Deep Wells Equal Deep Profits

Jim Brown
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Deepwater wells cost a fortune to drill and produce but they can return a fortune in profits. Companies that are willing to roll the dice can be rewarded with big production or in the case of BP a monster loss.

Last week in the Gulf of Mexico 17 new wells were started in waters deeper than 1,000 feet. That puts into perspective the amount of activity currently underway in the gulf and why 35,000 workers put on their pants every morning dozens of feet above water. The lure of $75,000 a year for a base worker causes no shortage of applicants even though the news will be full of reports on the 11 deaths and seventeen injured workers on the BP rig.

That is the worst accident since 1987 when a helicopter crashed into a Forest Oil Corp platform killing 14 people.

Offshore drilling has always been high risk but drilling over 10,000 feet deep creates even more problems. Pressures and temperatures can be off the scale with temperatures over 450 degrees and pressures 2,000 times normal.

Exxon Mobil drilled a well in 2006 named Blackbeard to nearly 7 miles below the seafloor. They became alarmed over the startling increase in pressures and temperatures and abandoned the well rather than take a chance on trying to complete it. McMoran Exploration obtained Blackbeard in 2007 as part of a $1.1 billion acquisition of offshore assets from Newfield Exploration, an Exxon partner in the venture. McMoran opened the well and extended it another 3,000 feet. The chairman of McMoran said in January the risks of dealing with the extreme pressures may be worthwhile because those rocks have more oil and gas for every square yard of rock.

Back in 2007 Energy XXI and Nexen spent $75 million to regain control of a blownout well at the Cote de Mer field in Louisiana. An unexpected surge of gas in the 22,261 foot well blew through the blowout preventer and buried the rig floor under six feet of sand, rock and seashells. Nobody was injured in that explosion.

Oilfield-equipment makers like FMC Technologies are working to develop hardware that can withstand the pressures in wells over 30,000 feet deep. The blowout preventer on the BP well is part of a 450-ton valve tree that sits on the wellhead on the ocean floor. In researching the BP disaster I came across numerous occasions were blowout preventers did not live up to their name. The higher pressures from these deep wells is obviously more than some are able to handle.

BP's Thunderhorse well was delayed for nearly two years after several valve trees on the see floor failed under the intense pressures. BP was finally able to solve the technical problems and begin production.

Devon is in the midst of an asset sale program to divest itself of its high risk deepwater assets. They as have others in the past, decided that drilling on land may not have the monster rewards but it is a lot safer and a lot cheaper. Workers from the BP rig said the explosion came with no warning and shot a geyser of flame 500 feet into the air that had workers instantly jumping off the 75-100 ft rig floor to avoid the heat and flames while others were blown overboard by the blast.

BP is the largest producer in the gulf with 450,000 bpd. The 100 million barrel Mocondo field being completed by BP was only expected to produce 8,000 bpd and was only being completed because of the availability of a pipeline about a mile away. That pipeline was shutdown when the Horizon rig began to sink just in case it fell on the pipeline. Now that the rig is safely on the seafloor the pipeline has been reopened.

BP has been using supercomputers to analyze seismic data and they have been making some monster discoveries including the 2009 Tiber find, which could have 3 billion barrels. The Tiber was discovered using the Horizon rig, which is now under 4,900 feet of water.

BP is extremely active in the gulf and that is why they have been able to quickly more two more Horizon class drillships to the Horizon site in just over a week. The Development Driller III was expected to arrive today and the drillship Discoverer Enterprise is expected to be onsite on May 2nd. The Enterprise was pulled off the Thunderhorse project. Unofficially they are both expected to be simultaneously drilling separate relief wells. However, only one has been permitted to begin drilling. The rigs are on lease from Transocean at an average of $450,000 per day.

The relief wells will try to intersect the original well several thousand feet below the ocean floor and punch through the well casing and inject a super heavy liquid glue into the old well in order to stop the leak. This assumes the four robot subs currently trying to close the valves on the wellhead are unsuccessful.

BP is also liable for the massive environmental cleanup underway with a 39 by 48 mile oil slick getting bigger every day. This was a bad week for BP and the odds are very good it is going to be only the first of many.

Jim Brown

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