Foreign Oil Woes Drive Trend toward Deepwater Drilling

June 16, 2006 — By Steve Quinn, Associated Press

ABOARD THE DISCOVERER DEEP SEAS — Nearly three football fields long, the ship appears to be sitting idle on the turquoise blue waters of the Gulf of Mexico, perhaps even abandoned.

Beneath the deck, there's no such tranquility. A 200-person crew of geologists, engineers and technicians work around the clock at dimly lit keyboards, controlling every move of an adjoining oil rig as it uses an 16 1/2-inch pipe to bore through the ocean floor to a depth of more than five miles.

The Chevron Corp. crew is developing a deepwater oil field 190 miles off the Louisiana coast that's projected to produce 100,000 barrels of oil a day by 2008 and 500 million barrels overall.

It's the kind of discovery once thought to be out of reach, but with improved technology and climbing global oil prices, companies are spending billions developing oil fields the Interior Department says will substantially boost Gulf production.

Deepwater exploration -- done in depths of 1,000 feet of water or greater -- is also volatile, as companies face increasing development costs, a battle with the federal government over royalty payments and continued rig shortages. And hurricanes Katrina and Rita illustrated a seasonal threat that curbed deepwater exploration last year in addition to damaging 113 rigs and temporarily shutting down 28 percent of the nation's refining capacity.

When Chevron begins producing oil from this reservoir called Tahiti, it will be among several new major oil and natural gas projects in the Gulf over the next two years.

Within a year, BP PLC expects to have two Gulf projects producing oil designed to generate 450,000 barrels of oil a day. Anadarko Petroleum Corp. will operate Independence Hub, also in the Gulf, slated to produce 1 billion cubic feet of natural gas a day.

Companies are also going global with deepwater production tapping the coastal shores of Nigeria, Angola and Brazil. Deepwater accounts for about 3.7 million barrels a day -- or slightly less than 5 percent -- of global production, according to estimates by energy consultant Wood Mackenzie.

"There are huge decisions ahead of us," said Paul Siegele, Chevron's vice president of deepwater production. "It's the challenge of exploring around the world as well as places like the Arctic and the middle of nowhere."

Deepwater drilling in the Gulf dates to 1979 when Shell Oil Co. began production, but development really didn't take off until the 1990s as technological advancements made it more feasible, according to Interior Department's Minerals Management Service.

By 2004, deepwater production accounted for 66.4 percent of Gulf production, a 10-year, 40-percentage point boost, according to the Energy Information Administration. And Minerals Management forecast that year that Gulf production would rise 36 percent through 2013 -- even as older wells dry up -- largely thanks to deepwater pursuits.

Even with the risk of hurricanes, companies say it's a safer investment than politically charged climates in Latin America and West Africa.

Chevron produced the biggest Gulf discovery last year, with a 34,189-foot well about 170 miles southeast of New Orleans and about 20 miles from the Deep Seas ship. Chevron, the largest leaseholder in the Gulf, has also drilled in the greatest water depths at 10,011 feet.

Chevron's focal point for now is drilling on the Deep Seas, a vessel owned by Houston-based Transocean Inc., and one of six deepwater ships operating in the Gulf.

Outnumbered almost five to one by the traditional rigs drilling in the Gulf, the ships are not your ordinary drilling machines.

The Deep Seas positions itself above the well site and sits virtually still, thanks to six 13 1/2-foot propeller thrusters beneath the hull.

The thrusters help the ship withstand 20-foot waves, 80 mile-an-hour winds, and currents that would prevent traditional rigs from operating. The amount of power used to keep the ship stationary and drilling would light 40,000 homes.

The ship is connected to the Gulf's floor by 4,300 feet of metal casing that surrounds the pipe and is fastened to the sea floor by a valve, which helps prevent accidents and contamination.

Crews on the ship work at computer screens and control panels to push the pipe and a drill bit into the ground about 80 feet per hour. An unmanned mini-submarine is used to collect sediment samples on the sea floor and monitors drilling progress.

Drilling starts by setting a 36-inch diameter steel casing about 300 feet into the seabed. Smaller casing gets connected until the well resembles an inverted extended telescope. It takes more than 1 million pounds of pipe to complete a well.

The entire process takes place in water pressure reaching 20,000 pounds per square inch and temperatures hitting 400 degrees.

"Drilling 3,000-foot land wells versus 28,000 feet in the Gulf of Mexico is like flying a Cessna versus flying the Space Shuttle," said Curt Newsome, Chevron's senior drilling superintendent. "You're drilling something that's five miles away, and all you have are indicators to look at. You can't see down there, but you have to figure out what's going on."

For now Chevron plans six wells, each taking about three to four months to complete. Once Chevron has finished drilling, it will link the wells to a production platform being built in Finland.

The project costs about $3.5 billion, including about $500,000 a day in crew and drilling-related costs. Significant delays from inclement weather or drilling mistake can double or triple the daily costs.

"There is enormous risk in the hunt, but the returns are huge," said Chevron's Siegele. "That's why it's such a high-stakes game."

Record profits, driven by soaring oil prices, drew the attention of federal lawmakers last month. The House approved a measure to correct an Interior Department mistake that suspended payments for drilling in federal waters from 1998 and 1999 leases. The measure bars oil companies from receiving new leases unless they renegotiate past contracts.

Companies also are struggling with a tight supply of rigs and an almost four-year waiting for drilling ships, caused by increased demand, longer drilling times, and last year's hurricane-related damage to 113 rigs. The backlog prompted Chevron to have Transocean build another ship, to be ready in three years.

Source: Associated Press