Corpus Christi, TX – Analysis: From Big Foot to Bluto, Gulf of Mexico set for record oil supply surge
CORPUS CHRISTI, Texas Sun Oct 27, 2013 9:10pm EDT By Kristen Hays and Terry Wade
(Reuters) – The Gulf of Mexico, stung by the worst offshore oil spill in U.S. history in 2010 and then overshadowed by the onshore fracking boom, is on the verge of its biggest supply surge ever, adding to the American oil renaissance.
Over the next three years, the Gulf is poised to deliver a slug of more than 700,000 barrels per day of new crude, reversing a decline in production and potentially rivaling shale hot spots like Texas’s Eagle Ford formation in terms of growth.
The revival began this summer, when Royal Dutch Shell‘s (RDSa.L) 100,000 barrels per day Olympus platform was towed out to sea 130 miles south of New Orleans – the first of seven new ultra-modern systems starting up through 2016. It weighs 120,000 tons, more than 200 Boeing 777 jumbo jets.
The Gulf Of Mexico’s growth will bolster the United States’ emerging role as the world’s top oil and gas producer, a trend led by advances in hydraulic fracturing and horizontal drilling that unlock hydrocarbons from tight rock reservoirs in places like North Dakota’s Bakken and the Permian of West Texas.
Rising domestic production and the start of natural gas exports may transform the economy and realign geopolitics as U.S. reliance on foreign oil declines.
The resurgence in the Gulf is occurring even though the U.S. government imposed stringent safety and environmental rules after BP Plc‘s (BP.L) Macondo spill. Foreign countries from Brazil to Angola have also aggressively courted Big Oil to invest in developing their offshore fields. And the shale boom has diverted billions of dollars in capital onshore.
The deepwater Gulf, considered the most technically challenging offshore oil patch, remains alluring even as other areas struggle. Brazil attracted only a single bid this month for its once-touted Libra field, yet global companies still compete fiercely for the right to drill in the Gulf.
“A barrel of discovered oil in the Gulf of Mexico is difficult to beat for value anywhere else, even with the increased costs of doing business,” said Jez Averty, senior vice president of North American exploration at Norway’s Statoil (STL.OL).
Huge finds over the last decade – in what engineers call “elephant fields” that can produce for 25 years or more – are lifting growth in a basin some companies once abandoned, fearing it was drying up or its resources were beyond reach.
“This is still one of the premier oil and gas regions in the world and that’s why we’ve never left,” said Steve Thurston, vice president of Chevron Corp‘s (CVX.N) North American exploration and production division.
Even after decades of production in the Gulf, government estimates have shown that 48 billion barrels could still be recovered.
The area of the Gulf of Mexico where most of the new infrastructure will start up is in an ancient geological trend in its deepest waters 200 miles or more from shore known as the Lower Tertiary, estimated to hold 15 billion barrels of crude.
Appraisals in the Gulf’s Lower Tertiary have shown fields that could have half a billion barrels or more of oil, like Exxon Mobil Corp’s (XOM.N) Hadrian, estimated to hold up to 700 million barrels, or Anadarko Petroleum Corp‘s (APC.N) Shenandoah, which tests this year showed could hold up to three times more than initial estimates of 300 million barrels.
The potential bounty of massive deposits that can produce for a quarter century or more is what keeps players coming even though a single well that bores tens of thousands of feet through thick salt and rock to strike oil – or a dry hole – can cost $130 million or more.
By contrast, an onshore well costs about $8 million to drill – but may only produce a trickle of oil for a few years.
Chevron’s Jack/St. Malo project, which will tie a platform to the ocean floor 7,000 feet below the surface and tap a reservoir 26,000 feet deep, costs $7.5 billion.
It may become the biggest such platform in the world after shipping out later this year, with the ability to double its initial 170,000 bpd capacity. It will be followed next year by Chevron’s second new platform, Big Foot, to be secured to the sea floor by 16 miles of interlocking metal strands, or tendons.
In addition to projects by Anadarko Petroleum Corp (APC.N) and Williams Cos (WMB.N), private equity firm Blackstone Energy Partners will join the game. In 2015, Blackstone’s partner LLOG Exploration aims to start up Delta House – named for the boisterous fraternity in the film “Animal House” – less than 10 miles from BP’s plugged Macondo well.
Delta House will pump oil from the Marmalard and Bluto fields, namesakes of characters in the movie.
CLEAR AND STABLE RULES
Three years ago, some analysts thought the post-Macondo Gulf would have fewer players as stricter regulations and higher operating chilled activity, particularly for smaller companies.
