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Oilgram News /OPR Extra

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  • 1. ] Oilgram News/OPR Extra A special edition from the editors of Platts July 15, 2010 As it has during other crises affecting oil and other energy markets, such as hurricanes Katrina, Rita and Ivan, Platts is producing this special summary of events surrounding the Deepwater Horizon rig disaster in the Gulf of Mexico. This special joint edition of Platts Oilgram News and OPR Extra will be published as frequently as Platts believes necessary to give its readers a quick summary of developments surrounding the leak at the wellhead, the growing footprint of the spill, and the impact these occurrences are having on markets and on US federal energy policy. For now at least, the leaky pipe is stopped For the first time since April 20, Macondo oil Macondo solution lies with completion of a can consider shutting it in,” Allen said. The stopped flowing into the Gulf of Mexico July 15 relief well to intercept and kill Macondo at brief 24,000 b/d rate of collection by the as BP successfully closed the runaway explo- the reservoir 18,000 feet below the surface Helix Producer I compares with a rate of ration well to begin a much-anticipated pres- of the Gulf. That well is expected to complete 25,000 b/d total for two other containment sure test of the wellbore that will determine its mission in August, but drilling was sus- systems in operation since the middle of the next phase in response to the crisis. “We pended temporarily as a precaution while BP June. Allen has warned that a production sys- are very encouraged that the well is shut in conducts the wellbore integrity test. Before tem still might need to allow some oil to and no oil is going into the Gulf of Mexico at the testing began, Allen spoke enthusiastical- escape to prevent pressure from building to this time,” said BP senior vice president Kent ly during a morning press conference about dangerous levels in the wellbore. He stressed Wells during a press briefing in the afternoon. BP’s chances of at least proceeding with a that BP never intended for the new sealing Wells said the closure occurred at 2:25 pm production system that could divert most of cap to become a plugging device when engi- CDT, after the company halted collection opera- the leaking oil, in the event the cap fails to neers designed it. “The intention of the cap- tions about two hours earlier as a final prepa- show potential as a plug. “It offers a tremen- ping stack was never to close in the well per ration for closing the final choke line allowing dous increase in production capability regard- se,” Allen said. “As a side benefit, it offers oil to flow. The test is designed to determine less of what comes out of this,” said Allen, the opportunity to shut in the well. But the pri- whether BP can use its recently installed seal- citing temporary readings that showed the ority was to contain the flow of oil.” Allen ing cap to effectively plug the well or if it Helix Producer I floating production vessel said: “It is a two-fer if we can do it. I have a needs to convert the cap into a production was collecting oil from the well at a rate of high degree of confidence that we can sub- system capable of moving most of the leaking 24,000 b/d before it was disconnected for stantially decrease the amount of oil going Macondo oil to vessels on the surface. And it the test. “We’ll be in a much better position,” into the environment. began after two days of starts and stops, high- Allen said. The Helix Producer is just one of lighted by discovery July 14 that a choke line four connections BP would use to capture as Two bills get committee OK was leaking and had to be replaced overnight. much as 80,000 b/d if it decides to deploy The House Energy and Commerce Commit- “We saw no signs of hydrocarbons outside of the sealing cap as a production system. That tee July 15 approved legislation by a vote of the well,” said Wells, referring to the video figure compares with the government esti- 48-0 that would direct federal officials to camera scenes relaying the latest afternoon mate of 35,000 to 60,000 b/d leaking from require the use of blowout preventers on US images from the sea floor, 4,993 feet below Macondo since the April 20 blowout that offshore wells and to prohibit permits to drill the surface. On July 13, the US government’s destroyed Transocean’s Deepwater Horizon if it is determined that well designs are not national incident commander, retired Coast drilling rig and created the largest marine safe or BOPs lack redundant systems to pre- Guard Admiral Thad Allen, had abruptly halted spill in US history. vent or stop a blowout. The bill is intended to the first test attempt at the last second for 24 “make sure the problems that caused the hours so a government technical team could Allen said BP would reconnect its collection Deepwater Horizon blowout can never happen perform additional analysis on the risks. The system after completing the integrity test in again,” said Committee Chairman Henry Wax- Macondo test could last from six to 48 hours the next few days and then assess the man, Democrat-California. The Deepwater depending on the pressure readings from the results of that test to determine whether to Horizon “tragedy can be termed an accident shut-in wellbore. attempt to use the sealing cap as a plugging in name only,” Waxman said. “BP (the majority device or a production system. “Once we are lease holder and operating company) made a Regardless of the decision on the next satisfied there is no indication we have com- series of reckless decisions and took short- phase of the response--plug or production--BP promised the wellbore, we can go back and cuts to save money. Neither BP or any other and Allen have continually said the ultimate put the system under pressure again and we company will be able to make these same ] Oilgram News / OPR Extra Director of News: John Kingston This special edition of Platts Oilgram News and Platts OPR Extra is published by Platts, a division of The McGraw Hill Companies. Registered office: Two Penn Plaza, 25th Floor, New York, NY 10121-2298. Officers of the Corporation: Harold McGraw III, Chairman, President and Chief Executive Officer; Kenneth Vittor, Executive Vice President and General Counsel; Robert J. Bahash, Executive Vice President and Chief Financial Officer; John Weisenseel, Senior Vice President, Treasurer. Copyright © 2010 by Platts, The McGraw-Hill Companies, Inc. Platts is a trademark of The McGraw-Hill Companies, Inc. The McGraw-Hill Companies
