Deep Gulf drilling thrives 18 months after BP spill

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ALAMINOS CANYON BLOCK 857, GULF OF MEXICO (AP) — Two
hundred miles off the coast of Texas, ribbons of pipe are reaching for
oil and natural gas deeper below the ocean’s surface than ever before.
These
pipes, which run nearly two miles deep, are connected to a floating
Shell platform that is so remote they named it Perdido, which means
"lost" in Spanish. What attracted Shell to this location is a geologic
formation found throughout the Gulf of Mexico that may contain enough
oil to satisfy U.S. demand for two years.
While Perdido is
isolated, it isn’t alone. Across the Gulf, energy companies are probing
dozens of new deepwater fields thanks to high oil prices and
technological advances that finally make it possible to tap them.
The
newfound oil will not do much to lower global oil prices. But together
with increased production from onshore U.S. fields and slowing domestic
demand for gasoline, it could help reduce U.S. oil imports by more than
half over the next decade.
Eighteen months ago, such a flurry of
activity in the Gulf seemed unlikely. The Obama administration halted
drilling and stopped issuing new permits after the explosion of a BP
well killed 11 workers and caused the largest oil spill in U.S. history.
But
the drilling moratorium was eventually lifted and the Obama
administration issued the first new drilling permit in March. Now the
Gulf is humming again and oil executives describe it as the world’s best
place to drill.
"In the short term and the medium term, it’s
clearly the Gulf of Mexico," says Matthais Bichsel, a Royal Dutch Shell
PLC board member who is in charge of all of the company’s new projects
and technology.
By early 2012 there will be more rigs in the Gulf
designed to drill in its "deep water" — defined as 2,000 feet or deeper —
than before the spill.
In November, Perdido began pumping oil
from a field called Tobago; the well begins 9,627 feet below the surface
of the Gulf. No other well on the globe produces oil in deeper water
and that’s about as deep as the Gulf gets. For drillers, that means the
entire Gulf is now within reach.
"We are at the point where …
depth is not the primary issue anymore," says Marvin Odum, the head of
Royal Dutch Shell’s drilling unit in the Americas. "I do not worry that
there is something in the Gulf that we cannot develop … if we can find
it."
From a distance, Perdido looks like an erector set perched
on an aluminum can. This can, or "spar," is a 500-foot-tall steel
cylinder that sits mostly underwater, serving as a base for the
equipment and living quarters above. It is stuffed with iron ore to
lower its center of gravity, keeping the whole operation from bobbing in
the water like a cork. The spar is tethered to the sea floor 8,000 feet
below with ropes and chains.
Oil and natural gas are pumped to
Perdido from nearby wells drilled by an onboard rig and from faraway
wells drilled by satellite rigs. Water and other impurities are then
removed from the oil and gas, which gets sent hundreds of miles through
an undersea pipeline to terminals and refineries along the Gulf coast.
Perdido,
which pumps the equivalent of 60,000 barrels of oil and natural gas a
day, will eventually yield 100,000 barrels per day from 35 wells in a
30-mile radius, according to Shell. It will likely produce oil for
decades — in all, as much as 360 million barrels of oil and 750 billion
cubic feet of natural gas, according to Wood Mackenzie.
As global
oil demand climbs past 89 million barrels a day and traditional onshore
and shallow water fields are depleted, the deep waters of the Gulf and
off the coasts of South America, West Africa and Australia are playing
an increasingly important role.
In 2000, 1.5 million barrels of
oil per day were produced from deepwater fields around the globe, or 2
percent of global production. In 2011, that number grew to 5.5 million
barrels, or 6 percent of global production. By 2020, deepwater oil will
account for 9 percent, according to IHS CERA.
The Gulf is
attractive for many reasons. Its oil fields are enormous; it straddles
the world’s biggest consumer of oil; it’s in a politically stable part
of the world; and drillers can easily tap into a vast network of
pipelines and refineries. Also, despite industry complaints, the cost of
royalties, taxes and regulation in the U.S. are among the lowest in the
world.
"Everybody wants to be there," says Mohammad Rahman, the lead Gulf analyst for Wood Mackenzie.

By
early 2012, there will be 40 deepwater rigs in the Gulf, up from 37
before the BP spill, according to Cinnamon Odell of ODS-Petrodata. BP
received its first permit to drill in late October.
The Gulf
produces an average of 1.5 million barrels of oil per day, according to
Wood Mackenzie. That’s 27 percent of U.S. output and 8 percent of U.S.
demand.
Thanks to more accurate imaging technologies, drillers are
able to see under geologic formations that used to confound geologists.
In June, ExxonMobil Corp. said it found 700 million barrels of oil —
one of the biggest discoveries in the Gulf in last decade. In September,
Chevron and BP also announced major finds, thought to be in the
hundreds of millions of barrels of oil.
Many of the Gulf’s recent
discoveries are in a geologic formation known as the Lower Tertiary,
formed between 23 million and 65 million years ago. Perdido, which is
operated by Shell and owned jointly by Shell, Chevron and BP, is the
first to produce oil from this formation. Analysts say it could hold 15
billion barrels of oil.
As the BP disaster made clear, drilling in
deep water presents difficulties and dangers. Last month a Chevron well
in the deep waters off of Brazil ruptured and spilled 2,400 barrels of
oil into the Atlantic after Chevron underestimated the pressure of the
oil field it was tapping.
Perdido only recently reached its
monthly production target after a year of operation because of
difficulties getting oil and gas from the seabed to the platform. New
devices designed to separate oil and gas on the sea floor have not
performed as well as Shell hoped. It has taken months of adjustments
made by underwater robots and other equipment on the platform to fix the
problems.
Challenges like this have helped push the average cost
of producing oil in the deepwater Gulf to $60 a barrel, according to IHS
CERA, near the highest level ever. But with oil close to $100 a barrel,
the expense is well worth it.
After all 35 wells are drilled for
Perdido, its owners will likely have spent $6.2 billion on the project,
according to Wood Mackenzie. But along with the risks, the Gulf offers
great rewards: Perdido could ultimately generate $39 billion in revenue
and $16 billion in profits.
Jonathan Fahey can be reached at http://www.facebook.com/Fahey.Jonathan .
Copyright 2011 The Associated Press.

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