Discoverer Deep Seas Transocean offshore drilling gulf of mexico

Getting back to work in the Gulf of Mexico… offshore drilling rebounds, finally.

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September 15, 2011

– By Russell Gold, Wall Street Journal

The Gulf of Mexico has staged a comeback as a source of oil for big energy companies, little more than a year after the Obama administration largely shut down drilling in the wake of the largest offshore oil spill in U.S. history.

The burst of activity comes as the government prepares to toughen its oversight of offshore drilling. On Wednesday, federal regulators probing the Deepwater Horizon disaster issued a report that recommended numerous changes.

Drilling has returned to near-normal levels in the Gulf. There are 23 rigs currently drilling wells in water deeper than 3,000 feet, according to federal statistics. That is the same number as two years ago.

The activity is being driven by a series of massive deep-water oil discoveries in the Gulf this year. They follow equally impressive finds in 2009 and early 2010, before the Deepwater Horizon disaster.

The new oil is being found in deeply buried rock that is highly pressurized and drilling must be carefully monitored to avoid disasters.

The report issued Wednesday by the Bureau of Ocean Energy Management, Regulation and Enforcement included recommendations for more surprise visits to drilling-rig engine rooms. It also called for beefed-up requirements about disclosure of incidents where drillers nearly lost control of a well but got it under control.

On Tuesday, federal regulators proposed giving offshore workers the right to stop operations if they believe an activity poses a danger.

On Wednesday, Andy Radford, a senior policy adviser with the American Petroleum Institute, a Washington, D.C.-based trade group, said that the recommendations are “in line with what industry and the government have already been doing” based on previous investigations.

A Bureau of Ocean Energy Management spokeswoman says the agency “has made a significant effort to educate operators on our rules, processes, and upcoming reorganization over the past year.”

It’s unclear how long the renewed love affair between the Gulf and Big Oil will last. The latest spate of finds is located very deep and many are close to the edge of U.S. territorial waters.

BHP Billiton PLC and Chevron Corp. last week announced separate oil discoveries. Both are over 100 miles out to sea in more than 4,000 feet of water. In all, they contain several billion barrels of oil, enough to keep the Gulf of Mexico a major producing region for years to come.

BP PLC, which contracted the Deepwater Horizon rig, is still actively, albeit quietly, pursuing the Gulf’s energy riches, despite facing massive civil litigation related to its exploded well. It has a large stake in the recent BHP Billiton discovery and has two rigs under contract working on developing its giant Atlantis deep-water find, according to federal filings. A BP spokesman declined to discuss its gulf activities, but said it has always owned up to its responsibilities for the spill.

The size of the discovered oil is good news for coastal communities fearful that the regulatory reaction to last year’s spill would scare away oil companies and reduce the number of high-paying offshore rig worker jobs.

“In talking to folks, there is a good sense of optimism, people are cautiously optimistic,” says Joey Durel, president of Lafayette Parish, La., a major hub of offshore support activity.

The exploration has been driven by high oil prices as well as improved technologies that allow geologists to remotely detect oil before drilling. “Every time you start to see something you think is played out, we get a new seismic image,” said Bobby Ryan, Chevron’s vice president for global exploration, “and we see opportunities in areas where we thought there weren’t any more.”

Recent announcements have bumped up the number of Gulf of Mexico oil fields with one billion barrels of recoverable oil to at least four fields. There have only been a dozen such “super giants” discovered in the U.S. over the past century.

The industry’s success is notable because of both the size of the finds and their complexity. Royal Dutch Shell PLC’s 2009 Appomattox discovery was the first time the industry tapped into a reservoir in the ancient Jurassic-era rocks. Anadarko Petroleum Corp.’s Lucius find in 2009 and Shell’s 2010 Cardomon Deep discovery both hit oil beneath large salt canopies, using new technologies that allow companies to look beneath the opaque salt with seismic-search tools.

Tadeusz Patzek, chairman of the Petroleum and Geosystems Engineering Department at at the University of Texas at Austin, said the industry has a growing appetite for risky exploration.

“I would bet that many of these structures may have been known since the 1980s,” he said. But they are so difficult to drill—often in more than a mile of water and require five-mile long wells into high pressure, high temperature rocks—that companies haven’t tried to tap into them until recently.

Much has changed since April 2010, when the Deepwater Horizon drilling rig caught fire and sank. The industry and government regulators say they have made strides to prevent a similar accident. Entirely new deep-water containment systems meant to stop out-of-control wells spewing oil on the seafloor have been built.

In 2010, companies produced about 1.54 million barrels of oil a day from the Gulf, according to the Bureau of Ocean Energy Management.

A moratorium on deep-water drilling put in place in May 2010 and officially lifted in October hurt production. The U.S. will produce 1.43 million barrels of oil a day from the Gulf’s federal waters in 2011, according to projections from the Energy Information Administration. That’s 13.5% less than the 1.65 million barrels a day that the agency expected to produce this year in an estimate calculated just before the Deepwater spill.

Phil Weiss, an analyst for Argus Research, projects that the finds by Chevron and Billiton, as well as a recently disclosed one by Exxon Mobil Corp., could each add between 100,000 and 200,000 barrels of oil a day to production.

Marvin Odum, head of Royal Dutch Shell’s U.S. operations, said his company had all of its drilling rigs active again for the first time since before the Deepwater Horizon incident.

“The clarity around the rules that exist now is good and the fact that permits are moving through the system…should be a pretty clear signal that the system is working and is getting more efficient,” Mr. Odum said in an interview.

But some environmentalists worry the industry and government have moved too quickly to resume normal levels of activity in the deep water.

“We’re perhaps getting a bit ahead of ourselves,” says Peter Lehner, executive director of the Natural Resources Defense Council. “We have made some, but not adequate, progress.”

Daniel Gilbert contributed

to this article.

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