Producers must now provide more detailed plans for offshore operations, submit to more frequent inspections and prove they have access to a rapid-response system to cap a gushing well. More than 4 million barrels of oil poured into the sea for 87 days after the Macondo well blowout killed 11 men.
High costs have given some companies pause. Even as BP began appraisal drilling at its self-described “giant” Tiber field this August, a month later it canceled contracts to build a second platform at its Mad Dog field. BP says it wants to move forward on Mad Dog 2 “with the right plan.”
Many others are pressing ahead full steam.
“It hasn’t scared us away,” John Hollowell, Shell’s top deepwater executive for Shell Upstream Americas said, noting deepwater is one-third of Shell’s growth platform, alongside natural gas and unconventional areas like onshore shales.
Hess Corp (HES.N) Chief Executive John Hess has told analysts the company, which operates one oil and gas platform in the Gulf with another on the way next year, also aims to increase its exploration in the deep waters.
“It’s a core area for us and now that Macondo is behind the industry, it is an area where we intend to start investing more, assuming we get the returns that we expect,” he said.
Companies say the Gulf is still the best deepwater basin to set up shop – with high profit margins, reasonable per-barrel costs and a predictable legal and regulatory system.
Operators can bring in their own workers rather than employ a certain number from the host country, as they do in Brazil – where just finding enough qualified workers is a hurdle.
Gulf operators also do not have to brace themselves for sudden changes in royalty requirements or possibly be blocked from bidding on drilling rights, as has happened in Angola.
To get in the Gulf of Mexico’s door, they put in the highest bid when the government leases drilling rights.
“All you have to do is show up at the lease sale,” Statoil’s Averty said.
(Editing by Eric Walsh)
Leslie Bertucci, co-owner of R&D Industries in Harvey, stands in front of the company’s compartmentalized storage tank, designed by her husband and co-owner Dan Ness.
Watching it leave, co-owner Leslie Bertucci raised her camera phone and snapped a couple of pictures of a cherished sight in the last few months: a paying customer.
For R&D, this was rain after a drought, a breath of oxygen flowing into a small oilfield supply company that has been gasping for air. The company, which rents modular storage containers and racks to offshore rigs, has managed to stay in business since the Deepwater Horizon exploded last year and radically reshaped deepwater drilling in the Gulf.
But it’s been grueling.
R&D survived a four-month deepwater drilling moratorium that ended in October. Since then, it has been struggling to navigate the re-made regulatory environment that has settled over the Gulf, leaving drilling activity far short of where it was when Deepwater Horizon blew, killing 11 workers.
Bertucci and her husband, Dan Ness, founded R&D 11 years ago in their house in Metairie to manufacture and rent specialized equipment to deepwater drillers. When the moratorium clanged down and the Gulf went quiet, Bertucci said revenue plunged 80 percent almost overnight.
The company survived, in part, by enforcing furious economies, Bertucci said.
The couple slashed their own salaries by 75 percent. Months later they eliminated them entirely, and then began shoveling personal savings into company operations.
Bertucci said they slashed every discretionary nickel, ended their practice of cookouts or gifts for customers, cut off all charitable contributions.
Remarkably, over the course of 18 months, R&D has held on to its small workforce of a dozen or so employees.
“We didn’t lay off anybody but ourselves,” she said.
‘Not a penny‘
Meanwhile, Bertucci learned that R&D didn’t qualify for compensation from a $20 billion fund that BP established shortly after the spill.
Although the company had contracts in hand, it received no compensation for lost revenue, or for the estimated $144,000 in equipment that went to the bottom of the Gulf with the Deepwater Horizon.
“We haven’t received a penny. Not a penny,” she said.
However, since the spring, business has inched back up, “but it’s excruciating how slow it is.”
“I didn’t think a year and a half ago I’d be excited to have the numbers I have today,” she said. “They’re not great. But they’re creeping back up slowly.”
Bertucci said she and Ness are back on the payroll, but business is still down more than a third of what it was before the oil spill. The day of the BP disaster, Bertucci said her company had equipment on 23 deepwater rigs; today they’re on 12.
If her projections work out, Bertucci expects that next summer the business will be where it was in June of 2010.
Depressed deepwater drilling
On the day BP’s rig blew, 33 deepwater rigs were operating in the Gulf.
Today there are about 34, but only about half are drilling, said Eric Smith, associate director of the Tulane University Energy Institute. The rest are awaiting permits.
Just last week, a joint report by the Coast Guard and the Bureau of Ocean Energy Management, Regulation and Enforcement found that BP, Halliburton, its drilling contractor and Transocean, owner of the Deepwater Horizon, took disastrous shortcuts that led to the blowout of the 18,000-foot Macondo well, killing 11 crew members and spilling nearly 5 million barrels of oil into the Gulf.
