Skip to comments.Analysis: Moratorium In Gulf Gets Graver
Posted on 05/29/2010 5:43:08 AM PDT by thackney
The recent decisions by President Obama and his administration to extend the moratorium on new deepwater drilling in the Gulf of Mexico (GOM) by six months, to recapitulate on activities in the Arctic, to cancel the upcoming lease sale originally scheduled for August 2010, and to lengthen the shallow water permitting process beyond 30 days will collectively take their toll on offshore operators and drillers.
Rigs currently contracted in GOM include 41 jackups and 34 deepwater units. From an employment perspective, the International Association of Drilling Contractors (IADC) estimates that the GOM offshore industry employs approximately 75,000. Activities levels for both employment and wells drilled offshore may be trimmed as operators react to the economic dynamics imposed by the President's decisions. Specifically, all deepwater rigs will suspend drilling operations in the Gulf of Mexico for the next six months (see attached report - PDF - from Interior Secretary, Ken Salazar for more details).
While it may be too early to draw conclusions from recent trends in permitting activities, given the relative newness of all the changes at hand; we have nonetheless pulled some data together that will provide a backdrop for looking at these trends going forward.
Past experiences dictates that plans filed with the Minerals Management Service (MMS) do not always lead to actual drilling offshore. Based on activity reported between 2008 and 2009, we found that 95 out of 237 leases or approximately 40% had a wellbores spudded. What is interesting to note is that activity diminished versus actual plans as time elapsed (i.e. three-quarters of drilling activity occurred within 90 days of planned drilling start date). The chart below provides the likelihood of a well being drilled on a lease based upon actual results from 2008 and 2009.
MMS records indicate that 58 pending plans for the months of May through July 2010 were filed prior to the moratorium's extension. Using these statistics would imply that as many as 20 current drilling plans in the Gulf of Mexico would likely to dry on the vine even if moratorium is lifted in six months as proposed.
Of the 34 rigs that are currently contracted for the GOM's deeper waters, nine are drillships and 25 are semisubmersibles. Half of the total are controlled by Shell, Anadarko, ENI, Chevron, and BP. The moratorium extension for new drilling leaves these operators in quite a pickle considering that the average rates are $445k/day. Obviously, the nine drillships would be the easiest to move out of the region if work is sought elsewhere in the mean time. All seven operators with contracted drillships have international drilling activities that could lend themselves to mitigating the impact of the moratorium. Only two of the operators with contracts, Taylor and Walter Oil & Gas, do not have international operations that could provide some buffer. Additionally, Cobalt International Energy is subletting a rig from Anadarko which we doubt would get moved internationally.
The elephant in the room is the question of whether operators will claim force majeure. With over 40% of the rigs in the Gulf of Mexico currently contracted at dayrates above $500k, the risk that pricing here will decline significantly from current levels is a stark possibility. Operators will look to drillers for some relief to mitigate some cost hemorrhaging caused by the suspension of deepwater drilling in the region. The most recent fixtures for ultra-deepwater rigs like the majority of those found in the Gulf of Mexico were already starting to taper prior to the DW Horizon incident. In fact the last three fixtures were for less than $450k/day (excluding exceptional environmental conditions).
Approximately 71% or 29 (of the 41 jackups currently contracted in the GOM) complete their existing contracts by summer's end. While drilling operations for shallow water operators are now excluded from the moratorium, they still face some pain in the near-term as the permitting process going forward may now take up to 90 days. Besides the timing delays that could sideline a few rigs, the upcoming hurricane season presents its own challenges. Parts of the Gulf of Mexico become restricted as the summer wears on because of the risks posed by storm winds. Thus, the delays in permitting that are likely to occur for rigs that would work in these regions prior to being restricted may result in no drilling here until after hurricane threats subside (i.e. next winter).
Combining 100-150 rig hands with another 200-250 individuals providing ancillary support; you are looking at between 300-400 jobs lost per rig. From an oil demand standpoint, nearly one-third of U.S. consumption comes from Gulf of Mexico production. While the moratorium applies to exploration efforts, clearly both jobs and future production are put in jeopardy by the decision to suspend deepwater drilling and extend the permitting process for shallow water operations. Time will tell if the enhanced safety and security measures that are under construction mitigate the immeasurable costs they impose. The most salient quote we have heard recently on the matter was by Amy Myers Jaffe, a research fellow at Rice University's Baker Institute, to the Christian Science Monitor. "What the president's announcement has accentuated for the industry in a very concrete way, is that the industry is only as safe as the practice standards of the weakest link."
