Slow return seen for deepwater Gulf activity
By Starr Spencer
June 3 - Oil services giant Halliburton expects deepwater drilling in
the Gulf of Mexico could take one to two years to return to even half of
its April 2010 level, following the six-month moratorium on deepwater
activity imposed last week by US regulators, a top company official said
June 2.
But shallow-water activity along the US Gulf Continental Shelf should
"come back in the coming weeks," Tim Probert, Halliburton's president of
Global Business Lines, said during a conference call hosted by
investment bank Credit Suisse to update the company's Gulf of Mexico
activities.
"We anticipate in a 12- to 24-month time frame, we'll get back to about
50% or so of pre-incident activity levels, and it will gradually
increase from there," Probert said, referring to the blowout of the
BP-operated Macondo well in April that triggered the moratorium.
Probert said Halliburton believes the deepwater permit approval
process could be "extended, possibly up to 90 days" after the moratorium
expires on November 30, and that would slow the ability of deepwater
rigs to return to work.
On May 27, the US Department of Interior extended for six months for
deepwater drilling what had earlier been a three-week temporary
moratorium on all new offshore wells and well permits. The ban is now
lifted for shallow-water activity in 500 feet of water and less, but
remains in effect until November 30 for all drilling in waters below 500
feet.
Halliburton in a US securities filing June 2 said it continues to devote
"significant resources" to assist BP in well control and drilling a
relief well intended to halt Macondo's oil leak into the Gulf.
The Gulf of Mexico accounted for 13% of Halliburton's North American
revenues in the first quarter, and 65% of the company's current Gulf
business is related to deepwater activities, the company said in the
filing.
During the conference call, Probert painted a picture of a deepwater
drilling and oil services industry thrown into uncertainty and scurrying
to maximize overseas or shallow-water opportunities for its equipment
that would otherwise be idled by the moratorium.
"It's obviously a fluid situation in...trying to understand exactly the
full scope of the Notice to Lessees (NTL)," which DOI issued May 30 that
outlined the moratorium rules, he said.
The Halliburton official said his company is "already making plans for
temporary relocations" of some Gulf of Mexico employees to the Eastern
Hemisphere, where they will work on new contracts in the second half of
this year. In addition, the oil services company is eyeing other parts
of North America and "the rest of the globe" to relocate deepwater Gulf
employees as drilling in that sector comes to a halt.
Halliburton has about 2,200 employees working in the Gulf of Mexico
region, said Probert.
Right now, Gulf operators are attempting to bring their deepwater wells
to a safe level, as specified by Interior in the NTL, before halting
activity altogether, said Probert. "That's typically being done at the
next planned casing point," he said.
The most recent weekly deepwater activity report issued June 1 by US
offshore oversight agency Minerals Management Service lists activities
on 32 wells in water depths greater than 1,000 feet. Deepest on the list
is a well at Shell's Tobago field in 9,627 feet of water.
Not all deepwater work is banned, however. DOI permits workovers,
waterfloods, natural gas injections, disposal wells and activities
needed to sustain reservoir pressure in producing fields.
Also, because E&P operators want to keep the pricey deepwater rigs they
have rented for US Gulf use busy, some are considering the potential to
drill leases they hold overseas during the moratorium, said Probert.
Some of the higher-end deepwater floating rigs are fetching rates of
$500,000/d or more.
And it is "potentially possible we may even see a Shelf well or two
drilled under the 500-foot barrier drilled with some [rigs] already in
place," said Probert.
According to ODS-Petrodata, one deepwater floater, the Ocean Saratoga
semisubmersible rig, is currently drilling in 430 feet of water and thus
is exempt from the moratorium's water-depth cutoff (ON 6/2).
But because shallow-water Shelf activities will continue, Probert said
he expects some deepwater equipment may be usable by that sector. For
example, Halliburton's two Gulf vessels will be able to be used in
Shelf-driven activity, he said.
In addition, Halliburton CFO Mark McCollum said the company is
"confident" it is "fully indemnified" regarding legal action against the
company through its liability insurance, cash on hand and credit lines.
"We currently have about $600 million of general liability insurance,"
subject to retention and other costs of about $7 million, McCollum said.
"We believe (that) indemnifies us for all potential claims and expenses,
whether...class action lawsuits for those who have death or bodily
injury claims, or consequential damages of environmental spill or
pollution."
Halliburton also has $3.2 billion in cash and marketable securities and
a revolving credit capacity of $1.2 billion, he said. All that "provides
significant financial flexibility to address whatever uncertainties
we're facing as we look forward to addressing this deepwater
moratorium," added the CFO.
Probert said Halliburton has force majeure provisions in its customer
contracts, but would not comment on whether the company would invoke
these. "We obviously want to work closely with all our customers...to
keep them and us active," he said.
Also June 2, small independent Bandon Oil and Gas received what appears
to be the first permit for a new shallow-water well since the federal
moratorium on new offshore wells was lifted last week, MMS records show.
Bandon's permit allows it drill a well at Vermilion block 196 in 115
feet of water, about 50 miles offshore west-central Louisiana, the
records show.
The company plans to use the shallow-water jackup rig Seahawk 2004,
belonging to Seahawk Drilling, which was spun off from deepwater driller
Pride International last year. Bandon will pay a rate of $36,000/d to
drill a well which will take about 45 days, according to Seahawk's most
recent fleet status report.
MMS records indicate Bandon applied for the permit in late April, 10
days before Interior's initial temporary moratorium began May 6.
Also June 2, Baker Hughes CEO Chad Deaton said at the Sanford Bernstein
26th Annual Strategic Decisions Conference, which was also webcast, that
the company has slowed its international recruiting, opting to move
offshore US Gulf workers to other areas while the moratorium is in
effect.
Baker Hughes is looking at a "slowdown" of some recruiting
internationally so it can rotate key offshore personnel to other areas,
said Deaton. "North America is busy," he said, adding the company has
been awarded work in Brazil and Kazakhstan, where it has begun rotating
personnel from the US Gulf.
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