The Gulf of Mexico, one of the United States’ most important regions for energy resources and infrastructure, has seen huge changes since last year’s Deepwater Horizon disaster, reports Emran Hussain
Prior to the April 2010 explosion aboard Transocean’s Deepwater Horizon rig, the Gulf of Mexico (GoM) accounted for 30 per cent and 13 per cent of total US crude oil and offshore gas production respectively.
Further downstream, the GoM also accounted for some 40 percent of total US petroleum refining capacity and almost 30 percent of its total natural gas processing plant capacity, according to figures from the US-based Energy Information Agency.
In terms of production, there were some 90 rigs operating in the GoM before the disaster, with 33 of these in deep water. In 2009, Gulf of Mexico produced 1.6 million bpd of crude oil, just under a third of the nation’s total liquid fuels production, and 2.7 Tcf of natural gas, according to the EIA.
Recent reports indicate drilling activity still has some way to go in reaching pre-spill levels, with eight rigs said to be moving out of the GoM to drill elsewhere most recently.
Jobs outlook
Along with production of oil and gas, employment within the Gulf of Mexico’s largest industry has taken a massive hit over the last 16 months, with tens of thousands of workers in the region losing their jobs.
Around 15 per cent of the 242,000 jobs in and around the GoM were lost, largely due to the industry-wide fallout from the Deepwater disaster, according to a recent study, ‘United States Gulf of Mexico Oil and Natural Gas Industry Economic Impact Analysis,’ conducted by Quest Offshore Resources for the API. The study highlighted that if the issuing of permitting of operators in the GoM returned to levels seen before the US government’s current moratorium, around 190,000 new jobs could be created.
"The slow pace of Gulf development since the accident has cost jobs, revenue and energy production," said API president and CEO Jack Gerard in July. "The study shows what could be accomplished on jobs if project approvals and permits could get back to a normal pace. We’ve done the necessary work raising the bar on safety.”
"Total employment related to offshore Gulf of Mexico oil and natural gas industry operations could reach 430,000 jobs in 2013 if the permitting slowdown is reversed," added Gerard.
"As large as the jobs numbers are, however, they are just a fraction of all the jobs our industry could create with more forward-looking development policies in all federal onshore and offshore areas.”
Safety shake-up
Along with the environmental impact, with the disaster described as one of the worst in US history, the Gulf of Mexico oil spill has forced the industry to review its existing levels of safety.
The incident called into question not only the HSEQ practices employed by rig operator Transocean and its employer BP, but of the deepwater drilling industry, particularly in the GoM and the greater oil and gas exploration and production community. Many industry experts have indicated the spill may have been prevented if safety procedures had been followed.
According to Andy Radford, senior offshore policy adviser at the American Petroleum Institute (API) in Washington DC: “The main fallouts [of the incident] have been changes to the regulatory structure for operations in the Gulf of Mexico, changes to the regulations concerning testing of well control equipment, cementing practices (adoption of API Recommended Practice 65-2 into the regulations), and safety management systems (incorporation of API Recommended Practice 75 into the regulations).”
Shortly after the rig explosion, the US government introduced changes to the regulatory structure for operations in the GoM. The industry itself set up a number of task forces to address aspects of offshore operations that emerged during the incident, such as equipment, operations and spill response.
Radford explained that to capitalise on this, the API and the industry have formed the Center for Offshore Safety to serve the US offshore oil and gas industry, with the purpose of adopting standards of excellence to ensure continuous improvement in safety and offshore operational integrity.
Blame game
Walid Hai, Control Systems engineer at Bechtel’s London office, was working for Rockwell Automation when the disaster struck the Transocean rig last year. He described how, immediately following the incident, his office was flooded with calls from several offshore rigs where Rockwell had supplied control systems.
While he concedes that the calls were mainly regarding minor issues with instrumentation and communications, the episode demonstrates the level of anxiety that rig operators within the region felt at the time.
“We have to treat all calls seriously,” he said. “A mistake can be the start or the only step towards a major accident in such a dangerous environment.”