Since the relaxation of a moratorium after the spill, Gulf deepwater drillers have been operating in a new environment in which regulators have ordered increased oversight at every stage of oil and gas development, and invited more government agencies to consult and comment on drilling permit applications, Smith said.
The result is that permit applications are significantly backlogged and deepwater drilling remains depressed.
Pleading their cases
In the months since the spill, Bertucci has become a highly visible spokesperson for thousands of small secondary businesses that support — and are supported by — the multi-billion-dollar corporate behemoths in the oil and gas industry.
Bertucci has pleaded the case of small businesses in Washington and before the president’s National Oil Spill Commission in New Orleans. She is the subject of a short pro-business video by the Heritage Foundation and the Institute for Energy Research.
Her message is clear: although the blowout was a disaster, the moratorium was an overreaction, and the post-moratorium regulatory environment has tilted the balance of oversight versus production too far in favor of oversight.
During the slowdown, Bertucci and Ness began looking to other markets for business. In the last few months, they have sought an international technical certification for their tanks and racks so they can bid on deepwater jobs in other regions — especially Brazil, which appears to be the preeminent new deepwater market.
During the darkest days of the moratorium, Bertucci frequently said the company needed to keep a full workforce on hand for the day the moratorium was lifted, for on that day, she believed, R&D would be swept off its feet with customers stampeding back into the Gulf.
It hasn’t worked out that way at all.
“It turned out to be sort of a joke. A joke on us,” she said.
“It was a very cruel joke.”
Bruce Nolan can be reached at firstname.lastname@example.org or 504.826.3344.
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- USA: Chevron Strikes Oil in Deepwater Gulf of Mexico (mb50.wordpress.com)
- Getting back to work in the Gulf of Mexico… offshore drilling rebounds, finally. (gcaptain.com)
by Brett Clanton Posted on May 3, 2011 at 11:25 pm
The Chevron Genesis platform in the Gulf of Mexico (AP file photo/Mary Altaffer)
As the global offshore oil and gas industry meets in Houston this week, leaders say they are aware the reputation of their business is still bruised after the BP Gulf of Mexico oil spill and that motorists and politicians are fuming over $4 gasoline prices.
But they cautioned Washington against overreaching with new regulation and taxes, stressing the enormity of the challenge ahead in meeting the world’s surging energy needs.
“We cannot afford to have emotions control business and policy decisions,” Zuhair Hussain, vice president of Saudi Aramco’s drilling and workover unit, said during a panel discussion Tuesday at the 2011 Offshore Technology Conference.
With global energy demand expected to rise 40 percent by 2035, industry must be unencumbered to invest in finding more resources and developing new technology, said other panelists.
“You can’t be emotional about our business based on gas prices,” said Ali Moshiri, president of Chevron Corp.’s Africa and Latin America exploration and production company.
But Obama administration officials and oil company executives agreed that last year’s Macondo well blowout, which killed 11 workers and launched the nation’s worst oil spill, gave the industry a major image problem that could take years to quash.
Christopher Smith, U.S. deputy assistant energy secretary, noted that “blowout preventer” and “fracking” have become familiar words since the Deepwater Horizon disaster and amid controversy surrounding the fracturing process used to unlock natural gas. And that’s not a good thing, he said.
“These terms have entered into the public consciousness in a way that is going to be a net negative for industry and for government as we try to advance our goals,” Smith said.
But government, industry and environmentalists can work together on shared goals, such as advancing safe development of natural gas, he said.
Farouk Hussain Al Zanki, CEO of Kuwait Petroleum Corp., described a key lesson industry should take away from events of recent months, including the Gulf oil spill and Japan’s tsunami-triggered nuclear power plant disaster.
“Energy safety has moved to the forefront of industry challenges,” he said.
Dave Payne, Chevron’s vice president of drilling and completions, said the damage from the spill will be particularly long-lasting.
“A large percentage of the American public doesn’t understand our business,” he said. “We have not regained trust. It will take us years as an industry to get to where we need to be.”
He cautioned against an adversarial relationship between federal regulators and the offshore drilling industry. We “need a partnership with government,” he said. “We cannot work at loggerheads with the government and be successful.”
In an afternoon panel on the Gulf spill, speakers explored specific ways that the industry could learn from the blowout last year.
One big lesson: The data streaming from the seafloor to the drilling rig may not be displayed in the best way to help workers make quick decisions.
There’s a concern that amid a barrage of data, “someone working in real time has to tease out” what’s relevant “and make real consequential decisions on the fly,” Smith said.
