Deepwater Horizon, Down But Maybe Not Out

Jim Brown
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The Transocean Deepwater Horizon may have sunk but that may not be the end of the story. The rig sank because of the volume of water showered on it by the flotilla of fireboats. The comments from Transocean are calling it "submerged" instead of sunk.

Whether this rig rises again from Davy Jones locker will determine on whether it actually sunk and is resting on the bottom in 4,800 feet of water or by some miracle it retained enough buoyancy to remain just under the surface where the added weight would be neutral.

It could be a long time before we know the rig's fate. It was constructed in 2001 to a Reading & Bates Falcon design at the Hyundai Shipyard in South Korea. The maximum drilling depth was 30,000 feet in a maximum depth of 8,000 feet of water. It could operate in waves of up to 40 feet.

Transocean Deepwater Horizon

To build an identical rig today would cost upwards of $600 million. The majority of the physical loss to Transocean will be covered by insurance. The real loss to Transocean will be the loss of rental income over the next five years.

The rig was leased to BP at an escalating daily rate of $458,000 starting in March 2008 to $517,000 when the lease ended in September 2010. BP had already signed a new contract for another three years at $497,000 per day. This means Transocean is going to lose roughly $15 million per month in lease income for the next 3.5 years. Transocean does not have another rig in inventory to replace this one on lease.

The explosion was caused by a blowout. That is when the down hole pressures exceed the steps taken to prevent the hydrocarbons from surging up the well pipe and onto the rig floor. At the depths these rigs drill there are enormous pressures as the trapped oil and gas tries to escape the well. A BP representative said oil and gas temperatures and pressures at the bottom of this type of well can be 450 degrees and pressures up to 2,000 times atmospheric.

All wells have blowout mechanisms that are supposed to prevent these types of events from happening. Some pockets of high pressure are not expected and sometimes cannot be controlled. Evidently something in the system did not function as expected and now that 8,000 bpd of oil is leaking into the Gulf of Mexico. Reportedly there were 336,000 gallons of oil on the rig along with 700,000 gallons of diesel fuel.

BP has four planes for spreading 100,000 gallons of dispersants and 32 vessels under contract to conduct oil retrieval. The skimmer barges heading into the area can suck up more than 171,000 bpd from the surface.

Horizon Burning

BP said the well had already been cased off. They were in the process of cementing the final plug when the explosion occurred. "At this point we don't understand what happened." Shell announced on Thursday they had temporarily shutdown the 75,000 bpd Nakika pipeline, which runs underwater about a mile away from the Horizon rig. Since we really don't know where the rig is underwater Shell wanted to take precautions against the submerged rig collapsing on top of their pipeline.

A remote controlled unmanned submarine commonly used by the industry was deployed to determine exactly where the oil is leaking either from the rig or from the wellhead. BP said they were going to try and activate the subsea blowout preventer through the use of the remote submarine.

The biggest loss to Transocean and BP could come from the environmental impact. BP said the appraisal well they were completing was producing 8,000 barrels of oil per day plus an unspecified volume of natural gas.

If they can't activate the valves to close the well at the wellhead and the leak continues at 8,000 bpd then the environmental damage for Transocean is going to be huge. If it takes months to move another rig into position in order to cap the well the cost of dealing with the pollution is going to be a bigger worry than the missing $600 million rig and the $15 million a month in lost rentals. The GSF Development Driller III or the Discoverer Enterprise, both under contract to BP, could be used to recover the well if the remote subs can't close the valves.

The rig was drilling in the Mississippi Canyon Block 252 at a water depth of 4,993 feet and the well had been drilled to a depth of 18,000 feet. BP filed a permit with the MMS on April 16th to plug and temporarily abandon the well known as the Macondo prospect. BP was readying an announcement about the discovery and planned to develop it commercially.

Transocean said it would not know if they were going to refloat and try to salvage the rig until they can get enough information from the underwater vehicles regarding its condition. That would be a major effort if in fact the rig sank to the bottom in 4,993 feet of water. At $600 million it may be worth the effort if it can be salvaged.

Two families of missing employees have already filed wrongful death suits against Transocean and BP. Talk about ambulance chasing lawyers. That was really fast work.

Jim Brown

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