“I just want to emphasise that in my view, no changes to procedures need to be made in offshore drilling. What needs to be realised is that the procedures are there to be followed and the primary cause of the Macondo well disaster was because procedures were not followed,” added Hai, who spent time on another Transocean rig, the Sedco 714, in Scotland last year.
“The incident at the Gulf of Mexico happened due to a series of mistakes and mismanagement over a period of time. Chasing large bonuses and achieving safety goals do not always correspond,” he added.
Hai further highlights how the incident was the culmination of an entire year’s worth of errors related to the poor quality of the cement job, the cement itself and the casing around the well. This was coupled with the early sending off from the rig of Schlumberger staff, who were carrying out analysis of the cement job.
Hai calls that particular incident “petty”: “They [Schlumberger staff] were following procedures to identify problems and clearly this was going to hinder the target of an early finish. They were sent home without the job being completed.”
Technology shift
Another impact the disaster has had on oil and gas operations in the GoM is in the area of technology.
Venture capital firm Energy Ventures specialises in upstream technology investments, currently running a US$350 million fund – its fourth such fund – in this area. Partner and president Jim Sledzik, based in Houston, believes that last year’s oil spill and subsequent tightening of regulations has not only driven many rig operators to seek pastures new, but has also pushed away quite a lot of new deepwater technology innovation and development, for which the GoM has traditionally been a testing ground.
“The Gulf of Mexico was a very big market and very much a technology innovator as well in trying and doing the cutting edge stuff so that technology innovation was pretty much put on hold for more than a year,” said Sledzik.
Other deepwater prospects offered in places like Brazil’s offshore pre salt basin are now where future deepwater technology innovation will take place, at least for now.
Sledzik said: “Petrobras is a leader in technology for the deepwater sector, and they’re innovators and I think that they are visionaries and so I think a lot of technologies will be tested in Brazil and tried and then imported into the Gulf of Mexico. The first FPSO in the Gulf of Mexico was a Petrobras FPSO, which was technology that they had used in Brazil and elsewhere and then imported there.”
“We may be at a point now where technologies are tested [elsewhere] and then brought to the Gulf of Mexico,” he added.
While the disaster has shifted a lot of focus to safety, Sledzik believes HSEQ procedures on the Transocean rig were not lacking.
“In my experience working for 18 years with Schlumberger, the safety culture is fundamental and that’s been my experience pretty much around the globe, anywhere you are…it’s somewhat independent of the customer.
“In general in the industry the HSEQ culture has been driven home for many years now and I think it’s ingrained in the culture,” he added.
Uncertain future
Last April’s oil spill cast a pall of uncertainty across the entire deepwater drilling industry, with activities particularly in the GoM expected to take a long time to return to levels comparable with the lead up to the incident.
According to Sledzik, new deepwater exploration and production technology will continue to be implemented in the GoM, albeit with closer scrutiny given to the risk profiles of each of these technologies.
His sentiments seem to reflect a larger sense of ambiguity held among operators in the GoM. In its second quarter report, Norwegian offshore oilfield engineering company Subsea 7 in early August said that despite the availability of more drilling permits, there did not seem to be too many takers for big projects.
It also blamed slow demand citing the lack of “visibility regarding the timing of major projects” along with jittery US officials expressing caution on new field developments.
The API’s Radford adds that: “Operators had a sense of certainty and predictability in their operations in the Gulf. As such they were comfortable making the long term investments needed to operate in deepwater, where exploration and production activities for a single project can run to US$2 to $3 billion. Since the incident, the certainty and predictability operators had come to expect has been eroded. It is taking longer to get plans and permits approved, making it difficult to efficiently schedule drilling operations.”
“Also, in terms of lease sale activity, there were regularly scheduled lease sales in the western and central Gulf every year. As of now there has been no leasing activity since March of 2010. A sale may be held later this year, but if it does not take place it would be the first year since 1963 where there was no lease sale in the Gulf of Mexico,” he added.
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