Drilling

BP reports that a sequence of failures from a number of different participants resulted in the tragic Macondo blowout that killed 11 people in the US Gulf of Mexico earlier this year. In addition to human error, the report cites “a complex and interlinked series of mechanical failures, human judgments, engineering design, operational implementation and team interfaces.”

The report is compiled from four months of intensive investigation by BP’s Head of Safety and Operations, Mark Bly. In addition, the investigation was carried out independently by a team of 50 technical specialists drawn from within BP and other portions of the industry.

The report states that cement and shoe track barriers failed to contain hydrocarbons within the reservoir (per design) allowing gas and liquids to flow up the production casing; it also states that the negative pressure test was incorrectly accepted by both BP and Transocean, even though well integrity had not been determined; the Transocean rig crew is deemed to have overlooked the inflow of hydrocarbons in the well for a period of more than 40 minutes, by which time the hydrocarbons had entered the riser and were flowing to surface; the well-flow was routed to a separator at the rig surface causing gas to be vented directly to the rig floor rather than diverted overboard; the flow of gas into the engine rooms caused the gas to ignite; finally, even after the resulting explosion disabled the crew-operated controls, the rig’s BOP failed to operate due to the malfunction of critical components.

BP’s outgoing executive, Tony Hayward stated, “To put it simply, there was a bad cement job and a failure of the shoe track barrier at the bottom of the well, which let hydrocarbons from the reservoir into the production casing. The negative pressure test was accepted when it should not have been, there were failures in well control procedures and in the blow-out preventer; and the rig’s fire and gas system did not prevent ignition.”

Contrary to earlier assumptions, the reports denies that well design was an unlikely factor in the blowout. To view an expanded version of this report and accompanying comments visit:

http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7064893

Although this post may seem a bit late, I am just returning from Norway with a few days of vacation mixed in. Last week’s conference in Stavanger boasted near 20,000 attendees and a wide array of both operating and technology companies displaying their latest wares for offshore development in the North Sea.

In spite of recent fallout in the US, European operations are moving swiftly ahead. In addition, the conference provided a fair platform to a number of companies (many in the oil and gas industry) that are developing sustainable technologies in wind and wave energy. The message was clear, the future is here. It was a nice escape to see an industry in bloom surrounded by a media industry that is informed and supportive.

For those who were not able to attend last week’s conference, ONS has provided a number of links to presentations and slide shows from the conference:

http://www.ons.no/index.cfm?event=doLink&famid=129516

Energy Point Research has released its Q3 customer satisfaction findings. While drilling contractors continue play a major role in today’s complex well environment, related service companies also contribute to the individual success of a well and help to define ultimate profitability for the operating company.

Energy Point’s independent uncovers several interesting points along the lines of five separate offerings including drilling fluids, fishing, cementing, directional drilling, and measurement-while-drilling (MWD). Overall, the survey shows that most of these services are regarded highly by their customers.

While the results for “drilling-related services” are mostly positive, the survey does show some disparity among its very components.

At the bottom of the group are directional drilling and MWD. The recent survey shows recent rapid growth in these two sectors due to the increased need for greater productivity and the ability to pinpoint smaller, commercially viable reservoirs. Primarily the unconventional resources, especially in the US have driven these needs and the rapid growth in both directional drilling and MWD services has had a negative effect on service quality.

Energy Point also concludes that directional drilling and MWD services, because they are drillstring-related rely too heavily on third-parties and external factors such as drilling contractors, rigs, and bottom-hole assemblies (BHAs). For these services to achieve optimal performance, a number of inputs must properly align. Although, it’s not all bad news as suppliers continue to enhance their operations and integrate their products with third-party offerings to improve field performance.

The highest ratings from Energy Point’s survey include suppliers with limited exposure to directional drilling and MWD. M-I SWACO—a first-rated company since 2006—is listed as one of the more dominant suppliers of drilling and completion fluids. Pressure pumping service company BJ Services rated second. The report adds that integrated players such as Schlumberger, Baker Hughes, and Weatherford face specific challenges as they rank near the average overall. In terms of the five segments studied, drilling fluids and fishing services scored the highest customer satisfaction ratings overall.

Energy Point’s report was conducted from a pool of around 12,000 customer evaluations of oilfield product and service suppliers. For more information on this and other reports, visit www.energypointresearch.com.

Elizabeth Ames Jones of the Texas Railroad Commission (RRC) passed a resolution condemning federal regulations in Texas State waters on August 10, 2010. The new resolution calls for the federal government to cease and desist mandates that the commission feels are beyond the fed’s scope. The general synopsis from the Austin, Texas RRC Conference is that the federal government is usurping RRC agency jurisdiction.

