Drilling

The National Oceanic and Atmospheric Administration (NOAA), US Dept. of Commerce, will issue its US Winter outlook for 2010-2011 today, Thursday October 21 vis teleconference. The foundation’s Climate Prediction Center, a division of the National Weather Service, plans to release its national temperature and precipitation outlook for December 2010 through February 2011.

The outlook will be discussed during a media teleconference and will include a discussion on current climate patterns expected to influence weather throughout the season, such as La Nina. Visit www.NOAA.gov to see the original press release or to access the teleconference.

With the Gulf of Mexico moratorium in the rearview, the US oil and gas industry may soon be back to work in deepwater exploration. While the work is certain to continue, it will be a somewhat altered environment for offshore operators and drilling contractors. The Deepwater Horizon  incident will forever improve companies’ attention to detail when drilling in high risk deepwater acreage. “It’s clearly a significant change in the way we’re going to be doing business moving ahead,” said American Petroleum Institute President Jack Gerard in an interview with Bill Loveless of Platts Energy Week on its Sunday broadcast October 10.

Gerard added, “We’re working closely with regulators. We’re working closely with Chairman Riley and Chairman Graham on the Presidential Commission to look closely at our industry practices.” While the new regulations remain unclear, they are out. Added to Tuesday’s October 12 announcement that the Gulf of Mexico moratorium on deepwater exploration would lifted prior to its planned November 30 deadline, offshore operators will soon be reentering the region. Gerard reminded, “We’ve operated in the Gulf for 65 years and we’ve drilled 42,000 wells without an incident of this nature. But this does indeed change things and we’re looking closely internally at our industry through self reflection through review of best practices and through working with regulators to make sure it never happens again.”

It has been a bumpy ride for deepwater exploration since the massive spill took place in April. However, Gerard is certain that necessary steps are being taken to ensure that a similar event will no longer be possible. “Following the Gulf spill we moved very aggressively as an industry and organized the joint industry taskforce. We looked at 5 areas: equipment, best practices, well control, and spill cleanup. We got the best minds in the world together and we said ‘what else can we do better as an industry?’ How do we make sure we never again have another spill?” Gerard also explained some of the industry task force’s larger companies put together a major interest—committing to invest at least a billion dollars to situate the proper equipment and make it ready to go in the event of another tragic incident. “Their hope and expectation is to make the investment and then to never have to use this equipment,” Gerard said. As companies reenter the deepwater Gulf of Mexico in the US, the focus remains on safety. “It’s our number one priority. We’re recommitted to making sure this doesn’t happen again,” Gerard said.

In addition to safety, Gerard focused on job creation as a main factor in removing the recent moratorium. “One of the key drivers that we should not overlook, particularly in this current environment, is the job creation potential. The oil and natural gas industry today supports 9.2 million American jobs; we created 2 million jobs between 2004 and 2007. There’s potential to create hundreds of thousands more,” Gerard said. With the new DOI regulations and possible Oil Spill Legislation after the mid-term elections, companies will likely reenter the deepwater Gulf of Mexico with some caution. “It is important to have regulation. It is important to have the appropriate regulation,” Gerard said.

However, Gerard also said the moratorium that followed the Horizon incident was unnecessary. “We didn’t have to impose a moratorium and stop the economic activity to ensure safety. Those rigs were all inspected very quickly and passed inspection. It should allow us to continue. But we also believe there’s an appropriate role for the regulator,” Gerard said. New regulations are being released this week and Gerard, along with other industry watchers, expects the DOI to raise the bar for deepwater operations. “The key will be to make they don’t raise the bar so high that is discourages the very energy development we need to create good-paying American jobs and to create the energy that Americans’ need,” Gerard said.

Overall, Gerard is optimistic about the future of deepwater exploration in US waters. In closing his interview, Gerard commented on two important factors affecting the outcome of deepwater exploration: public opinion and politics. “If there’s anything that cuts across all party lines and socioeconomic strata, it’s energy. It should not be a partisan issue; it should be something we’re all focused on and we do it well,” Gerard said. Based on the industry’s ability to create jobs even in tough economic times, the public mindset is geared toward returning to work. In addition, demand and the public need for energy resources are in support of reentering deepwater areas to develop domestic resources.

As for Congress, Gerard’s message was clear, “We need a comprehensive energy policy in the US. We need to look at all forms, alternatives, oil and gas. So we hope they will turn to that as a major priority for the benefit of all of us particularly for job creation potential,” Gerard said. He added, “These are very, very important decisions—they are big decisions. And companies and enterprises have to calculate and figure out risk and if the bar is raised so high in the US that it discourages the development of the energy in US waters they will move—we don’t believe that is a good policy.”

It’s been one hell of a September. Was it Mark Twain who said, “Be careful what you wish for because you just might get it?” That’s been  my Summer in a nutshell. After arriving back at E&P in May after a short hiatus, I was immediately engulfed by Houston’s Offshore Technology Conference. The following month I flew to Budapest, Hungary, for IADC’s World Drilling Conference. While both of these conferences were fruitful and educational from an editorial standpoint, the overall themes were overshadowed by the growing oil spill in the US Gulf of Mexico. I returned from Budapest with a wealth of contacts and editorial possibilities managing to leap back into the fold rather quickly.

Now, I’ve often perused travel magazines wishing to visit faraway lands to experience different cultures and to witness uncommon sites. As of August 22, I boarded a plane to Stavenger, Norway for the bi-annual Offshore Northern Seas (ONS). This was a grand affair in a wonderful city with a weather report to die for, at least compared to Houston, Texas, at the time. While there, the Macondo blowout was still on people’s minds although the “tragic” consequence was waning. Remediation was well underway, and the world’s media were moving on to other news. In the North Sea, offshore activity continues to heat up. Companies are steaming ahead, and 2011 looks to be a bright industry, at least from North Sea/Barents Sea perspective.

