Gulf of Mexico activities start to pick up again

Oil and gas drilling and development in the US Gulf of Mexico took a one-two-three punch with the tragic Macondo accident, ensuing oil spill and deepwater drilling moratorium that followed.

As the MMS transformed into the BOEMRE and drilling and development rules and regulations underwent a major overhaul, deepwater development in the GOM screeched to a halt over the last year. But five new drilling permits have been awarded by BOEMRE and US GOM developments seem to be picking up.

Here's a run-down of recent US Gulf of Mexico developments:

February 28, 2011: Noble Energy earned the BOEMRE's first deepwater drilling permit in the US Gulf of Mexico for a bypass well in the Mississippi Canyon area offshore Louisiana.

March 14, 2011: BOEMRE issued the second deepwater drilling permit to BHP Billiton for a well on its Shenzi development in the Green Canyon area.

March 17, 2011: Petrobras wins final approval to use the US GOM's first-ever FPSO on its deepwater Cascade-Chinook fields.

March 18, 2011: ATP was granted the third deepwater drilling permit for a revised permit to drill a new well in the Mississippi Canyon area.

March 21, 2011: Shell wins the first approval for a deepwater exploration plan on the Auger field in the Garden Banks area.

March 22, 2011: ExxonMobil wins the fourth deepwater drilling permit for a well in Keathley Canyon.

March 24, 2011: Chevron was awarded the fifth deepwater drilling permit for exploration in the Keathley Canyon region of the US GOM.

Additionally, some deepwater projects have moved forward as of late, with contracts awarded and commitments made. A biggie for the GOM, Chevron sanctioned the ultra-deepwater development of Big Foot -- a $4 billion project. A number of contracts have already been awarded for this project.

Chevron also moved forward with the development of its ultra-deepwater Jack-St. Malo, awarding the detailed design for the development to Mustang Engineering and the subsea pipeline design contract to JP Kenny.

Industry Feedback

While encouraging, Offshore Marine Service Association (OMSA) has publicly called the Bureau of Ocean Energy Management, Regulation and Enforcement's announcements "misleading."

"There were 32 deepwater drilling operations already permitted when the President imposed his moratorium last year. Interior Secretary Salazar is merely allowing existing permit holders to resume their operations," said Jim Adams, president and CEO of OMSA. "This administration has yet to approve and permit a new deepwater exploration proposal submitted in the last 11 months."

US Interior Sec. Ken Salazar has stressed that more work needs to be done before oil and gas drilling in the deepwaters of the US Gulf of Mexico fully rebounds.


To that end, many groups are working to step up safety measuring in the US Gulf of Mexico. Recently, the American Petroleum Institute began the process of creating a Center for Offshore Safety to help operators and service providers improve safety, communication and teamwork.

“After extensive review and development, the oil and natural gas industry has approved the creation of the Center for Offshore Safety, which will promote the highest level of safety for offshore operations, through an effective program that addresses management practices, communication and teamwork, and which relies on independent, third-party auditing and verification,” said Jack Gerard, API president and CEO.

There are many reasons why drilling and activity in the US Gulf of Mexico has slowed, but the question really should be not why, but for how long.

Is the US GOM back?

Japanese earthquake, tsunamis and nuclear power disaster may change global markets

Last Friday's deadly earthquake in Japan, followed by tsunamis, has caused a nuclear power disaster in the country. In addition to the devastation caused by the natural disasters, multiple explosions and deteriorating safety at the Fukushima Daiichi nuclear power plant operated by Tokyo Electric Power Co. (TEPCO) has gained international attention.

For comprehensive coverage of the Japanese nuclear power disaster and efforts under way to resolve it, visit PennEnergy’s Japan Earthquake and Nuclear Emergency 2011  special section.

While TEPCO works to install a new power distribution line to the affected nuclear plant, a few "heroes" are working to cool the reactors with seawater. Radiation threats have mounted, and many are being treated for over-exposure. Thousands have been evacuated from nearby cities and towns, and the US has now started evacuating embassy officials and their families from Japan for their safety.

Many across the nation are without power, and myriad companies are trying to boost natural gas production to be able to supply LNG to Japan for power generation.

All the while, countries worldwide, including China, India, Germany, Sweden and South Korea, are stopping nuclear power construction projects and reevaluating nuclear power plants for safety, risk factors and emergency preparedness.

Some analysts are predicting a "death knell" for the nuclear power industry, and although premature, the industry will likely undergo a lengthy transformation in the wake of this disaster, similar to the deepwater oil and gas drilling industry after the Macondo accident.

Should power generation shift away from nuclear, an opportunity arises for coal, natural gas, oil and renewable power generation. Some market analysts foresee an increased price of natural gas due to increased demand caused by this crisis, and OPEC has begun discussions to perhaps increase oil supply.

Additionally, oil refiners and petrochemical companies across Japan are working feverishly to produce enough to fuel emergency efforts and aid workers.

Although the effect is sure to be felt, it is currently unclear to what extent the earthquake in Japan will ultimately affect markets across the globe.

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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.

Mexico licensing round may herald even more opportunities

Pemex has officially launched Mexico's first exploration licensing round in more than 70 years. With only three onshore blocks available, the lease sale is much smaller than originally anticipated, but a major step-change for the country.

Since the 1920s, oil and gas exploration and production in Mexico has been limited to the state-run firm Pemex -- by law. Recent legislation changes have been enacted to allow outside producers to develop waning oil and natural gas fields in the country.

With much of the country's income based on oil production, Mexico must increase production onshore and offshore to ensure enough is in the coffer. The dilemma is that Pemex and its employees lack the skills, experience and technology to redevelop their aging fields -- as well as deepwater prospects in the Gulf of Mexico.

Enter international firms that can teach Pemex how to properly maintain production, redevelop waning production and tap ultra-deepwater formations.

While the three onshore blocks offered in the first licensing round may not attract the biggest players, it certainly is a major shift and represents a blooming opportunity for firms looking to boost reserves.

Additionally, shale developments in Mexico may offer even more opportunities for production.

While Mexico is widely known to hold large amounts of oil and gas onshore and in the Gulf of Mexico, Pemex is currently drilling its first well into the liquids-rich Eagle Ford Shale. Reports that the well is testing dry gas likely interests companies eager to develop shale reserves via horizontal drilling and hydraulic fracturing.

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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.