According to official documents, the RRC of Texas “opposes all proposals from the present administration and from Congress that may usurp the rights of the states to regulate and manage oil and natural gas exploration and production within their sovereign borders.”

The resolution was passed unanimously and specifically mentions three recent bills passed in the US House of Representatives (H.R. 5626, the Blow-out Prevention Act of 2010; H.R. 3534, the Consolidated Land, Energy, and Aquatic Resources (CLEAR) Act; and S. 3663, the Clean Energy Jobs and Oil Company Accountability Act of 2010). Provisions in these bills have been officially opposed by Texas RRC resolution.

The Texas Railroad Commission is one of the oldest energy regulatory agencies in the United States. In 1845, the Republic of Texas became the newest State entering the Union. As part of the negotiations, Texas maintained jurisdiction out to 3 leagues off its shore. The Tidelands case adjudicated this boundary in the 1940s and was finally resolved by Congress in 1953.

As justification for its resolution, the Texas RRC cites New York v. United States, 112 S. Ct. 2408 (1992) which states that Congress may not simply commandeer the legislative and regulatory processes of the States.

The resolution will be sent to Washington and delivered to the President, Vice President, and the majority and minority leaders of the US Senate and House of Representatives in addition to the governor of each state.

Commissioner Jones has been an opponent of Washington’s actions following the Macondo blow out in the Gulf of Mexico and insists that regulation of oil and gas production in Texas must be done by the state’s Railroad Commission, which has carried out the management of these resources for the past 100 years.

The Research Partnership to Secure Energy for America (RPSEA) recently announced its 2010 request for proposals for its Small Producer Program. The foundation plans to award US $3.2 million for oil and gas research and development projects.
RPSEA is now in its fourth year of releasing RFPs under its research and development program that was established by the Dept. of Energy pursuant to the Energy Policy Act of 2005. Other areas of research include Ultra-Deepwater, Unconventional Natural Gas, and other petroleum resources.
The projects selected under the current program will focus on unlocking hydrocarbon resources from mature fields with existing surface footprints. Innovations in enhanced oil recovery technology could impact domestic supply in most mature fields where up to two-thirds of original oil-in-place is often left behind.
For a complete description of the RFP process, due dates, and previously funded projects visit RPSEA’s Website at http://www.rpsea.org/req_proposals/

Oilfield Helping Hands (OHH), a Houston-based non-profit specializing in providing financial assistance to oilfield workers in crisis, has announced a benefit to be held in Fulshear, Texas, on September 24-25. The benefit will host a Sporting Clays Tournament and plans to donate the proceeds to The Deepwater Horizon Fund.

The special benefit has been organized to assist families affected by the Deepwater Horizon blowout in the Gulf of Mexico. Registration began as early as May 26 and OHH continues to offer sponsorship opportunities for the event. In addition to sponsorships, the organization is also accepting applications for volunteers and donations. To get more information on the event, or to sign up and view a map of the event’s location, visit one of the following websites:

www.deepwaterhorizonbenefit.org or www.oilfieldhelpinghands.org

A recent report published by MIT’s Energy Initiative  (MITEI) outlines the future of natural gas and it’s relation to energy security worldwide.

According to the report, unconventional shale gas deposits in the US and abroad will play a major role in developing the world’s low-carbon future. The 83 page report outlines and explores necessary steps to provide a competitive marketplace conditioned by a CO2 emissions price. It also emphasizes the growth of unconventional shale gas as a feedstock for future development claiming, “Natural gas will double its share of the energy market from 20% to 40% by 2050.”

The comprehensive report takes a broad view at the global natural gas and provides a special focus in the recent development of unconventional shale gas reserves. The report took two years to compile between 30 MIT faculty members. Aside from reserves and market price, the report also provides in depth views on geopolitical concerns, economics, national security, and the environment.

Due to the multiple end uses for conventional and unconventional gas resources, i.e. electric generation, industrial manufacturing, and heating, and its capacity to lower greenhouse gas emissions, MIT’s report shows that unconventional shale gas will maintain a vital role well into the future.

According to MITEI Director Ernest J. Moniz, “Much has been said about natural gas as a bridge to a low-carbon future, with little underlying analysis to back up this contention. The analysis in this study provides the confirmation — natural gas truly is a bridge to a low-carbon future.”

To download a pdf of the full report visit http://web.mit.edu/mitei/research/studies/naturalgas.html.

“If you like big oil then this is your bill,” said Congressman Pete Olsen, R-Texas in reference to the reworked regulatory bill currently underway in Washington. Although tongue-in-cheek, Brady’s statement was made on the recent move to raise liability limits from US $75 million to $1.5 billion — a move that would ultimately eliminate independent operators from competing with super majors in the US Gulf of Mexico (GoM).

