalties and taxes to the federal government if and when it can get started on the Julia field. In the meantime, it has sued the government over its alleged snatching of the three permits. That should be successful, but lawsuits are anything but cheap. So there goes more of that leftover profit.
I wonder how smaller companies fare in fights with the government. Our U.S. government has lots of lawyers and all the time in the world. Does this type of thing have anything to do with businesses stockpiling money instead of pushing ahead, taking initiative and hiring new workers?
An EPA Moratorium
Obama has the power to delay new rules that will shut down 8% of all U.S. power generation.
Since everyone has a suggestion or three about what President Obama can do to get the economy cooking again, here’s one of ours: Immediately suspend the Environmental Protection Agency’s bid to reorganize the U.S. electricity industry, and impose a moratorium on EPA rules at least until hiring and investment rebound for an extended period.
The EPA is currently pushing an unprecedented rewrite of air-pollution rules in an attempt to shut down a large portion of the coal-fired power fleet. Though these regulations are among the most expensive in the agency’s history, none were demanded by the late Pelosi Congress. They’re all the result of purely bureaucratic discretion under the Clean Air Act, last revised in 1990.
As it happens, those 1990 amendments contain an overlooked proviso that would let Mr. Obama overrule EPA Administrator Lisa Jackson‘s agenda. With an executive order, he could exempt all power plants “from compliance with any standard or limitation” for two years, or even longer using rolling two-year periods. All he has to declare is “that the technology to implement such standard is not available and that it is in the national security interests of the United States to do so.”
Both criteria are easily met. Most important, the EPA’s regulatory cascade is a clear and present danger to the reliability and stability of the U.S. power system and grid. The spree affects plants that provide 40% of U.S. baseload capacity in the U.S., and almost half of U.S. net generation. The Federal Energy Regulatory Commission, or FERC, which is charged with ensuring the integrity of the power supply, reported this month in a letter to the Senate that 81 gigawatts of generating capacity is “very likely” or “likely” to be subtracted by 2018 amid coal plant retirements and downgrades.
That’s about 8% of all U.S. generating capacity. Merely losing 56 gigawatts—a midrange scenario in line with FERC and industry estimates—is the equivalent of wiping out all power generation for Florida and Mississippi.
In practice, this will mean blackouts and rolling brownouts, as well as spiking rates for consumers. If a foreign power or terrorists wiped out 8% of U.S. capacity, such as through a cyber attack, it would rightly be considered an act of war. The EPA is in effect undermining the national security concept of “critical infrastructure”—assets essential to the functioning of society and the economy that Mr. Obama has an obligation to protect.
He would also be well within the law to declare that the EPA’s rules are technologically infeasible. Later this year, for example, the EPA will release regulations requiring utilities to further limit mercury and other hazardous pollutants. Full compliance will be required by 2015, merely 36 months after the final rule is public, and plants that can’t be upgraded in time will be required to shut down.
Yet this is nearly impossible to achieve. Duke Energy commented to the EPA that its average lead time for retrofitting scrubbers was 52 months, including the design, purchase and installation of equipment and the vagaries of the environmental permitting process. For Southern Co., another big utility, it was 54 months, over 16 scrubber systems. Filter systems usually take anywhere from 34 to 48 months end to end.
The environmental regulatory system is so rigid that once a rule is in motion it is almost impossible to stop or roll back in a way that can withstand scrutiny in the courts. Mr. Obama allowed Ms. Jackson to begin the process, but we rehearse these details to show that he has the legal authority to minimize her damage. An executive order would not make these rules more rational or change them in any way. All it would do is delay them, giving businesses more time to prepare and to amortize the costs over a longer time.
The larger issue is whether the Administration’s green campaign is more important than economic growth. The EPA’s own lowball cost estimate for the mercury rule is $11 billion annually, though the capital expenditures to meet the increasingly strict burden will be far higher. That investment could be put to more productive uses than mothballing coal assets and replacing them with more expensive sources like natural gas. With nearly a tenth of America out of work, $11 billion year after year adds up.
We don’t expect Mr. Obama to take our advice and tell his regulators to cool it, but no one should believe the excuse that his hands are tied. Whatever he decides will speak volumes about his real economic priorities.
New Frontiers: the attention turns to some up-and-coming plays
If 2008 was the Year of the Shales, 2011 is shaping up to be the Year of Liquids-Rich Plays–and there are still four months to go.
