Analysis of what happened on April 20, 2010, when the Deepwater Horizon rig in the Gulf of Mexico exploded and sank is ongoing, and conclusions continue to be drawn.

But E&P is by its very nature a long-term, forward-looking business that cannot afford to stand still. As the industry approaches the halfway point of 2011, all eyes are focused on the way ahead and the day-to-day business of finding and safely producing oil and gas for the demanding US market.

The fact that the business now appears to be moving ahead relatively smoothly in the Gulf of Mexico during a period of chaotic and unpredictable national events elsewhere in the energy-producing world could serve as a timely reminder to those in charge of the country that security of supply remains a key factor in the nation’s future wellbeing. Ensuring that the upstream industry can do its job responsibly without being overburdened by unnecessary restrictions is an important requisite.

The E&P sector’s wish to move on with activities in the Gulf of Mexico should not be seen as insensitive to the memory of those workers who died onboard the Deepwater Horizon – far from it. The need to progress and learn from such events is genuine, and based on previous experiences such as Piper Alpha in 1988 in the North Sea, it will result in the eventual betterment of oil and gas operations and safeguards around the world.

Looking at the status of the region today, the number of potential project opportunities emerging is encouraging – not just in the US sector – as fresh activity offshore Mexico and Cuba also looks set to begin soon.

But these opportunities will be tackled in a very different environment from the “business-as-usual” scenario that existed a year ago.

New permitting and drilling regulations have had a profound impact on oil companies’ exploration and development plans, and the US government has made it clear that offshore activity in the Gulf of Mexico will continue to be scrutinized like never before.

Tighter regulations mean higher costs. A recent survey of oil companies showed an expectation of significant price increases as a response to more stringent drilling, well design, and overall offshore safety requirements. Exposure to larger liabilities could put the deepwater Gulf of Mexico out of the reach of the small and medium-sized independents that make up two-thirds of the output from the Gulf of Mexico despite, in many cases, their blemish-free records.

PFC Energy recently said that increasing the liability ceiling to US $300 million would wipe out 15% to 20% of operators, which would decrease Gulf of Mexico production by approximately 950 MMbbl over the next decade.

Fortunately, the potential exodus of operators from the Gulf of Mexico has not occurred. Despite sliding to the right by at least a year in terms of their planned onstream dates, forecast expenditure figures remain strong over the next few years and are predicted to rise more than was originally forecast before the Macondo tragedy occurred.

Many operators have used the enforced delay to deal with implementing new regulations and improving design concepts and infrastructure plans for upcoming projects.

But the two most important projects concerning future activity in the Gulf of Mexico right now have little to do with any one particular company or discovery.

Industry spill response initiatives

A massive responsibility rests with the industry’s own self-instigated initiatives to prepare fully – and very publicly – its oil spill response plans. These plans must make companies as prepared as possible for any future incident, with no room for complacency.

The amount of learning from Macondo has been huge, and the practical experience is being wisely invested in projects such as the major-driven Marine Well Containment Co. (MWCC) and the more independent-driven Helix Well Containment Group (HWCG).

Shell, ExxonMobil, Chevron, and ConocoPhillips have pushed to make the non-profit MWCC venture a viable solution, and they have since been joined by BP, BHP Billiton, Apache Corp., Anadarko Petroleum Corp., and most recently Statoil.

Marty Massey, MWCC CEO, said, “Our growing membership is taking a leadership role in improving industry response capabilities in the deepwater Gulf of Mexico.” He went on to describe the development of resources in the Gulf as critically important to the US, as it accounts for 30% of US oil and gas production and supported more than 170,000 American jobs.

BHP chief executive J. Michael Yeager added, “The Marine Well Containment Co. is an important industry effort that allows us to demonstrate that we have the necessary tools readily available to quickly respond to a subsea well control incident. While we don’t expect to ever have to use the equipment, we believe it is our responsibility to be prepared.”

System equipment and services will be available to both members and non-members. Non-members will be able to enter into agreements for access to the MWCC system on a per-well fee basis.

Today MWCC’s interim containment system is ready for deployment and capable of operating in 8,000 ft (2,438 m) water depth and processing up to 60,000 b/d of fluid.

The initial response system includes a subsea capping stack with the ability to shut in oil flow or to flow oil via flexible pipes and risers to surface vessels. The system also includes subsea dispersant injection equipment, manifolds, and capture vessels to provide surface processing and storage. The capping stack has a maximum operating pressure of 15,000 lb/sq in. and has a dual barrier design with a BOP plus containment cap. It also can be controlled by an ROV if necessary.

ExxonMobil is leading the system expansion effort, which will allow operations in 10,000 ft (3,048 m) water depth and process up to 100,000 b/d of fluid, with components to be delivered in 2012.

The subsea capping stack for the MWCC interim containment system has the ability to shut in oil flow or flow the oil to surface vessels. (Image courtesy of Marine Well Containment Co.)