Olsen was speaking along with fellow Congressman Kevin Brady, R-Texas at the IADC sponsored Town Hall Meeting on Wednesday, July 7, in Houston, Texas. Olsen authored legislation, co-sponsored by Brady, to end the current moratorium on offshore drilling.

Pride International CEO and IADC Chairman Louis Raspino opened the meeting, “The events following the Deepwater Horizon blowout have challenged our industry like we’ve never seen before,” he said. Raspino cited that uncertainty espoused by the Obama administration is forcing many operators to use their current capitalization to get out of the GoM. “This is not an item that can wait six months,” Raspino said.

Olsen described the current legislation as being driven by a job-killing agenda. “The oil and gas industry is caught in the cross hairs,” Olsen said. This is in spite of the fact that, according to Olsen, the majority of experts used by the Dept. of the Interior in the 30-day evaluation period prior to the moratorium claimed that shutting off activity in GoM would not make offshore drilling safer. Although Secretary Kenneth Salazar cited safety issues as the cause of the moratorium, Olsen added, “A blanket moratorium in the Gulf is the wrong decision.”

For the new regulatory bill, Olsen described his own initiative that would prevent pricing small independents out of Gulf activity with increased liability limits. His suggestion involves an amendment to consider risks as they apply to each individual rig, including parameters such as well depth, well pressure, and special considerations for the company’s safety record.

Congressmen Brady followed Olsen with a similar tone. “Being involved in the political process is no longer a choice; it’s a matter of survival for your industry,” Brady said. In addition, Brady attempted to provide perspective on the members of Congress who oppose offshore drilling. “Some of our colleagues don’t see energy workers; they see energy executives,” Brady said. He went on to suggest that each member of the audience take time to make face-to-face visits with their representatives. “Emails won’t work; letters aren’t as effective as making eye contact and explaining the true cost of this current moratorium,” Brady said.

Wednesday’s Town Hall Meeting was aligned with the Obama administration’s appeal to overturn US District Court Judge Martin Feldman’s June 22 ruling that the government lacked clear reasons for the six-month moratorium. Hornbeck Offshore filed its lawsuit on the grounds that the company would suffer severe economic consequences.

The Dept. of the Interior filed its brief late Tuesday in the US 5^th Circuit Court of Appeals challenging the judge’s decision.

Both Congressmen assured the crowd that a fight was at hand. “We’ll fight for you, but you will also have to fight for yourself.”

The Associated Press reported that 28 of 634 manned production platforms and three of 51 drilling rigs have been abandoned in the western Gulf of Mexico as a result of tropical storm Alex. According to The Bureau of Ocean Energy Management, Regulation, and Enforcement, the current evacuation has halted one-quarter of the oil production in the GoM and more than 9% of the regions natural gas production.

According to API, energy production from the GoM was 1.6 million b/d and 6.4 Bcf of gas as of March 2010. The closures are expected to interrupt production by a factor of 395,878 b/d (24.7% of US oil output in the Gulf).

Despite the shortage, oil prices edged to $77/bbl today, which will be its first quarterly drop since 2008. Crude price dropped 12 cents for August delivery to stay at $75.82, according to Reuters. Overall, oil prices have dropped approximately 10% since the end of March.

The API has reported that crude inventories fell 3.4 million bbl last week. Additional information from the Energy Information Administration shows that April’s US oil demand exceeded previous estimates by 45,000 b/d.

The Associated Press also stated that the ships working on the BP response would remain at sea. With the current stoppage in the western Gulf, prices may not drop for much longer.

The US Energy Information Administration (EIA) has issued its short term outlook with a special section on preliminary estimates of reductions in production resulting from a 6-month deepwater drilling moratorium announced by Secretary Salazar on May 27.

The report estimates an average reduction of about 26,000 b/d of oil in Q4 2010 and roughly 70,000 b/d of oil in 2011.

From a consumer standpoint, the EIA projects WTI crude oil spot prices to average US $79 per bbl this year and $83 per bbl in 2011, which are both down approximately $3 from May’s Outlook. Regular-grade motor gasoline retail prices are expected to average $2.79 per gal throughout the summer driving season (April 1 through September 30). This is an increase of only $0.35 from last summer and this current projection is down $0.15 from EIA projections last month.

So far, the short term looks relatively manageable. However, the EIA has also issued its 2010 Outlook for Hurricane-Related Production Outages in the Gulf of Mexico, which estimates a possible total shut-in of 26 million bbl of crude and 166 Bcf of natural gas for the season (June through November).

The EIA plans to update its reporting with the addition of new information. For a full view of its most recent outlook visit http://www.eia.doe.gov/emeu/steo/pub/