A major recurring theme in second-quarter conference calls was oil companies’ news of positions amassed or initial test wells drilled in new shale and unconventional fields containing oil and natural gas liquids.
Plays such as the Tuscaloosa Marine Shale, Mississippi Lime, Lower Smackover/Brown Dense and Utica shales–both in Ohio and to the west in Michigan–are lining up to be the emerging fields of 2012 and 2013, analysts said.
“We’ll see a movement in some of these plays and it’s not going to slow down–if anything, it will be a pretty tight market for services, fracturing crews and pipeline access,” Michael Bodino, head of energy research for Global Hunter Securities, said.
Arguably, the Utica Shale was the showpiece of the quarter, particularly because its cachet resembles that of Northwest Louisiana’s giant Haynesville Shale, which took Wall Street by storm when Chesapeake Energy trumpeted it in March 2008.
Chesapeake again took the lead in showcasing the Utica late last month, relating the news that the play economically “looks similar, but is likely superior to the Eagle Ford Shale in South Texas…because of the quality of the rock and location of the asset” near eastern US population centers, CEO Aubrey McClendon said.
Like the Eagle Ford, which stands out as one of the US’ most sizzling shale plays at present, the Utica has oil and “dry” natural gas and “wet gas” (gas liquids) windows, he said.
Jeff Ventura, chief operating officer at Range Resources, which pioneered the Marcellus Shale in Pennsylvania, said his company already has drilled two Utica wells. At least on its acreage, Utica is at the bottom of a pancake stack of three play zones, with the Upper Devonian Shale on top and the Marcellus in the middle. The Upper Devonian shales contain about as much gas in place as the Marcellus zone, Ventura said, adding that the Marcellus gas field has been called one of the US’ largest.
Both Range and Chesapeake also have scored success in Northern Oklahoma’s Mississippi Lime play. “In the past year it has become more clear that we have a major play on our hands,” said McClendon, with Chesapeake holding 1.1 million acres there, running six rigs, aiming for 10 rigs by year-end and 30 to 40 by end-2014 or 2015.
Range’s Ventura suggested the play, found at relatively shallow depths of 5,000-6,000 feet, is also highly profitable; it boasts a 100% rate of return at $100/b oil, and he added that even at $90/b it yields a roughly 80% return. Range, which has completed seven horizontal wells, sees its main near-term activity there as nailing the optimal lateral length and well spacing.
Ventura said liquids make up 70% of a well’s recoverable hydrocarbons. McClendon estimated 415,000 barrels of oil equivalent per well, at an average finding cost to date of roughly $11/b, which he called “very, very attractive results.”
—–
Meanwhile, in its late July conference call, Southwestern Energy CEO Steven Mueller said his company has acquired 460,000 net acres in an unconventional horizontal play targeting the Lower Smackover Brown Dense formation.
“This happens to be almost the exact same number of acres we had when we announced the Fayetteville Shale play back in August 2004,” Mueller said. That news kicked off an industry rush to that gas play, Mueller said.
But having reviewed the results of more than 70 wells that penetrated the Brown Dense zone, “we currently have more data about [it] than we had on the Fayetteville Shale when it was announced,” he said.
Mueller said the Brown Dense is an oil reservoir in Northern Louisiana and Southern Arkansas, at 8,000-11,000 foot depths and below the Haynesville Shale which is also a gas play. Brown Dense is “extensive over a large area and ranges in thickness from 300 to 530 feet,” he said.
Southwestern plans its first Smackover/Brown Dense well in Columbia County Arkansas, before the end of September, with a second well later in the year in Claiborne Parish, Louisiana.
In addition, Goodrich Petroleum in early August said it had begun drilling the Buda Lime, beneath the Eagle Ford. The small company averaged a respectable 900 boe/d oil from those wells, against 800 boe/d from its 11 Eagle Ford wells so far.
Rob Turnham, Goodrich chief operating officer, also touted the Tuscaloosa Marine Shale, along the horizontal Mississippi-Louisiana border, where both Encana and Devon Energy have large positions and are drilling wells. Tuscaloosa “has a lot of similarities to the Eagle Ford–similar permeability and porosity” of the rocks, he said. Goodrich will begin drilling in early 2012.
