Deep Pockets in Gulf of Mexico -
Flush with profits, companies spend billions to hunt for crude and drill more wells
San Francisco Chronicle - March 2006
(03-19) 04:00 PST Tahiti Reservoir, Gulf of Mexico -- Just before dawn on a warm February morning, a drill bit bristling with steel teeth hovered over the dark ocean floor three-quarters of a mile below Terry Gatlin's feet.
From the deck of the drilling ship Discoverer Deep Seas, Gatlin watched it sway on a small video screen linked to an undersea camera. Men in grease-smeared overalls crowded around him as, inch by inch, their massive vessel maneuvered the bit closer to its target. Workers nearby kept an eye on the drill shaft, plunging from the ship's 226-foot derrick through a hole in the deck.
Beneath them, beneath the seabed, lay oil. A lot of it, enough to produce 125,000 barrels per day, according to Chevron Corp. estimates. To reach it, the ship needed to punch a well more than 26,000 feet -- about 5 miles -- below sea level, nearly as far down as Mount Everest is up.
Chevron and two partners, Shell and Statoil, will pour $3.5 billion into this reservoir, called Tahiti. It's one of the San Ramon company's biggest projects in the world. Last year, hurricanes Katrina and Rita tore past this spot, 190 miles south of New Orleans. More will come, possibly wrecking the oil platforms in their paths. But the reservoir, like the entire gulf, is too important for Chevron to pass up.
"That good for you?" Gatlin asked the crowd, as the bit finally came to rest motionless on the silt floor. Hard hats bobbed in agreement.
"Let 'er rip," he said.
The Gulf of Mexico is in the midst of an oil boom.
Oil companies flush with the largest profits in their corporate lives -- $36.1 billion for Exxon Mobil last year, $14.1 billion for Chevron -- are spending billions to hunt for crude oil and drill more wells in the gulf, even as they struggle to repair what the hurricanes smashed.
In the search for oil, they are pushing to the edge of what is possible, exploring ever farther from shore and drilling deeper than before. Technological improvements let the oil companies bore wells 30,000 feet down. And with crude oil prices doubling in the last three years, projects that didn't make financial sense in the past now do.
The companies need the oil. Asia's hard-charging economies have strained supplies, and worldwide production has struggled to keep up. In most of the United States, including Alaska, oil production has dwindled for years.
But it has surged in the gulf, rising roughly 70 percent in the last decade. In 2004, the last year for which complete government statistics are available, the gulf produced about 531.9 million barrels of oil compared with 313.8 million 10 years earlier. In 2003, before Hurricane Ivan damaged rigs and undersea pipelines, production was even higher, 569.1 million barrels.
The gulf produces more than any other oil patch in the nation, even though its 4.1 billion barrels of proven reserves rank behind those in Alaska and Texas. And, compared with Saudi Arabia's 261.9 billion barrels in reserves, it's a mere pittance.
Still, if federal projections hold true, the gulf could pump enough crude in the next two or three years to raise America's overall production figures, even as other fields decline.
"We haven't gone up in decades," said Amy Myers Jaffe, an energy research fellow at Rice University's Baker Institute. "It's very important, not only to the companies but to the United States."
The companies know they are building multibillion-dollar projects in a sea prone to violent hurricanes. They are willing to take that risk. Despite the storms, the gulf is a far friendlier environment than many of the places where they work.
No armed insurgents roam the waters, kidnapping oil workers as they do in Nigeria. No populist president wants to hike the companies' taxes, as happened in Venezuela. OPEC doesn't control the gulf.
Chevron already owns or co-owns more than 3,000 oil and natural gas wells in the gulf. They account for roughly 8 percent of the company's worldwide production. The gulf will play a key part in the company's plan, announced earlier this month, to boost production 3 percent per year.
"We still feel there's a tremendous amount of resources to be found," said Scott Davis, Chevron's general manager of capital projects in the gulf.
The federal government may let the companies avoid paying some $7 billion in royalties on oil pumped from deepwater gulf wells in the next five years, although that arrangement has come under fire in Congress (see sidebar). And most states along the gulf welcome offshore drilling in a way that California emphatically does not.
Florida has resisted offshore drilling, but President Bush is pushing to open some of those waters for exploration.
The result: Oil companies are ramping up in the gulf, even as they brace for the next hurricane season, three months away.
"Where else are they going to go?" said analyst Jeb Armstrong with Argus Research. "This is the place that's open to them."
The Louisiana coast still bears hurricane scars. Roads trail off into open water. Stretches of bayou marked on maps as land now look like lagoons, with white egrets and blue herons fishing in the shallows.
From the battered shore, an armada of boats ferries supplies and workers to the oil platforms under repair. Divers on the seafloor carve up wreckage so it can be removed. Six months of nonstop rebuilding has strained the local labor market, forcing oil companies to recruit skilled welders and construction crews from Central and South America. Even truckers can be hard to find.
Farther out to sea, the work focuses on new production, not repair.
At the Tahiti reservoir, the Discoverer sits motionless in calm water. Seven stories high, the ship looks something like a tanker with an oil derrick stuck on top. There are few ships like it in the world, and its services aren't cheap. Chevron leases it from its owner, Transocean of Houston. The ship, the contractors on it and the supplies they use cost almost $500,000 a day.