The oil and gas industry can take cues from how information is presented to pilots in airplane cockpits and engineers in nuclear reactors, he said.
“Instead of relying on a person who is smart and quick and who has that intestinal fortitude to stop work on a $350 million rig,” Smith said, the airlines and nuclear industry use more checklists and automation.
Chevron’s Payne said industry stalwarts likely would resist safety checklists, but acknowledged they could go a long way to improving safety offshore.
“We need to start bringing procedures and checklists into our business,” he said. “We have an opportunity to work together as an industry and hold each other accountable.”
OTC attendance so far is up about 10 percent from last year, when 72,900 came to the four-day annual event, said Stephen Graham, OTC’s associate managing director.
Posted on May 2, 2011 at 1:28 pm by Jennifer Dlouhy
The federal government will expand its oversight of coastal drilling to include new regulation of oil field service firms, rig suppliers and other offshore contractors, a top Obama administration official said today.
Michael Bromwich, the head of the Bureau of Ocean Energy Management, Regulation and Enforcement, said a broad internal review of current laws concluded that the agency has “broad legal authority over all activities relating to offshore leases, whether it is engaged in by lessees, operators or contractors.”
“We can exercise such authority as we deem appropriate,” Bromwich told the Offshore Technology Conference in Houston.
Bromwich has floated the idea of expanding the ocean energy bureau’s reach beyond oil and gas companies before — but he had been unsure whether the move would require Congress to go along with the plan. According to the administration’s internal legal review, congressional action isn’t necessary; the agency already has the authority.
Historically, the federal offshore energy agency — previously known as the Minerals Management Service — has focused on leaseholders and operators. Other federal agencies, such as the Coast Guard, separately regulate entities such as drilling rigs and their owners. The benefit of the traditional system, Bromwich acknowledged, is that “it served to preserve clarity and the singular responsibility of the operator.”
But the drilling chief said that he was “convinced that we can fully preserve the principle of holding operators fully responsible — and in most cases solely responsible — without sacrificing the ability to pursue regulatory actions against contractors for serious violations of agency rules and regulations.”
Bromwich insisted the Obama administration would be “careful and measured in extending our regulatory authority to contractors.”
The presidential commission that investigated last year’s oil spill concluded that poor communication among contractors on the Deepwater Horizon rig contributed to the disaster.
Sean Grimsley, the panel’s deputy chief counsel, said that there was an absence of a sense of real responsibility at the Macondo well.
“One of the problems is that there are upwards of 20 plus contractors out here on one of these rigs,” Grimsley said. “What we saw here was that different contractors were making critical decisions, often times without communicating what they had learned to other decision makers.”
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by: Amanda Carey
Earlier this week, Michael Bromwich, Director of the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) lashed out at critics of his agency’s dealings with offshore drilling permits since the BP oil spill last year.
It was during a speech at the Center for Strategic and International Studies, and Bromwich was quite put out. “What was destructive, corrosive and not done in good faith was the sniping from certain public officials and industry trade associations,” he said.
“They claimed, and some continue to assert, that we had imposed a ‘de facto’ moratorium or created a ‘permitorium’ that was blocking the issuance of drilling permits,” Bromwich continued. “Not because the applications had failed to meet all the requirements, which was the fact, but supposedly because we had made politically motivated decisions not to issue them. That could not have been further from the truth, but it was repeated often enough that people who should have known better came to believe it.”
In mid-February, the first Gulf of Mexico drilling company declared bankruptcy. And according to the Texas-based Seahawk Drilling’s CEO Randy Stilley, the decision to file for Chapter 11 came after the company’s revenue stream had “been adversely affected by the dramatic slowdown in the issuing of shallow-water permits in the U.S. Gulf of Mexico following the Macondo well blowout.”
At the behest of a bipartisan group of lawmakers and fed-up industry officials, BOEMRE and the Department of Interior issued the first permit for deepwater drilling in the Gulf of Mexico on March 1. Since then, then agency has issued a handful of permits for drilling in the Gulf.
But one industry official isn’t taking Bromwich’s rebuke sitting down. In a statement, Jim Adams, President and CEO of Offshore Marine Service Association, slammed the director, saying “Bromwich should spend less time trying to silence public criticism and more time actually approving drilling permit.”
Adams then asserted that Bromwich should “get his story straight,” noting that Bromwich says permits are not being delayed, but also claims Congress has not provided the sufficient funds the department needs to approve the permits.
“The bureaucratic double-talk would be laughable if thousands of Gulf workers weren’t sitting idle, or if Americans weren’t paying $4 a gallon for gasoline,” said Adams. “There’s a way Bromwich could stop the criticism that seems to bother him so much. He could simply do his job.”