Was geology already a problem for deepwater Gulf oil?

Was geology looming as a problem for deepwater production in the Gulf, long before a moratorium and new regulations came into effect?

Last week we wrote that, despite the EIA’s assertions that deepwater Gulf production would help US oil production grow through to at least 2035, the IEA and the MMS both seem to expect output from these developments to peak in a few year’s time (even in an optimistic scenario).

The experience of oil companies in a couple of ultra-deepwater developments suggests that, for whatever reason, these projects don’t always meet expectations.

One of the Gulf’s pioneering ultra-deepwater fields, Thunder Horse (operated and majority-owned, incidentally, by BP) is an example.

FT’s Lex column wrote last month that deepwater drilling regulations would be unlikely to seriously affect production levels; deepwater drilling is so expensive that directives to use the latest equipment amount to a “rounding error”. Lex added:

The risk of poor geological estimates is far more significant. Take another huge BP project in the Gulf of Mexico, Thunder Horse, which cost billions to develop and was expected to produce 250,000 barrels a day or 1bn barrels of oil over its life. It has peaked about a third below expectations. Extrapolated over the project’s life, the shortfall, including lower gas production, could be more costly than the highest damage estimates from the recent accident.

Thunder Horse is something of a flagship in the deepwater drilling scene. First drilled in 1999, it’s located in the Mississippi Canyon block, 125 miles north-east of New Orleans. The fields (there are now two; Thunder Horse and Thunder Horse North) are in waters over 6,000 feet deep, with drill depths of 20,000 and 26,000 feet, respectively, below the seabed. (The discovery well, incidentally, was drilled from the Discoverer Enterprise, which is now playing a big role in the oil collection from the leaking well.)

The Oil Drum recently ran some very interesting charts on this topic, based on data submitted to the Minerals Management Service. Here are a couple:

The Oil Drum (MMS data)

Note that Thunder Horse platform’s capacity is 250,000 barrels of oil and 200m cubic feet of gas per day.

Thunder Horse, as the diagram shows above, has two fields: the original and the newer TH North. The two are showing quite different characteristics:

The Oil Drum (MMS data)

Thunder Horse North produces almost no water, and more oil:

The Oil Drum (MMS data)

[More charts and information at TOD.]

The Thunder Horse platform itself has had more than its share of challenges. It took nine years from the drilling of the discovery well to producing oil — a delay of three years caused by “a range of problems, including inferior welding on the subsea distribution systems and other underwater equipment, along with numerous defects on the production, drilling and quarters platform”, as the FT reported in early April.

Some production from the platform has now been shut in to remedy some of the effects of a temporary bypass system that was installed to minimise delays.

BP says this does not mean the fields themselves have been disappointing.

BP spokesman David Nichols told us, by email:

[Thunder Horse] is currently in turnaround as we change out subsea manifolds to allow further drilling and development to take place, specifically of the TH south field. With a large development such as TH development is phased, we expect a series of peaks in oil and gas profiles, not an extended flat plateau. We are very pleased with the performance of the TH reservoirs and facilities.

And other fields might tell similar stories.

Another ultra-deepwater field, Neptune, majority-owned and operated by BHP Billiton, reached production capacity a few weeks after coming online in 2008. Yet the following year Marathon Oil, which holds a stake in the field, booked a depletion, depreciation and amortisation charge related to a 70 per cent write-down in Neptune reserves.

Of course there are other GoM ultra-deepwater fields that are meeting expectations. But looking at Thunder Horse and Neptune suggests that, whether due to geology or infrastructure issues, these sorts of projects are not always a safe bet.

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