When an oil rig in the Gulf of Mexico exploded April 20, caught fire and eventually sunk, it was a shock for the oil industry. The sector prides itself on being high-tech and has spent years urging more access, arguing it had the expertise and technology to prevent a disaster of the scale that is unfolding. Indeed, Rayola Dougher, senior economic advisor at the American Petroleum Institute, captured the industry’s response when she said the industry was more shocked than anyone that this could have happened.
There’s a concern this could be a major setback. The Obama administration has put a moratorium on new drilling permits for the Gulf and is expected today to extend the moratorium on deepwater permits, and announce other new measures.
But to the oil industry, this is a challenge to overcome. Companies involved in recovering oil and gas still believes they can – and will – continue to access the rich resources of the Gulf, once it proves it can stop a leak at 5,000 feet under the ocean and keep it from contaminating some of the most vulnerable shorelines in America. The industry’s confidence comes largely from its history of overcoming technical challenges. John Hofmeister is former president of Shell Oil and author of a book due out May 25 called, “Why We Hate The Oil Companies: Straight Talk From An Energy Insider”. He calls this “one more over-comable challenge with technology and better practices” and adds that the setback is not going to discourage anybody.
This is an industry which steadily overcomes obstacles to gain new resources. Its people are known for constant experimentation that leads to steady, incremental gains in efficiency and production that enables drilling just that much deeper into the ocean or squeezing that extra drop of oil from a field or, nowadays, even shale rock. Barney Issen, senior staff geophysicist at Chevron Energy Technology, is in a visualisation room at the company’s Houston offices, showing 3-D images of the Tahiti oilfield – the Gulf of Mexico’s deepest producing well at more than 26,700 feet. He explains how the industry got out there:
No one leap got us out there; it’s just each one marching a little steadily out to sea. Consistently we’re exploring in water far deeper than we’ve ever produced in. If we find a prize big enough, they’ll find a way to get it to market.
It is that mindset that has not only led the industry out into the deep waters of the Gulf, but also launched the shale gas boom of recent years, growing estimates of US supplies from 30 years worth, at current usage rates, to 100. These production gains are being made by extracting gas from shale rock – a process once dismissed as too uneconomic to attempt. But that was before prices hit a record high of $13.69 per million British thermal units (mBtu) in 2008. Raoul LeBlanc, director at PFC Energy, the consultancy, says:
The price went up and that emboldened people to embark on this innovation. And now companies are tweaking the technology to get oil from shale, which is starting to yield significant production.
Out in the Gulf, the gains are not tied to a couple of technologies but rather a long, slow and steady progression of technologies allowing it to continually break records. On March 31, for example, Royal Dutch Shell broke the water depth record for an offshore oil drilling and production platform, when oil flowed to the platform in 8,000 feet of water in the Gulf of Mexico. Marvin Odum, President of Shell Oil, noted the company had leased the field in 1996, when the industry could only produce in 3,000 feet of water and were out there exploring for the oil before the industry had the technology to produce it.
On the screen in front of Mr Issen, in a visualisation room at Chevron’s Houston offices, there are 3-D images of the Tahiti oilfield – the Gulf of Mexico’s deepest producing well at more than 26,700 feet. The field is brought to life, with salt domes visible above the hydrocarbons and the water above that. The images themselves are an innovation that have brought confidence in experimentation further out into the Gulf: “Now you no longer have to be a scientist, saying, `Trust me, the oil is in there’.”
But progress is slow. He explains that 10 years ago it became economically viable to explore the Gulf with 3-D seismic, but then computing and drilling technology had to catch up: “3-D seismic is one of the most numerically intensive calculations undertaken by mankind.” And the innovative uses of such technology rarely capture attention outside the industry; announcements of new records are pretty routine. For example, on April 16, ExxonMobil said it had completed the world’s longest extended-reach well drilled from an existing offshore fixed platform drilling rig, increasing the company’s ability to produce more domestic oil supplies from existing facilities. The well extends more than six miles horizontally and more than 7,000 feet below sea level offshore California. No one outside the industry took notice.
An even more interesting example is Chevron’s Kern River field – discovered in 1899. Production was believed to have peaked at 40,000 barrels per day in the early 1900s, but today is producing about 79,000 barrels per day assisted by steam flooding technology that loosens the heavy oil enabling it to flow. James Swartz, the field’s Asset Development Manage, explains:
It wasn’t just one day we came up with steam flooding. It was through experimenting for 20 years. Here we can continue to test and tinker with things.
The industry can usually only recover less than 15 per cent from a heavy oil field, but Chevron already has produced about 57 per cent of the original 3.5bn barrels of oil estimated in the field and hopes in coming years to recover about 80 per cent. Mr Swartz credits experimentation at its California fields, which are now even involved in a solar thermal pilot project. Ali Ferling, Microsoft’s managing director for Oil and Gas Industries, says the industry not only makes its own inroads but pulls technological advances in from a wide range of outside sources, such as service companies and IT providers, noting that the industry has broadened the sources of new ideas.
Occidental Petroleum has made a name for itself by applying new ideas to old fields, in search of the two-thirds of the world’s oil still believed left in the ground. In July it announced the biggest oil find in California in 35 years, a field some analysts estimate could hold 1bn-2bn barrels and mark the start of a new era of exploration in the US. Stephen Chazen, Occidental’s president, explains the philosophy:
There is still a lot of oil in the US. If you had to drill the old-style well, you couldn’t see how you could make money. We felt that, over time, the technology would get better and you would get better recoveries.
It is that confidence that has companies convinced they will be back, drilling in the deep waters of the Gulf, before too long. Susan Cunningham, senior vice president of exploration for Noble Energy, says the industry always has been able to learn from the past, and the ongoing crisis in the Gulf should be no different.
Related links:
The year that wasn’t for GoM deepwater drilling - FT Energy Source