He said nine older wells in the play have flowed oil but “none of them have been properly stimulated.” If the vertical wells were to be taken horizontally several thousand feet, fractured with current technology, and properly stimulated, “we’re very optimistic,” said Turnham.–Starr Spencer in Houston
Job loss: Obama to blame
By JOSHUA SEGALL
The question looming in everyone’s mind is, “Where are the jobs?” The answer to this question appears to be China. Last week, President Barack Obama’s jobs czar, CEO and Chairman of General Electric, Jeffrey Immelt, announced that he was launching a joint venture between GE and China. This partnership will send medical and aviation manufacturing jobs to China, rather than keep them here in the United States. This further adds to the poor choices Obama and his administration have made when “attempting” to reduce the unemployment rate.
When Obama took office in 2008, he ran on the idea of change. With an economy in the slums and a global recession on the brink, Obama was voted in to transform the way the United States operates. Shortly after he was elected, he went on the record to state that “we need to act with the urgency this moment demands to save or create at least 2.5 million jobs so that the nearly 2 million Americans who’ve lost them know that they have a future.” At the time the unemployment rate was at 5.8 percent.
Now we are well into 2011, and the unemployment rate is 9.1 percent. The economy is still failing and jobs haven’t been created. Many people immediately turn the blame over to President George W. Bush. The truth is that the unemployment rate only rose from 4.7 percent in 2001 to 5.8 percent in 2008. That’s a total of only 1.1 percent. Obama is not even a full three quarters of the way into his first term, yet the unemployment rate has gone up 3.3 percent.
The unemployment rate only accounts for people who have actively sought work within a prior four-week period. People who are unemployed but do not actively seek employment are known as discouraged workers. This group of people, believed to be more than one million, do not factor into the unemployment rate.
To further add to our problems, Obama does not have a solution. In 2009, as part of his American Reinvestment and Recovery Act, he announced his new energy team and boasted about “shovel-ready projects all across the country.” He repeatedly made mention of the term “shovel-ready” and claimed to have met with governors that all had projects that were ready to break ground. In 2011, when asked about these “shovel-ready” jobs, Obama laughed and said “shovel-ready was not as shovel-ready as we expected.”
One of the biggest issues with job creation today is the regulations imposed on employers. Since the Obama administration has taken office, employers now have to be compliant with a number of different regulations that include the new healthcare laws and newer Environmental Protection Agency restrictions. Everyone from the family farmer to the small business to the large corporation is being hindered by these regulations. As a result, companies are fearful of hiring because of the uncertain future and the impact on their businesses.
The best thing that Obama and his administration could do today is listen to the companies that do the hiring. There are a number of plans that have been introduced by members of Congress, such as Sen. Ron Johnson (R-Wisc.) who presented a bill declaring a moratorium on major regulations until unemployment drops below 7.7 percent.
The only way to get the job market growing again is to encourage businesses to hire. Offering incentives to businesses is key to promoting job growth. While the president might think he offered hiring incentives, American companies are proving him wrong. It is time for Obama to honor the promises he made and get more Americans back to work.
— Joshua Segall is a management information systems senior. He can be reached at letters@wildcat.arizona.edu.
Obama: Regulations Are Mere Rumors
“Don’t believe everything you hear.” Many rumors “are unfounded.” That’s what Barack Obama had the audacity to tell farmers on his recent tour in the Midwest after they complained about federal regulations.
The president’s attempts to buffalo farmers with false assurances come in a record year of federal regulations. “In the first six months of 2011, some 15 major regulations were issued, with annual costs exceeding $5.8 billion, and one-time implementation costs approaching $6.5 billion.” These figures are stated in an extensive report on federal red tape assembled by the Heritage Foundation.
The administration announced Aug. 23 it would soon release plans for trimming hundreds of what Obama called “dumb” rules. Obama’s Regulatory Czar is Cass Sunstein, an academic who believes in libertarian paternalism and whose adoration for FDR knows no bounds. The new regulatory backtrack was said to save $10 billion over 10 years. But they don’t include some of the most objectionable regs, such as rules to reduce carbon emissions and requirements supposedly to protect the public from financial and health abuses. The Chamber of Commerce praised the regulatory review, but said it didn’t go far enough.
The Obama administration “imposed 76 new major regulations from January 2009 to mid FY 2011, with annual costs of $38 billion,” the Heritage analysis said. “This flood of red tape will undoubtedly persist, as hundreds of new regulations stemming from the monstrous Dodd-Frank financial regulation law, from Obamacare, and from the EPA’s global warming crusade advance though the regulatory pipeline.” This all “further weakens an anemic economy and job creation.”