A contract related to the expanding system recently was awarded to Weatherford International Ltd. for the design and construction of topsides process modules for two dynamically positioned tankers in the Gulf of Mexico. The contract is scheduled for completion in 2012. Weather-ford also has a letter of intent for long-term storage and maintenance of the equipment, including providing assistance to deploy and operate the process modules if required to respond to a future underwater well-control incident.

Technip, meanwhile, won a contract for the design, procurement, and fabrication of the umbilical, riser, and flowline components for the expanded system, also set for completion next year. The contractor’s scope of work includes two deepwater riser systems for operation in 10,000 ft water depth using buoyancy elements, connection systems, and flexible jumpers as well as two shallow-water systems for 2,000 ft (610 m) water depth using a lazy wave catenary configuration and one control umbilical.

The HWCG is on course to substantially increase its own subsea well containment capabilities, with plans to expand its ability to control and contain an incident in up to 10,000 ft water depth by 3Q 2011.

The group is an expanding industry cooperative of 24 deepwater E&P companies in the Gulf of Mexico formed to respond to oil spill incidents. It already has a system in place that is capable of facilitating control and containment of spills in 5,600 ft (1,707 m) water depth. This will use Helix Energy Solutions Group’s fast response system, which includes its Q4000 intervention vessel and the Helix Producer I and features a 10,000 psig capping stack.

It was anticipated system capabilities would be expanded to 8,000 ft water depth in April, with capture and processing capabilities of 55,000 b/d of oil and 95 MMcf/d of gas. HWCG also was due to add a 15,000 psig capping stack as E&P went to press.

Helix’s CEO Owen Kratz testified before the House Committee on Science, Space, and Technology earlier in April, taking the committee through the industry’s current and future offshore drilling safety and emergency response technologies. Helix’s vessels played a key role during the Macondo incident control and spill containment effort.

“The provision of effective oil well containment capability is essential to facilitating responsible energy development in the deep waters of the US Gulf,” Kratz said. “Our goal as an offshore service company that employs more than 1,500 people worldwide is to get the Gulf back to work.”

Of the eventual 10,000-ft system, Roger Scheuermann, commercial director for HWCG, said, “Our enhanced response and containment capabilities would exceed the depth of any well currently drilled or planned by the consortium’s members and would allow operators to control capping and containment stacks at the greater depths.”

HWCG currently has agreements in place with more than 30 service providers that will provide additional services, products, and personnel if needed.

It already has carried out two “tabletop” exercises, the latter, for example, bringing together more than 225 technical professionals for a day-long exercise designed to increase members’ coordination and preparedness in the event of a subsea well containment incident.

ATP Oil & Gas Corp.’s ATP Titan drilling and production platform on the Telemark Hub in Mississippi Canyon Block 941 was the first stationery deepwater facility to receive a permit to resume drilling in the GoM after the ban was lifted. (Image courtesy of ATP Oil & Gas Corp.)

“While we do not anticipate an incident, we are committed to maximum preparedness to ensure rapid response and containment of a deepwater oil spill,” Scheuermann said. “Collaboration is critical to our readiness, and that is why the Helix Well Containment Group has conducted two tabletop exercises in the past three weeks.” HWCG is planning a third tabletop exercise in late May.

With guidance from the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE), HWCG has developed a well containment plan that clearly identifies response protocols for foreseeable deepwater containment scenarios. “Bringing together the industry’s brightest and most experienced deepwater personnel, this drill tested our ability to activate the HWCG well containment plan,” said Tim Sargent, chair of the HWCG Technical Committee. “As a result of these drills, we can expedite our decision-making process and optimize the utilization of our plan.”

So why is the progress and visibility of these spill response projects so crucial?

The Department of the Interior estimates that in 2009, 80% of US offshore oil production and 45% of natural gas production took place in the deepwater Gulf of Mexico. Nearly 4,000 wells have been drilled in these depths as well as about 700 wells in ultra-deep water (5,000 ft or 1,524 m or greater).

It is estimated that the impact of regulatory impediments on energy supplies and the economy because of permitting delays and the drilling moratorium has been a loss of 300,000 b/d in oil production since May 2010, according to the Energy Information Administration’s “Short Term Energy Outlook.”

One year after Macondo, the Gulf of Mexico finally is able to begin cautiously ramping up its activity. The 10th drilling permit – the latest in a steady flow now being issued by BOEMRE in line with its rigorous new standards including the requirement to demonstrate the capacity to contain a subsea blowout – can be considered something of a milestone. The region’s operators are beginning to feel their confidence return, along with the planned multibillion dollar expenditure that will result.

But none are under any illusion as to the vital importance of an exemplary period of exploration and development activity. The industry’s very existence as a viable business in the Gulf of Mexico depends on it.

Offshore