Rigs Still Leaving the Gulf

Jim Brown
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Noble announced last week another deepwater rig was leaving the Gulf of Mexico for work elsewhere. The Noble Paul Romano had been idle since June 2010 and it now going to work for $325,000 per day for Gujarat State Petroleum in Egypt.

The long dry spell in the Gulf of Mexico has ended for some rigs but many more remain out of work and don't expect to begin drilling in the Gulf again until 2012 at the earliest.

The movement of rigs out of the Gulf has been slow and steady. Of the 30+ deepwater rigs in the Gulf when the Horizon exploded there are significantly less now. When the Horizon exploded BP had 5, Anadarko 4, Shell 4, Eni 2, Chevron 3, Murphy 1, BHP 2, Statoil 2 and 9 others to individual operators.

Many of those have moved out of the Gulf or are on standby while they wait for the BOEMRE to release permits.

This is a partial list of the rigs that have moved. With day rates in the range of $300,000 or more per day they could no longer afford to sit idly by and keep writing that monthly check to the rig owner.

Gulf Rigs Moved

BP is currently paying $2.4 million per day for five rigs. All are on standby and not working. Three rigs belong to Transocean. BP is leasing the Development Driller III at $403,000 a day and the Development Driller II at $580,000 a day. The Discoverer Enterprise is rented for $435,000 a day and is scheduled to be turned back to Transocean in August 2012. BP is paying $480,000 for the Ensco DS-3 and $474,000 for the Seadrill West Sirius rig.

Despite having five rigs under contract in the Gulf they have not filed any permit applications. What kind of idiot management is sitting on five rigs for $2.4 million a day and not filing for permits to drill?

The BOEMRE has said that BP applications will not be held to any higher standard for approval than any other company. In other words the BOEMRE has forgiven them for the Horizon disaster "IF" you believe that higher standard claim.

BP production in the Gulf has fallen from 390,000 bpd prior to the spill to 250,000 bpd today. Output could continue to decline by 30% a year until new wells are brought online. Most people don't realize that deepwater wells produce very fast and deplete very fast so new wells are a constant necessity to keep production level. BP was the largest producer in the Gulf and they have the most acreage leased. In the year before the Horizon disaster BP had more permits approved than anyone else.

According to the BOEMRE permits are taking between three days and four months to get a permit approved. I don't know of any approved in three days and quite a few have taken more than four months so I doubt the accuracy of that statement.

Since the moratorium was canceled Chevron has received three deepwater permits, BHP Billiton had four wells approved and Shell won five permits. There have been some singles awarded to other companies. The major drillers are not expecting a return to faster permit approvals until the end of 2012 or early 2013. (They could have just said "until after the election.")

In addition to BP's five rigs, Chevron now has nine in the Gulf, Apache has five and all are active, Shell has five active rigs. The rig utilization rate in the Gulf is now 54% compared to 78% worldwide.

An idle rig impacts over 1,000 workers. Some estimates are higher depending on how deep you go into the onshore support structure. Rigs have two complete shifts so a rig with 150-200 workers has twice that many with one half onshore at any given time. For an active rig there are dozens of support vessels moving men, equipment, supplies, food, etc back and forth from shore. There are the support companies like Schlumberger, National Oilwell, Weatherford, Cameron, etc, that operate as contractors to the rigs.

On shore there are supply houses, fabricators, helicopter services, regulators, inspectors, engineers, etc that work constantly to keep the rig operating.

Having these rigs on standby means they have a skeleton crew keeping the engines running and keeping the lights on. Everyone else is drawing unemployment.

Every rig that moved overseas takes good paying jobs with it and dumps hundreds of workers back into the unemployment lines here in the USA.

The Louisiana governor has claimed multiple times that the lack of permits has cost from 40,000 to 100,000 jobs in his state. In the 18 months since the Horizon disaster he claims the moratorium has cost his state more than a billion dollars in lost revenue and taxes.

It has also cost lost production, lost royalties for the Gulf States and the U.S. treasury. Every barrel of oil is taxed in multiple ways as well as the taxes on profits, wages and services paid for by the operators and leasing companies. This has been a very expensive mistake by the current administration.

Oil production in the Gulf is not expected to reach its prior levels until 2014 or longer. With many rigs not expecting to go back to work until late 2012 or beyond the financial impact to the U.S. economy is many times greater than the cost of the Horizon disaster. This will raise the price of gasoline in the USA for years to come. Granted it may only be a few cents to a nickel a gallon but we are talking billions of gallons. You and I are paying more for gasoline today because the BOEMRE won't approve permits. There is no valid reason for the delay. It is purely political.

Jim Brown

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