Gulf of Mexico drilling and development activities start to heat up

It’s been more than a year since the Deepwater Horizon accident and ensuing Macondo oil spill in the US Gulf of Mexico, but the region is just now starting to pick back up.

As the MMS transformed itself into the BOEMRE and instituted stricter deepwater drilling regulations, industry innovators got to work developing two new deepwater containment systems, which allow the industry to move forward with drilling a year later.

Since BOEMRE began issuing drilling permits, more than 10 have been granted to super-majors and independents focused on the safe exploration and development of the Gulf waters.

Today, US independent ATP Oil & Gas (NASDAQ:ATPG) revealed that the company had completed the drilling phase of the first well to get started post Macondo (MC 941 A-2) in the deepwaters of the Mississippi Canyon.

Additionally, other operators are drilling ahead a multiple deepwater locales in the US Gulf of Mexico.

Further strengthening the region's comeback, a number of major projects have been sanctioned in the US Gulf of Mexico recently.

Namely, Chevron (NYSE:CVX) sanctioned the $4 billion Big Foot development and moved forward with the ultra-deepwater Jack-St. Malo development, underscoring the super-major’s commitment to the Gulf of Mexico.

Furthermore, the company has begun appraisal drilling at its Buckskin oil field in the Keathley Canyon offshore Texas.

Announced this week, Hess Corp. (NYSE:HES) chose Williams Partners’ (NYSE:WPZ) spar technology for the development of its ultra-deepwater Tubular Bells oil and natural gas field. The hull for the Gulfstar FPS has already been awarded to Gulf Island Fabricators, and the topsides is will soon be awarded to an unnamed local fabricator, making the floating production facility the first spar to be built entirely in the US Gulf Coast Region.

On the Mexican side of the Gulf, Pemex reported this week a deepwater natural gas and condensate discovery with its Piklis-1 exploration well nearly 150 kilometers from the port of Coatzacoalcos. The deepest well to date for the state-run firm, Pilkis-1 was drilled by the Centenario semisub.

Tests on the Mexican deepwater well point to up to 600 billion cubic feet of natural gas reserves in the field.

Adding to activity in the Gulf, Pemex has also awarded a subsidiary of McDermott International (NYSE:MDR) the contract to build three new subsea pipelines in the Bay of Campeche.

Even drilling-averse President Obama has called for increased production from the waters offshore the US, including the Gulf of Mexico, Chukchi Sea and Mid-Atlantic, which should help to further increase drilling and development in the nation.

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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.

Obama shifts focus to oil firms to deflect attention from his 'failed energy policy' - API's Jack Gerard

Coinciding with rising gasoline and oil prices, multiple amendments are proposed on Capitol Hill to increase taxes for oil and gas companies working in the United States.

A non-profit representing domestic oil and gas producers, the American Petroleum Institute (API) contends that taxing oil firms will negatively affect the American public by both limiting domestic hydrocarbon production and stressing individual investments.

"The president's proposal hurts domestic oil and gas production; it discourages the very investment we're trying to create to create new jobs in the United States and to produce more energy," said Jack Gerard in an exclusive interview with PennEnergy.com on the OTC show floor.

The executive stressed that the majority of domestic oil and gas is owned by everyday Americans.

"Corporate management in the oil and gas industry owns less than 2 percent of the oil and gas industry. The bulk of the oil and gas industry is owned by pension plans, it's owned by 401K plans, it's owned by mutual funds," Gerard said.

In a recently released study, the API contents that the people who actually own oil and gas, via these investments, are firefighters, teachers and everyday Americans.

"It's very inappropriate to now move in and begin to take away their hard-earned earnings merely because the president is trying to take attention away from a failed energy policy; so he wants to punish the industry," Gerard contends.

With the first handful of deepwater drilling permits in hand since the Deepwater Horizon accident, rigs are expected to get to work again soon. Nonetheless, exploration and development drilling in the US Gulf of Mexico's deepwater has been at a stand-still since the moratorium.