At that rate, the ship can't afford to waste time by pulling into port or waiting for new orders between jobs. Discoverer either works on a well or sails to the next drilling site. Other vessels bring it supplies, while helicopters ferry its 170 crewmen and contractors to and from shore.
Early February found the ship drilling a plot of seafloor called Bob North, a typical name in a business that has labeled other exploration sites Big Foot and Blind Faith.
But Bob North posed unexpected problems. The subsurface rock kept crumbling around the well. Although oil companies study the geology of every site they drill, there's always room for surprises.
"You're trying to work with something you can't really see," said Gatlin, a drill site manager on the Discoverer. "It's like putting together a puzzle."
Chevron pulled the ship from Bob North and sent it steaming southwest, to Tahiti. The company had studied Tahiti since 2002 and saw in it great potential, estimating it held between 400 million and 500 million barrels of recoverable oil. Development of the reservoir had become one of Chevron's five largest projects worldwide, one on which the company had already bet big, ordering construction of the floating platform that would one day hover over eight wells at the site.
Gatlin, a solid man with hair shaved down to salt-and-pepper stubble, hadn't expected to start Tahiti for another three or four months. Now his men were scrambling to begin drilling it less than a week after leaving Bob North.
"We wasted $40 million out there," Gatlin said one evening as workers readied long steel tubes on the ship's drilling floor, preparing to start drilling Tahiti the next morning.
At half a million dollars a day, any problem or delay is expensive. Chevron wanted this well started as soon as possible.
"And people wonder why gas costs $2," Gatlin said. His own father, he said, gives him grief about the price.
Until recently, undersea oil fields as deep as Tahiti were considered too difficult and costly to tap.
But the recent run-up in crude prices has changed those calculations. Suddenly, reservoirs hidden under a mile of water and 3 or 4 miles of rock can be developed at a profit.
Any newly accessible reservoir helps the oil companies. For years, most have had trouble discovering enough petroleum to replace what they pump out of the ground. They can boost their reserves by buying other oil companies. But investors want to see new reservoirs, not just the same ones changing hands.
"These companies are under pressure to show increasing assets," Jaffe said. "They're under pressure to show they can have organic growth and not just buy another company."
At the same time, drilling technology has improved.
Deep-sea drilling is far more difficult than tapping a reservoir on land. Drill bits and metal casings for the wells must withstand 400-degree temperatures and pressures reaching 20,000 pounds per square inch. That compares with the typical air pressure at sea level -- 14.7 psi.
The drilling ship, meanwhile, can't move while the bit is boring through rock far below. The long metal shaft connecting the bit to the ship can flex, but not by much.
The Discoverer doesn't move. Six thrusters mounted on the hull constantly adjust its position, monitored through a GPS satellite link. A battery of video screens behind the bridge shows how far the ship has strayed from its ideal spot -- usually less than 3 feet.
Below the ship, a boxy robot called a remotely operated vehicle hovers near the well, keeping a bright light and camera trained on the work. Men operating the drill, 4,300 feet above, monitor the results in the drillers' shack, a glass booth packed with screens showing the drill bit's depth, rotations per minute and other key statistics.
The men on the ship aren't the only ones following the drill's progress.
A day later, in a downtown Houston office tower, data from the Discoverer light a wall in front of Senior Drilling Engineer John Breidenthal.
The numbers update constantly, fed from the ship via satellite. In the 28 hours since drilling at Tahiti began, a process oil workers call spudding, the drill bit has sunk 2,200 feet into the seafloor. Next to the figures projected on the wall, an intricate 3-D image shows the well's planned path through layers of rock and salt the drill is expected to find.
"You can't believe the man-hours that went into seeing that well spudded into the ground," Breidenthal said. "Just about every drilling problem that exists, exists in these deepwater wells."
If something goes wrong, the ship calls back to Houston and quickly arranges a videoconference in one of these specially rigged rooms. Engineers on ship and shore hash out possible fixes, such as aiming the drill in a different direction. Specialized software helps devise the new route.
Ideally, a possible solution will take less than a day to devise, Breidenthal said. But as Bob North demonstrated, fixes in the field don't always work.
"We can't play God," Breidenthal said. "We can't change what's down there."
Nor can they control the weather.
The gulf has always had hurricanes. With platforms and rigs now crowding the waters off Texas, Louisiana, Mississippi and Alabama, companies face the possibility that some very expensive assets could get hit again and again.
Katrina and Rita last year ripped through two of the main oil-producing areas in the gulf, destroying 113 platforms and causing an estimated $20 billion to $30 billion in damage and lost revenue. Chevron alone evacuated about 2,300 people by helicopter and boat. The Discoverer had to stop work, sail out of harm's way, then circle back when the storms passed. Hurricanes are notoriously hard to predict. But many climatologists see the recent storms as evidence that the Atlantic basin has entered an era of increased storm activity. One forecast, issued by Colorado State University, predicts another violent season this year, although it also projects fewer major storms striking the United States than did so last year.
Davis, Chevron's capital projects manager in the gulf, said newer platforms are designed to withstand rougher seas and stronger winds than their predecessors.
"A lot of facilities that were damaged in the gulf were vintage 1960s," he said.
Even when whole platforms are lost, the wells below usually remain intact. Assuming there's enough oil still left in the reservoir to make it economical, the platform can be replaced, albeit at a steep price.
Given their need for the oil, the companies accept those risks.
"I wish there were just a big pool of oil all around the world, and we could just tap into it," Davis said. "It doesn't work that way."
AI