Federal regulations are not only disrupting business, they are entering Americans’ lives, including how we heat our homes, light our rooms, what food we buy, how we cook it, the mattresses we sleep on, the toys our children play with, etc. Regulatory costs for businesses are passed on to consumers in such items as toilets, showerheads, cars, washing machines and dryers, ovens and refrigerators, TV sets, even bicycles.
No official accounting of total regulatory costs exists, the Heritage study said. Estimates vary. Unlike accounting of tax revenues, the study says “an oft-quoted estimate of $1.75 trillion annually is about twice the amount of individual income taxes collected last year.”
The cost burden imposed by new regulations can be tracked, however, the Heritage analysis said, and “it is growing substantially.” Fiscal 2010 saw record increases, and they have risen in 2011. From the start of the Obama reign to mid-FY 2011, regulators have stuck the American citizenry with $38 billion in new costs, “more than any comparable period on record.”
Added costs include $1.8 billion a year for compliance and a one time implementation cost of $5.2 billion from new emission limits on industrial and commercial boilers and incinerators. The EPA said it would postpone the effective date pending its reconsideration. But the rules are still on the books, the Heritage study said. And they will be, pending judicial review or EPA reconsideration. Until then, business is constrained from “expansion, developing new products or making efficiency improvements.”
Included also are five sets of complicated regulations put forward by the Securities and Exchange Commission (SEC) to control financial institutions. The SEC calculated the cost of “outside” professional services that will be required to comply with three of the rules, but didn’t include the cost of 317,962 hours of “internal work” compliance which the regulation requires.
When ObamaCare became law, some Republicans charged that the IRS would have to hire 16,500 more agents to enforce the law—that is, collect the fines from those who refused to buy health insurance. But a ruffled Senate Majority Leader Harry Reid (D-NV) said adamantly it would only take 12,000 more employees. What a relief!
Among the many regulations, fuel economy and emission standards are included for cars and light trucks at an annual cost of $10.8 billion. Add to this $1.2 billion cost for constraints on “short sales” of securities, plus a tsunami of other Dodd-Frank regs still to come out.
Regulations also swell the government regulatory workforce, which was estimated to rise to 281,832 in 2011. The George Washington University’s Regulatory Studies Center keeps tabs on such matters.
One set of regulations of which the administration must be very proud is special accommodations for foreign workers who are hired as goat and sheep herders in the U.S. The regulations assure their living quarters are government approved and comfy. The rules for herders, required by the U.S. Labor Department, apply to sleeping quarters, food storage, lighting, laundry, even cell phones.
When Obama was on his Midwest town hall tour earlier this month, a corn and soybean farmer told the president that nature itself offers plenty of challenges. “Please don’t challenge us with more rules and regulations from Washington. We would prefer to start our day in a tractor cab or combine cab rather than filling out forms and permits to do what we’d like to do.”
White House bluster hides truth
by STEVE HUNTLEY
That’s a mighty wind blowing from the east. No, I’m not talking about Hurricane Irene. It’s the blustery gusts stirred up long before Irene by the constant whining from the Obama White House: Everything but the administration’s own policies are responsible for the faltering economy.
Irene is only the latest of the “head winds” White House officials blame for feeble economic growth and persistent high unemployment. There was the earthquake/tsunami in Japan, the fiscal crisis in Greece, the civil war in Libya on top of Arab Spring uprisings in other Arab countries and, of course, Republicans refusing to go along with President Barack Obama’s spending binge, er, “investments.” One adviser even found head winds from the East Coast earthquake, though its most notable damage appeared to be cracks in the foundation of the Washington Monument.
No doubt these events did create drag for the economy. But Democrats never cut that kind of slack for President George W. Bush. They constantly talk about him inheriting a surplus from the Clinton years but ignore that he also inherited a deteriorating economy that produced a recession in March of 2011 just weeks after he was sworn in.
Liberals ignore the economic devastation of the Sept. 11, 2001, terror attacks in New York and Washington. Air traffic was grounded for days, commerce came practically to a halt. But none of that was allowed to intrude into the left’s narrative of Bush squandering the surplus.
Hurricane Katrina was a convenient cudgel to pound Bush over the failure of government to respond effectively to the disaster, though it was the Democratic-run governments of New Orleans and Louisiana, the first responders, that were the most guilty. Here again the Democratic narrative leaves out the economic consequences of Katrina.
The point is that any president has to deal with “head winds” to the economy from unexpected and uncontrollable events domestic and foreign. What’s remarkable about this presidency is the never-ending whining about them.
