Saturday, June 2, 2012

State of the Gulf

A new report from Southern Methodist University summarizes the impacts of the federal regulatory changes after the Macondo blowout. Here is a summary:

• Total active rig counts in the Gulf are far short of pre-moratorium numbers. In May 2010, there was an average of 27 “active” rigs in the Gulf – those engaged in drilling activities as opposed to maintenance, completions, and workovers. As of May 1, 2012, there were only 18 total active rigs in the Gulf.

• Production in the Gulf is down by 30 percent over projections. According to the Energy Information Administration (EIA), Gulf production fell from 1.55 million barrels per day in 2010 to 1.32 mb/d in 2011. This year, EIA estimates Gulf output will fall further to 1.23 mb/d. But two years ago, before the moratorium, EIA predicted that production would reach 1.76 mb/d this year.

• Federal revenues from Gulf activity have dwindled: Under the Obama administration, offshore lease sales have gradually declined each year, depriving the U.S. Treasury of a sorely needed source of revenue. During 2008, $9.4 billion was generated in new offshore lease bids. That dropped to $1.1 billion during the recessionary year of 2009, $979 million in 2010, then a paltry $36 million in 2011 as only one lease sale was held during the entire year.

• Deemed ‘submitted’ period expanded: When an operator submits a plan, regulators first determine whether it meets the initial criteria to be ready for review, or deemed “submitted”. No one officially tracks this phase. The SMU report reveals that the average number of days to obtain approval for a plan from original submission to final approval has risen from 50 days pre-Macondo to 207 days – attributable to the fact that the average number of days from original submission to deemed “submitted” has ballooned to 160 days since Macondo.

• Permit approval claims overblown: Since early 2012, the administration has touted the number of permit approvals issued for unique wells in the deep waters of the Gulf – claiming in early March 2012 to have approved permits for 94 unique wells. Yet only 32 of those 94 permits covered unique new wells specifically permitted to reach hydrocarbons. The rest applied either to pre-moratorium wells in need of revised plans, or permits that allow shallow batch set depths, which need additional permits to reach total depth for hydrocarbons.

• Just in time permitting breeds uncertainty: Current drilling permit approvals are being issued on a “just-in-time” basis, sharply hindering a company’s ability to plan for the next job. A back-log of at least three approved drilling permits is sought for each active rig in order to secure the long-term contracts that the industry utilizes. With 18 active deep-water rigs, the inventory of approved permits should be at least 54. As of March!31, there were only 6 – leading companies to question where their rigs will be going next.


Clay said...

The last issue of Offshore had a much different take:

Deepwater rig fleet is on its way to reaching pre-spill levels

* Some of the largest companies have more drilling rigs working the Gulf than before Macondo. The biggest part of the gap is one operator: BP. Their drilling efforts are a shadow of their former self (no tears on that one).

* The gap between the EIA's 'projection' (read: guess) and the actual production could have alternative explanations. For one, it's a guess. Second, once again BP looks to have messed up: . Oil production at Thunderhorse and Atlantis is collapsing unexpectedly. Here's the actual chart of production at Atlantis:
Note that it was promised to hit ~185,000 barrels of liquids. It's never hit anywhere near that.

* BOEMRE is trying to work on the backlog. They are trying to hire every petroleum engineer they can get their hands on:

My personal take is that the biggest factor we'll see in the next decade affecting oil production is rust and gray hair. There's a lot of awfully old infrastructure that'll need repair and upgrading that currently hums along producing oil and making money. The other factor is all the old gray-haired engineers will be retiring. Companies have panicked and gone out and hired bunches of 22-year-old engineering graduates and tried to plug the gap, but it takes years for an engineer to have a worthwhile independent contribution. There's a big gap in industry between the ages of 30-45.

Permits are one thing. People and Iron are another, much bigger issue that's a lot harder to solve.

Peripatetic Engineer said...

The experience gap is nothing new. Back in the 90's, I saw curves showing a big valley in experience that started with a downturn in the 60's. Somehow the industry survived. One of the problems with new hires is that nobody sends them out to the field for training anymore. In the 80's, we sent new hires to gas plants and the Morgan City operations office. They typically spent 5 years there before being transferred to NOLa and project management. Now companies rely upon "work processes" to control technical work. I'd prefer that someone wear out a pair of Red Wings.