"Today, unfortunately, we are down in terms of production from where we were before," Gerard said. "The administration, the US government needs to focus on what it's going to take to bring us back to pre-spill levels - and then beyond that – to meet the demands in this country."

Calling the drilling moratorium "unnecessary," Gerard stressed that more than 42,000 oil and gas wells have been drilled in the US Gulf of Mexico, and "we understand that process."

"If we want to be energy secure, we can produce more oil and natural gas here in the United States," he said.

Watch PennEnergy's video interview with API CEO Jack Gerard.

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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.

Subsea oil and gas pipelines lead to unique discoveries

This week, BP revealed that during a routine inspection of its Forties oil pipeline offshore the UK in the North Sea, the company discovered an old World War II bomb.

Lying just feet from the Forties pipeline, is a 13-foot-long Nazi German mine.

"An unidentified object was observed lying next to the BP-operated Forties pipeline in the North Sea,” The Scotsman reported a BP spokesman said. “The object was subsequently identified by specialists as a piece of Second World War military ordnance. It is lying adjacent to the pipeline approximately 40 kilometers off the coast from Peterhead.”

A major North Sea oil transporter, the Forties pipeline delivers oil and gas liquids production from more than 50 offshore developments in both the UK and Norwegian North Sea. The pipeline system boasts a capacity of more than 1 million barrels a day.

According to reports, the mine has not yet detonated, and BP is mulling its options, which include leaving the bomb where it is or removing it. The latter would require that the Forties pipeline be shut-in for several days.

About a year ago, the Nord Stream Consortium reported discovering some 12 shipwrecks while performing extensive seabed surveys to map the pipeline route.

The vessel graveyard was discovered next to the Nord Stream pipeline route, and construction work was amended so as to not disturb the shipwrecks.

At least nine of the 12 ships discovered were of “great cultural historical value” and well preserved. Most of the vessels were commercial ships from the 18th and 19th century, but one is believed to be as old as the Middle Ages.

Nord Stream is a natural gas pipeline being built across the Baltic Sea to link Russian production with European markets.

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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.

The difference a year makes

On April 20, the oil and gas industry marked the one-year anniversary of the Deepwater Horizon accident in the deepwaters of the US Gulf of Mexico. Eleven people died, and the accident spurred the worst oil spill in US history.

Following the accident, the US government enacted a deepwater drilling moratorium and revamped the safety rules for drilling offshore – as did many other countries.

A year later, two rapid-response subsea oil spill containment systems have been developed, and a handful of deepwater drilling permits have been approved. While the number of offshore rigs actively drilling in the US Gulf is less than half of that at the time of the accident, industry sentiment continues to lean toward a Gulf rebirth.

While drilling and development in the US Gulf may look very different than what it did a year ago, the increased safety measures will help to protect environment and industry – and enhance global safety efforts and knowledge.

Additionally, the US Bureau of Ocean Energy Management, Regulation and Enforcement is working to complete the first lease sale in US waters since March of 2010. With an earnestness to hold the auction before the close of 2011, BOEMRE published a revised SEIS just this week.

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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.

Brazil continues to steal the spotlight

Brazil is rich with oil -- there's no doubt about that.


Exploration and production in the country has mounted in the last decade as multiple companies have begun drilling the pre-salt fields offshore Brazil. It seems that every week is highlighted with a new discovery, billion-dollar award or production start-up in Brazil.

The EIA reports that "recent discoveries of large offshore, pre-salt oil deposits could transform Brazil into one of the largest oil producers in the world." Additionally, Oil and Gas Journal reports that Brazil boasts 12.9 billion barrels of proven oil reserves in 2011, the second largest in South America behind Venezuela; and production in the country is steadily rising.

Supporting this trend, the deepwater drilling moratorium in the US Gulf of Mexico has helped to disperse drilling rigs to other locations. Currently, Brazilian waters host a large share of the ultra-deepwater drilling rig fleet with some rigs working offshore West Africa and in Asia, as well.

