Test On, Test Off, Test On

Jim Brown
Printer Friendly Version

You know the joke, "you could line all the accountants in the world end to end but you would never reach a decision." In BP's case you can query all the scientists in the gulf and not reach a consensus on the potential for further well problems. The government told BP to halt the integrity test for 24 hours so they could ask more scientists.

The controversial well integrity test was started earlier this week or at least they prepared to start the test but the government through Coast Guard Admiral Thad Allen told BP to halt the test. The government wanted a 24-hour delay to consider the potential negative ramifications that the test could produce.

BP has installed a cap that is capable of halting all the oil flow from the leaking well. We saw that happen on Sunday night when the cap was initially installed and the oil flow was halted. The pressure gauge on the well read 2,500-2,800 PSI with all the valves closed and no oil flowing. That lasted for about an hours before the valves were opened again to release oil into the gulf.

Apparently the government and BP were afraid that the casing in the well bore could be cracked or faulty and capping the oil flow would produce enough backpressure that the oil would find a new route to the surface through the ocean floor. This would be the worst scenario since there would be no way of halting a flow through the rock and sand until the relief well was completed several weeks from now.

The drilling on the relief well was halted over the last 24 hours to allow BP to run some sonar tests on the seabed. It was really interesting because the tests were seen over the streaming video from the undersea robots. The actual sonar picture resembling a weather map with clouds and hot spots was streamed over the video link during part of the test.

Late Wednesday Admiral Allen gave BP permission to begin the integrity tests after scientists decided the sonar test showed there were no hydrocarbons escaping from the casing. BP immediately closed off the main valve to the well and opened a much smaller escape valve to produce a slightly higher well pressure. After monitoring the higher pressure for some time they plan on closing that valve as well to cap all oil flows from the well. If there are no leaks through the seabed the valves will remain closed. If the pressure in the well indicates there may be leaks they will immediately reopen the valves and continue capturing the oil using the four vessels currently stationed above the well.

The BP spokesman said the relief well was now less than 10 feet from the leaking Macondo casing and less than 150 feet from the bottom of the well. The second relief well has been halted to avoid the targeting scanner hunting for the Macondo casing to get a false reading from the second relief well.

BP has more or less updated the relief well plugging attempt to sometime in late July from their "official" mid August target date. Apparently the first relief well has been making such good progress that they could be ready to make an intercept in the coming week.

All of this good news should continue to improve sentiment for the energy sector. I expect a statement in the nest 48 hours that all the oil is either halted or being 100% captured thanks to the new sealing stack. That will move the oil spill into its final stages and almost make the completion of the relief well anticlimactic.

Jim Brown

This newsletter is only one of the newsletters produced by OilSlick each day. The investment newsletter is also produced daily and contains the current play recommendations in the energy sector. Stocks, options and futures are featured. If you are not receiving the "Play Newsletter" please visit the subscribe link below to register.

Subscribe to Energy Picks Newsletter