This finger-pointing is just passing the buck to avoid responsibility for policies that have failed to revive the economy and, worse, served to prolong the economic suffering.
There’s the nearly trillion-dollar stimulus that failed its goal of keeping unemployment from breaching 8 percent. ObamaCare and the new financial regulatory law have bureaucrats working overtime writing new regulations. That’s frozen investment by businesses large and small worried about the yet-to-be-determined costs of the new rules.
Obama and his advisers never flinch from anti-business rhetoric, further undermining investment. They rail about millionaires and billionaires but their tax proposals would hit small businesses earning far less than a million dollars.
Democrats sneer at the Texas job growth story by pointing out that a significant part of it is based in the oil and gas industry, revealing left-wing job-killing hostility to developing traditional energy resources. A study by the business analysis firm IHS Global Insight asserts increased offshore energy production could produce nearly 230,000 jobs, add $44 billion to the economy and provide nearly $12 billion in tax and royalty revenues to state and federal governments.
But documents released by Sen. David Vitter (R-La.) show that the administration’s campaign against deepwater drilling in the Gulf of Mexico caused 10 oil rigs to leave for better opportunities in waters off Egypt, Congo and other places — including Brazil where, ironically, Obama has promoted the ocean exploration he frustrates at home.
Meanwhile the administration pursues alternative energy jobs, though the New York Times reported this month that “federal and state efforts to stimulate creation of green jobs have largely failed.”
All the finger pointing, whining and passing the buck can’t hide the failure of Obamanomics.
Push for permits in Gulf of Mexico
By Sheila McNulty in Houston
Sixty per cent of rigs contracted in the Gulf of Mexico are not working almost a year and a half after the Macondo disaster.
Industry participants are meeting on Tuesday with regulators to speed up permitting in the world’s most productive deepwater and oldest shallow-water basin, which was temporarily halted after the April 2010 rig explosion but has been slowly ramping up.
“We have the will to drill,’’ said Jim Noe, executive director of the Shallow Water Energy Coalition of companies drilling in the gulf’s shallow waters. “We just don’t have the permits to drill.”
Of 115 rigs in the gulf, 51 have no contracts, said Cinnamon Odell, senior rig market reporter at ODS-Petrodata, which provides data on the energy sector.
Of the 64 with contracts, she said, only 48, or 41.5 per cent of the fleet, are working.
That is down from the 74 contracted rigs in March 2010 – the month before Macondo. Sixty-five of those rigs – or 56.4 per cent – were working at that time.
Companies have complained that slow and unpredictable permitting costs them millions of dollars and has led some to pull rigs from the gulf.
Analysts said BP has for months been paying $2.4m per day for five rigs on standby.
BP has had a difficult time getting access to permits
The UK company has had a particularly difficult time getting access since it was in charge of the Macondo well that exploded.
In reporting its second-quarter results, BP said it had one rig back at work but added: “In the third quarter, we expect costs to continue to be impacted by rig standby costs.”
Bill Townsley, Royal Dutch Shell’s deepwater programme delivery manager, said it had seven rigs running, up from five when Macondo hit.
But the issue is having permits to drill new wells when a job ends, which is every two to five months.
“Right now, we’re receiving permits just in time,” Mr Townsley said. “We are working to get permits ahead of time. The Gulf of Mexico is one of our major heartlands.”
Shell would like to have 11 rigs in the gulf in 2013.
Analysts said at least nine rigs have left the gulf since the accident – six this year with two leaving this month.
“Once they leave, they typically leave on a long-term contract,” said Jim Dillavou, of Deloitte, the consultancy. He noted that several rigs destined for the gulf are going elsewhere.
Melissa Schwartz, spokeswoman for the Bureau of Ocean Energy Management, Regulation and Enforcement, said: “Personnel are working overtime to process pending permits.”
Since the moratorium ended, she said, regulators had approved 68 new shallow water permits, 112 permits for 34 unique deepwater wells requiring sub-sea containment and 45 permits for additional activities, including water injection.
“There are more rigs on contract today than there was a year ago,” she added.
But Mr Noe, also senior vice-president of Hercules Offshore, the gulf’s largest shallow water drilling company, said there was a moratorium on drilling in the deepwater gulf a year ago, so the comparison was meaningless.
“We have 18 of our 25 rigs working today but that may not last long,” he said. “We have 10 or 11 committed jobs for the rigs but we don’t have permits for the work yet. Without the permits, these wells won’t be drilled.”
Continents of the World
Mb50's "Liquid Mud" Rant 