Additionally, Petrobras has ordered the first seven of 28 planned deepwater drilling rigs from Brazilian shipyard Estaleiro Atlantic Sul (EAS) for $4.64 billion.

Unlike the US Gulf of Mexico, North Sea, West Africa and Asia Pacific, the majority of activity offshore Brazil is supported by Brazilian companies. That's not to say that majors, independents and NOCs aren't active as well, but Brazilian firms seem to certainly be enjoying the home field advantage.

Based largely on its pre-salt discoveries and developments, Brazilian producer Petrobras (NYSE:PBR) has climbed to the number four position in Platt's ranking of the 250 biggest global energy companies, to be listed only behind ExxonMobil, BP and Gazprom -- and ahead of many super-majors, NOCs and independents worldwide.

From the Campos Basin to the Santos Basin, shallow water to ultra-deepwaters, offshore Brazil is a hot spot for oil and gas activity, with not only Petrobras racking up millions of barrels in reserves.

Brazil's largest independent producer OGX has made myriad shallow-water discoveries and is bringing some of its first fields into production. The company's successes have mounted so high that rumors have surfaced of international firms offering billions for OGX.

Additionally, numerous international firms have earned interest in various blocks and projects, and are even operating some major offshore developments in Brazil.

For instance, Norwegian player Statoil (NYSE:STO) has just started up its 100,000-barrel-a-day Peregrino development and made a major oil discovery with Peregrino South in the same week.

International firms are also eager to participate in the next offshore licensing round in Brazil.

Look to the South American country for billions in exploratory and development projects, as firms continue to set their sights on Brazil.

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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.

Energy industry stands ready for upcoming hurricane season

Colorado State University's Tropical Meteorology Project has updated its activity forecast for the upcoming 2011 Atlantic hurricane season, predicting 16 named storms, 80 named storm days and five major hurricanes (Category 3, 4 or 5).

Additionally, the group forecasts that the US has an above-average chance that a major hurricane will make landfall -- 72 percent. In fact, there is 48 percent chance that the East Coast will be hit and a 47 percent chance that the Gulf Coast will be hit.

As we've seen in Japan, natural disasters can spark major energy crises.

In 2005, Hurricanes Katrina and Rita destroyed 115 platforms and damaged another 52, as well as damaged 535 pipeline segments and caused the near total shut-down of the US Gulf of Mexico's oil and gas operations.

Despite the destruction, no offshore workers were harmed because operators and service companies quickly evacuated anyone in the path of the storm. Additionally, all production was effectively shut-in, and no hydrocarbon leaks occurred because of the storms. Producers and service companies quickly got to work following the storms to restart production in the Gulf.

"We go to work every day with the goal of operating safely and in an environmentally responsible manner," said Bill Mentz, director of public affairs for Apache Corporation (NYSE:APA), the largest producer on the Gulf of Mexico shelf. "Being prepared for storms is a part of that commitment."


In 2008, Hurricane Ike stormed ashore the Gulf Coast, affecting power distribution to 2.15 million of CenterPoint Energy's 2.26 million customers. T&D teams from across the nation swiftly traveled to the Greater Houston area to work to help restore power to millions of residents and commercial properties within weeks.

"In a way, CenterPoint Energy began preparing for Hurricane Ike a quarter century before its arrival," CenterPoint said of the massive effort. "The company's experience recovering from Hurricane Alicia in 1983 and more recently from the glancing blow of Hurricane Rita in 2005 helped strengthen our storm-recovery culture that has been honed by annual drills and scores of mutual assistance efforts on behalf of other utilities."

CenterPoint Energy maintains a comprehensive Emergency Operating Plan that is coordinated with state and local officials, reassigning critical emergency response roles to all employees and regularly conducting drills to perfect their response efforts.

From offshore oil and gas operations to onshore electricity distribution, the US energy industry is committed to mitigating any risks to safety, production and distribution hurricanes may pose.

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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.

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?