Near the end of August, I returned to my home city of Houston. One week later I was again boarding a plane bound for destinations outside the US. Beginning September 12, Montreal, Quebec hosted the XXI World Energy Congress (WEC). Much to my dismay, the heat proposed in the oil and gas industry at ONS seemed to have dissipated. My normal reportage was somewhat hampered by convolutions from the renewable sector. Although “energy” was prominent theme to the conference’s title, little credence was paid to the future value of oil and natural gas. Using projections from 2007-2008 (stemming from $147/bbl oil), proponents of wind, solar, etc. espoused a skewed reality where renewable energy accounts for 50% of the world’s supply by 2050. (For a more detailed rant check out “Maslow’s Heirarchy Updated to Include Energy” from September 15, 2010.) While the time spent covering WEC was not in vain, it left little to be desired from the common consensus.

On September 16 I landed in Houston once again. I slept in on Friday. By Saturday, September 18, I was boarding yet another plane–this time bound for Florence, Italy, to attend the annual SPE conference there. After a somewhat jaded week in Montreal where little enthusiasm was shown for oil and gas, it was nice to back among the believers in Florence. The conference boasted a wealth new technology and a number of technical sessions unveiling both new challenges and solutions to former ones. Unconventional shale held a lion’s share of the spotlight as news from Halliburton’s first successful completion for Poland’s PGNiG came out just last month.

The future of International Shale remains unwritten, but all indications are that it will soon take off. While the US continues to grow its reserves, many countries are working to get into the market. It was a nice respite to mingle with a number oil and gas executives who share a positive outlook on the world’s future energy needs. While no one denies the increase of renewable energy’s share in the global mix over the next 40 years, many of us understand that natural resources like natural gas will continue to provide the backbone by which alternative forms of energy can be introduced both through manufacturing, infrastructure development, and technological innovation. Meeting energy demand does not occur in a vacuum. Divining a robust alternative energy future out of thin air without accounting for fossil fuel’s major contribution to this bridge is simply a pagan daydream. It will take everything to get there.

As for the travel, I can’t complain. While the tenure and tone of each individual trek varied drastically, I was glad to be a witness for each consecutive event. In the end, I’ve always “wished” that I could travel internationally; and I got exactly what I wished for.

Beginning on Sunday, September 12, 2010, the XXI World Energy Congress kicked off in Montreal, Quebec, with a group of oil-soaked Greenpeace demonstrators calling for Canada’s government to “Stop developing tar sands!”

Surprisingly, many of those in attendance are spouting similar slogans.

While the collection of presenters and nearly 5,000 attendees are represented by a number of oil and gas companies, the predominant population includes representatives from renewable energy firms, officials from such organizations as the United Nations and the World Bank, and a wide array of government delegates from a host of developing countries.

The main discussion for this international forum is on the new concept of “energy poverty.” Despite a nation’s ability to work towards developing infrastructure, raising its quality of life, and steering clear of widespread corruption and civil unrest, energy has now been lumped in with the already overburdened list of basic human rights. Those who don’t have it are now considered “poor” (approximately 2 billion worldwide).

Now, I’m not a fascist. However, I do believe that anything worth having is worth working for. With the concept of “energy poverty” comes several troubling, underlying assumptions. Namely, that regions like North America and Europe have had it too good for too long. Additionally, there exists a number of developing countries that maintain an ample amount of resources both natural (coal, oil, natural gas) and renewable (high quality wind and sunlight), but they lack the means of instituting infrastructure to support these industries. For anyone willing to connect the dots, the message is clear: wealthy nations need to make sacrifices to bring developing nations on par with the global energy scheme.

Let’s look at it a different way.

Sead Vilogoric, head of Energy Industries, UN Economic Commission for Europe, said, “Nearly all countries considered to be emerging markets subsidize oil production.” The inference is that the true value of oil is disguised by the vast amount of subsidies that currently exist globally. An attendee asked the question of Vilogoric, “Just to clarify, you’re saying that subsidies are actually creating new carbon markets?” Vilogoric replied, “Yes, tons of carbon.” [?]

Now, this exchange remained somewhat innocuous until Attila Toth, SunEdison, explained the advent of solar technology in a different session. Basically, Toth claimed that solar was a US $1.7 trillion market in 2007. SunEdison’s largest industrial scale plant is located Rovigo, Italy, which has a capacity of 72 MW with a footprint of 700 acres. He went on to say, “Solar accounts for less than 0.5% of the world’s energy mix.” In the end Toth said, “what is needed for solar to rapidly gain in market share is extensive short-term tax credits and access to infrastructure to level the playing field.” Now, what’s the difference?

On a free market basis, renewable forms of energy don’t stack up. In fact, if they promised to provide a multiple of trillion-dollar markets, wouldn’t they be taking market share on their own? I do not claim to be an economist nor am I an expert on policy. However, it is interesting to see the transparent nature in which renewable energy interests attack the historical placement of oil and natural gas.

Without doubt, countries lacking natural resources should be assisted in developing their renewable energy potential. Nevertheless, calling for an end to proven methods of helping developing countries develop much needed oil and gas (only to apply those same subsidies to renewable forms of energy) seems hypocritical.

The bottom line: if Greenpeace would have known that many of the WEC institutions they were protesting were also marching to the left, they could have spent the day on Franklin Street buying T-shirts with cool slogans.

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