Related thread from yesterday
Analysis: Could U.S. Lose 200 Rigs by the End of Summer?
Interior sets list for Gulf drilling halt
Noah Brenner - 28 May 2010 20:40 GMT
The US Department of Interior is drawing up the paperwork that will order operators in the deep-water US Gulf to stop drilling activity and has named the operators affected by the halt.
The operation may take a few days, an Interior representative told UpstreamOnline, and deep-water operators are not required to stop their rigs until they receive a notice.
The safety repot recommended these actions; the president accepted the recommendations and directed the secretary to order them; Interior is in the process of implementing those orders, Interior spokesman Frank Quimby said in an email response to questions.
The companies are correct that they should not act on the basis of the report or release.
Some operators had reportedly already begin to shut down but others told UpstreamOnline that they had received no official word to halt and did not plan to do so until they received a written order.
The orders will ask operators to cease drilling at the first safe stopping point.
Quimby said further clarification of what was a “safe stopping point” will be included in the notices to stop drilling.
The list of operators affected by the stoppage (which does not included project names) generally lines up with the Minerals Management Service current report of deep-water activity with the notable exception of three companies Stone Energy, Murphy Exploration and Production and ExxonMobil.
According to the MMS data, Stone is working on its Amberjack prospect, while Murphy is working on its Front Runner prospect and ExxonMobil is drilling at Hoover.
Quimby said he did not know why the three are not on the list but industry sources say they believe that MMS has exempted wells drilled from fixed platforms and have surface BOPs.
A Stone representative said it was his understanding that fixed platforms, including Stone’s Amberjack platform where the company is drilling a sidetrack were exempt.
The halt comes as part of a larger six-month moratorium on leasing, permitting and drilling in the deep-water Gulf after the Macondo blow out that killed 11 people and created what is estimated to be the largest oil spill in US history.
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Here is the list of the owners of the 33 deepwater wells that are being required under the 6-month moratorium to come to a halt at a safe stopping point and shut down operations.
Walter Oil & Gas
Never waste a good crisis. Obama punishes the good for the actions of the bad.
Summer gas prices will skyrocket. Look for $4+ a gallon by mid-July.
Not to worry, the crashing economy with the loss of more jobs will help hold demand and prices down.
And I wouldn't start up a single operation again until I had it IN WRITING, backed by some serious cash bonds in the hundreds of billions of dollars, that the Left and it's wacko’s would STFU.
Even moreso, bama was looking for a way to destroy the Oil and Gas Industry, and he may have found it.
Not letting a crisis go to waste again. Hope the voters enjoy paying through the nose for gas this fall in time for the elections.
There is absolutely no excuse for halting AK drilling. The only dangerous oil company is BP, but they won’t be shut down because they’ve given lots of bribes to politicians.
In good times this would be bad, but the economy could handle it. In the economic climate of today this is a death sentence, GREAT DEPRESSION 2 here we come!
The entire US produces less than 1/3 of the oil we use.
We use about 18.7 MMBPD.
The entire US produces about 5.3 MMBPD crude oil.
The Gulf of Mexico produces about 1.5 MMBPD of crude oil. This amount is included in the entire US production number.
Ah, "implementing those orders" from Fearless Reader!
Keeping its "boot on the throat" of BP has now in one week mushroomed into "implementing orders" against the entire industry in a mirror of his pal Hugo Chavez.
And everyone thought little bammy was just cracking funnies with that "my power is absolute" remark.
Yea, funny. ha ha.
That's right bammy, just keep right on showing your true color, RED, to all those voters that you have just killed their jobs and will now loose their houses, cars, kids college, etc.
Yea, `ol Chavez is PROUD of you today you communist scum.
But hey, look on the bright side little bammy, your six month dictatorial edict will show your full and complete ignorance to voting American Citizens seeing with prefect clarity the full destruction of both your inability to respond to that 3:00 am phone call as well as your blind lashing out at a MAJOR industry in the middle of your current economy that your communists-that-call-themselves-democrats party screwed up just in time for
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