  • 2. SPECIAL EDITION HOME mistakes again.” The bill’s provision would Health Act (OSHA) at a rate higher than five Macondo well, which blew out on April 20 and cover all wells on the Outer Continental Shelf. times the rate determined by the Interior has been spewing crude into the Gulf of Mexi- The bill would not cover wells on state lands Department to be the oil industry average for co. In a letter to BP America’s tax department, unless the federal government determines such violations in that period. The company Michael Bromwich, head of the Bureau of that the state cannot effectively regulate the seeking a lease or drilling permit must also Ocean Energy Management, Regulation and well. States would be able to challenge that certify that it did not have more than 10 fatal- Enforcement (formerly the Minerals Manage- determination in federal court and the federal ities at its “exploration, development and pro- ment Service), said he expects the company government would have to prevail in court in duction facilities and refineries” as a result of to immediately begin reporting the amount of order to regulate the state well. It also covers violations of state or federal health, safety or oil and gas produced from the Macondo well. wells that are not located on federal or tribal environmental laws. Finally, the company Bromwich noted that BP asked MMS in June land that, in the event of a blowout, could would have to certify that it was not for temporary relief from the obligation of filing result in extensive and widespread harm to assessed, or did not pay, civil penalties and royally reporting forms. BP also told MMS it public health and safety or the environment. criminal fines of more than $10 million for did not believe it was required to file a report The bill would not cover marginal wells. The violations under either the Clean Air Act or for the April reporting period, Bromwich said. bill would deny a drilling permit unless a CEO the Clean Water Act. demonstrates, and the secretaries of energy Royalties are due on all oil and gas cap- or interior verify, that, in addition to having a Nexen sees no impact yet tured from the well and the company must file safe well design and redundant blowout pre- Canadian independent Nexen has seen no all required forms immediately, the letter said. venter system the company has an oil spill material crimp in operations from the US gov- Additionally, BP could be liable for royalties on response plan to promptly control and stop a ernment’s six-month moratorium on deepwa- all lost or wasted gas and oil if it is deter- blowout if control measures fail. It would also ter drilling in the Gulf of Mexico, but has mined that negligence or violations of regula- require the applicant to have the capacity to delayed its exploration program and appraisal tions caused or contributed to the Deepwater begin drilling a relief well promptly and com- of discoveries, the company said July 15. Horizon disaster. Interior had previously said plete drilling expeditiously. “The current drilling moratorium (in the US it intended to collect royalties on the oil. BP Gulf) has not had any real impact on us,” spokesman Toby Odone said July 15 the com- In separate action July 15, the House Nat- Nexen chief financial officer Kevin Reinhart pany intends to pay all royalties due. “We are ural Resources committee by a 27-21 vote said in a quarterly earnings conference call. fully aware that royalties will be paid and that approved a sweeping bill that would reorgan- “Our production has not been affected and will be done,” Odone said. He said royalties ize regulation of oil and gas leasing on feder- we don’t have any rigs working for us at this would be paid according to the schedule laid al lands, bar companies with poor safety time, so we’re not paying for any idle rigs.” out by regulators. Odone said BP has cap- records from bidding on leases, and create a Reinhart said Nexen does have two deepwa- tured more than 800,000 barrels of crude bipartisan commission to investigate the April ter rigs under contract which are scheduled to from the well. He would not say how much of 20 Deepwater horizon blowout. The bill now arrive in the Gulf later this year. “We’re the oil has been sold into the market or to makes its way to the full House, where Demo- assessing our options now, including use of whom. Previously, a BP spokesman said some cratic leaders have indicated it will become the rigs for other activities in the Gulf and of the Macondo oil had been sold to Gulf part of a package of bills aimed at tightening possibly subletting them outside of the Gulf.” Coast refineries, but would not identify which safety and environmental regulation of the oil In a statement from its second-quarter finan- refiners had purchased the crude. Under BP’s and gas industry in the wake of the BP spill. cial results, the Calgary-based company said lease terms, royalties are due by the end of The bill includes an amendment offered by the “timing impact” of the exploration delays the month following the month that the oil Representative George Miller, Democrat-Cali- is not material because deepwater Gulf proj- and gas is produced. Typically, offshore royal- fornia, that, while not mentioning BP by name, ects involve long cycle times. “To date, the ties range from 12.5% to 16.67% depending is clearly structured to punish BP for its April moratorium has not resulted in any cash on a number of factors, including the depth of 20 Macondo well blowout in the Gulf of Mexi- costs and for the remainder of the six-month the well. BP has said it would pay all net rev- co and a record of safety violations at refiner- period, we expect our costs to be modest, if enue from sales of the Macondo crude to the ies and other facilities. The amendment anything,” Nexen said. National Fish and Wildlife Foundation. The would specifically require oil and gas compa- company already has made an initial commit- nies to certify that, anytime within a trailing BP getting a royalty bill ment of $5 million. Odone confirmed on July seven-year period, the company was not found The US Interior Department notified BP on 15 that the money to be donated to the foun- to have committed “willful or repeated viola- July 15 that it should immediately start paying dation is “net of royalties that will be paid to tions” under the Occupational, Safety and royalties on all oil and gas produced from its the government.” 2 JULY 15, 2010