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Vol. 232 No.1 |
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| PRAMOD KULKARNI, EDITOR |
The good, the bad and the ugly
As we look forward to 2011, it’s worth one look back at the events of 2010, which encompassed the full emotional spectrum from the good and the bad to the ugly. To conclude on a positive note, let’s begin with the ugly and end with the good.
The ugly. The sinking of the Deepwater Horizon semisubmersible on April 22, resulting in the death of 11 crewmembers, was certainly the worst tragedy of 2010. The subsequent Macondo well blowout kept crude oil spewing across the central Gulf Coast until the successful static kill on Aug. 4. The 123-day spill required BP to establish a $20 billion fund for the massive cleanup and compensation for damages.
The environmental disaster doomed the opening of the unexplored areas of the US East Coast, Eastern Gulf and Alaska, and unleashed congressional investigations that will continue to afflict the industry during 2011. While much of the oil has evaporated, sunk to the seafloor, or been cleaned up, the liability suits are just beginning and will keep BP and its partners and vendors tied up in courts for a decade or more.
The bad. The Obama administration lifted its moratorium on deepwater drilling on Oct. 12, but the newly organized Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) issued only one permit for a new well at greater than 500-ft depth as of Dec. 31. The plight of the operators is exemplified by the case of ATP Oil, which was spending $330,000 per day while waiting for a permit to drill a sidetrack of an existing well and tie the production to its Telemark production hub, 100 mi off the Mississippi coast. The financial distress of ATP and a few other operators may be eased with BOEMRE’s announcement on Jan. 3 to speed the restart of 16 projects that were underway when the deepwater drilling ban went into effect without additional environmental reviews.
Troublesome events on the international scene include the state takeover of private oil and gas assets in Venezuela, violence against oilfield workers in Nigeria and the departure of some Western oil companies from Russia due to growing state involvement.
The good. There have been a number, which should put most of us in an optimistic mood as we begin the new year. The good news actually begins in the deepwater Gulf of Mexico. Despite the six-month moratorium and the new onerous regulatory requirements, only three deepwater rigs have left the Gulf. In mid-December, Chevron issued its vote of confidence in the future of the deepwater Gulf with a commitment to continue the development of its $4 billion Big Foot project, located 225 mi south of New Orleans at 5,200–ft water depth. Chevron has a 60% share of the project with partners Statoil (27.5%) and Marubeni (12.5%).
There are lessons to be learned from the Gulf spill as well. As a result of BOEMRE mandates as well as through the initiatives of the operators and service companies, we shall see improvements in BOP reliability, better real-time monitoring of downhole operating parameters, and greater emphasis on reducing environmental impact and spill control.
Throughout the year, deepwater oil and gas projects continued unabated in the rest of the world. Perhaps the underlying motivation for oil-directed drilling was the price of oil, which has been rising steadily through the year to a high of $91.88 on Dec. 27. There was some talk of a companion moratorium in the North Sea, but no such threat materialized. The news of significance from Brazil in October was of first oil from the presalt Tupi Field pilot project and the discovery of the giant Libra Field. The initial reserves estimate for Libra is 15 billion bbl, nearly twice the potential of the 8 billion-bbl Tupi Field. Petrobras plans to build 28 deepwater drilling rigs to support its upcoming presalt projects. If the deepwater Gulf of Mexico projects remain entangled in regulatory red tape, Brazil is ready to take on the lead role in deepwater development. During 2010, West Africa operators invested a record $15.6 billion in new deepwater projects such as CLOV in Angola and Jubilee in Ghana. In Southeast Asia, first oil is expected in early 2011 from the Shell-operated Gumusut/Kakap Fields.
On the global natural gas scene, Qatar has emerged as the world’s leading LNG producer. LNG projects are continuing at pace on Australia’s northwest shelf, and ExxonMobil is at work developing an LNG liquefaction plant at Port Moresby in Papua New Guinea.
In the onshore sector, shale plays in North America dominated the positive developments in 2010. Major oil companies, such as ExxonMobil, Shell, Total, Statoil and Eni, made massive investments in shale plays to ensure continued development of this unexpected bonanza. Even China’s CNOOC and India’s Reliance Industries hopped on the shale trail. According to the US Energy Information Administration, shale gas contributed 14% of the nearly 23 Tcf produced in the US during 2009. Due to natural gas prices remaining within the $4–$5/MMBtu range, much of the drilling was associated with development drilling to delineate fields and to retain acreage. Some operators, such as Chesapeake and EOG, are making concerted efforts to transition from natural gas to condensates and liquids—for example, in the Eagle Ford play. As a result of the oil-directed drilling in the Bakken Shale, North Dakota produced 110 million bbl of oil in 2010, up from only 50 million bbl in 2008. Success of the North American shale plays has spurred the search for similar shale deposits in other parts of the world, including Poland, France, China and India. In early December, Argentina’s YPF announced the discovery of as much as 4.5 Tcf of natural gas in a shale deposit in Neuquen province.
A better 2011? The past year was a tough one for the oil and gas industry due to the Gulf oil spill and effects of the worldwide recession. If demand for oil and gas improves and deepwater drilling resumes in the Gulf of Mexico, it will indeed be good news for the industry in 2011. 
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