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Royal Dutch Shell Plc .com: Oil rigs are drilling ever deeper to supply US crude

From OilandGas.com

Nearly three football fields long, the ship appears to be sitting idle on the turquoise blue waters of the Gulf of Mexico, perhaps even abandoned.

Beneath the deck, there’s no such tranquillity. A crew of 200 geologists, engineers and technicians work around the clock at dimly lit keyboards, controlling every move of an adjoining oil rig as it uses an 16 1/2-inch pipe to bore through the ocean floor.

The Chevron crew is developing a deep-water oil field 190 miles off the Louisiana coast projected to produce 100,000 bpd by 2008 and 500 mm barrels overall. Each well will reach more than 26,000 feet below sea level.

It’s the kind of deep-water discovery once thought to be out of reach, but with improved technology and climbing global oil prices, companies are spending billions developing oil fields the Interior Department says will substantially boost Gulf production.

Deep-water exploration — done in depths of 1,000 feet of water or greater — is also volatile, as companies face increasing development costs, a battle with the federal government over royalty payments and continued rig shortages.

”Deep water is a hot issue right now because there’s a lot at stake for everyone,” said David Dismukes, associate director for Louisiana State University’s Centre for Energy Studies. ”It is the frontier for domestic oil and gas production right now.”

When Chevron begins producing oil from this reservoir called Tahiti, it will be among several new major oil and natural gas projects in the Gulf over the next two years. Within a year, BP expects to have two Gulf projects producing oil designed to collectively generate 450,000 barrels of oil a day.

Anadarko Petroleum will operate Independence Hub, also in the Gulf, slated to produce 1 bn cf of natural gas a day.

Two factors are driving companies such as these to deeper waters: aging fields on shore and in shallow waters are less productive; and federal lawmakers restrict access to other prime fields such as those in Alaska, the western Gulf of Mexico and coastal waters.

Companies are also going global with deep-water production, tapping the coastal shores of Nigeria, Angola and Brazil. Deep-water rigs account for about 3.7 mm bpd — or slightly less than 5 % — of global production, according to estimates by energy consultant Wood Mackenzie.

”There are huge decisions ahead of us,” said Paul Siegele, Chevron’s vice president of deep-water production. ”It’s the challenge of exploring around the world as well as places like the Arctic and the middle of nowhere.”

Deep-water drilling in the Gulf dates to 1979, when Shell Oil began production, but development really didn’t take off until the 1990s as technological advancements made it more feasible, according to Interior Department’s Minerals Management Service.

By 2004, deep-water production accounted for 66.4 % of Gulf production, a 10-year, 40-percentage point boost, according to the Energy Information Administration. A 2004 Minerals Management forecast put Gulf production rising 36 % through 2013, even as older wells dry up, largely thanks to deep-water pursuits.

Deep-water exploration — or wells drilled in unproven areas — fell 35 % last year from 2004, a 10-year-low, largely because of hurricanes Katrina and Rita slamming the Gulf. Last year’s successful discovery rate rose 55 % from 2004, energy consultant Wood Mackenzie reported in a recent review of the Gulf’s deep-water activity. But even with hurricane risks, companies remain undaunted in the Gulf, saying it’s a safer investment than politically charged climates in Latin America and West Africa.

Chevron produced the biggest Gulf discovery last year, with a 34,189-foot well about 170 miles southeast of New Orleans and about 20 miles from the Deep Seas ship. 

Chevron, the largest leaseholder in the Gulf, has also drilled in the greatest water depths, at 10,011 feet.

Chevron’s focal point for now is drilling on the Deep Seas, a vessel owned by Houston-based Transocean, and one of six deep-water ships operating in the Gulf. Outnumbered almost five to one by the traditional rigs drilling in the Gulf, the ships are not your ordinary drilling machines. The Deep Seas positions itself above the well site and sits virtually still, thanks to six 13 1/2 -foot propeller thrusters beneath the hull.
 
The thrusters help the ship withstand 20-foot waves, 80 mile-an-hour winds, and currents that would prevent traditional rigs from operating. The amount of power used to keep the ship stationary and drilling would light up 40,000 homes. The ship is connected to the Gulf’s floor by 4,300 feet of metal casing that surrounds the pipe and is fastened to the sea floor by a valve, which helps prevent accidents and contamination.

Crews on the ship, meanwhile, operate the drilling from a command centre. There, they work at computer screens and control panels to push the pipe and a drill bit into the ground at about 80 feet per hour. They’re helped on the sea floor from an unmanned mini-submarine, which collects sediment samples and monitors drilling progress.

Drilling starts by setting a 36-inch-diameter steel casing about 300 feet into the ground. Smaller casing gets connected until the well resembles an inverted extended telescope. It takes more than 1 mm pounds of pipe to complete a well. The entire process takes place in water pressure reaching 20,000 pounds per square inch and temperatures hitting 400 degrees.

It’s a far cry from the more familiar onshore drilling, said Curt Newsome, Chevron’s senior drilling superintendent.

”Drilling 3,000-foot land wells versus 28,000 feet in the Gulf of Mexico is like flying a Cessna versus flying the Space Shuttle,” Newsome said. ”You’re drilling something that’s five miles away, and all you have are indicators to look at. You can’t see down there, but you have to figure out what’s going on.”

For now, Chevron plans six wells, each taking about three to four months to complete. Once Chevron has finished drilling, it will link all the wells to a production platform being built in Finland. The project costs about $ 3.5 bn. Daily costs for the crew and ship run about $ 500,000 day. Significant delays stemming from inclement weather or drilling mistake can cost two, maybe three, times that.

”There is enormous risk in the hunt, but the returns are huge,” Chevron’s Siegele said. ”That’s why it’s such a high-stakes game.”

Record profits, driven by soaring oil prices, will make this an increasingly competitive landscape, one federal lawmakers weighed in on in May. The House approved a measure to correct an Interior Department mistake that suspended payments for drilling in federal waters from 1998 and 1999 leases. The measure bars oil companies from receiving new leases unless they renegotiate past contracts.

Companies also are struggling with a tight supply of rigs, which companies have locked in long-term contracts. The shortage is also caused by increased demand, longer drilling times and last year’s hurricane-related damage to 113 rigs.

Already there is an almost four-year wait for drilling ships, according to a recent report by energy consultant Howard Weil. The backlog prompted Chevron to have Transocean build another ship, to be ready in three years. Next year, some reservoirs under lease will be returned to the government because they were not developed within a designated time.

Companies will get to bid for these reservoirs, and this enhances the rig shortage.
”You’ll see 2007 become a very big year for deep-water operators as these leases turn over,” said Larry Benedetto, a Howard Weil analyst. ”They will have a chance to evaluate more deep-water opportunities and that’s where they’ll go.”

About deep water oil production

What is deep-water drilling?

The Interior Department defines it as drilling in water depths between 1,000 feet and 5,000 feet. Anything greater than 5,000 feet is considered ultradeep-water drilling.

Why is it important?

As the wells producing oil in the shallower waters in the Gulf of Mexico dry up, oil and gas companies need to look farther offshore for oil to maintain domestic supply levels.

The deepest Gulf discovery:

In December, Chevron used Transocean’s Discoverer Spirit drill ship to produce a well 34,189 feet deep and about 170 miles southeast of New Orleans. It was done in 3,500 feet of water.

Source: The Salt Lake Tribune

 

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