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Challenger Energy Graphic

The only 2021 Atlantic drilling activity offshore North America and south of Newfoundland was in Bahamian waters. Yesterday, Challenger Energy (formerly Bahamas Petroleum) provided an interesting update. Some highlights:

  1. The Perserverance I well was drilled approximately 20 miles from the Bahamas-Cuba maritime border, in water 518 meters deep. This was the first exploration drilling in The Bahamas since the mid-1980s, and the first test of any prospect located in deeper waters off the shallower water carbonate banks.
  2. There were no safety or environmental incidents.
  3. The well was plugged and secured in accordance with international and BSEE standards.
  4. Challenger advised the Government of The Bahamas of its intent to renew its exploration licences. 

Geologic summary:

Perseverance-1 reached total depth of 3,905 metres, having intersected five Albian, Upper Aptian, and Mid-Aptian horizons of interest. Post-drill analysis of the well has confirmed the geological risk elements for trap, seal and reservoir were present in the Lower Cretaceous carbonate play. Perseverance encountered high quality reservoirs in the targeted Lower Cretaceous carbonate closures, with thick sequences of evaporites providing effective seals. Depth and thicknesses of reservoir sections encountered were generally as prognosed pre-drill, and reservoir porosity was likewise generally in line with pre-drill expectations (in the range of 10% to 20%).

The presence of hydrocarbons was encountered at various horizons, indicated by elevated gas chromatography readings detected continually during drilling, generally increasing with depth and through the deeper Aptian reservoir column in particular. Oil was identified from high oil saturation values from logs in a number of reservoir sections, thus verifying the existence of a working Lower Cretaceous petroleum system and reservoir quality sequences in the Aptian.

Although hydrocarbons were present, these were not in commercial quantities, with the source quality and migration interpreted as being the primary reason for this non-commercial well outcome.

Petrophysical analysis of the well logs have confirmed high quality reservoirs down to the base of the well with no significant deterioration in porosity with depth, indicating the potential for high deliverability reservoirs in the underlying Jurassic formations.

In aggregate, the analysis of the data from Perseverance-1 drilling is broadly indicative of increased potential for oil in the underlying Jurassic interval (which was not penetrated by Perseverance-1). In particular, the relatively cool well temperatures place the postulated Jurassic source rock (producing in nearby Cuba and the US Gulf of Mexico) in the oil window, thus oil generative.

Challenger Energy, 8/16/2021

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A previous BOE post estimated that current stabilized GoM oil production rates were 1.7 – 1.8 million BOPD. EIA recently announced that May production was 1.791 million BOPD, which is consistent with our estimate. Per the chart below, GoM production was essentially unchanged from the beginning of the year despite a 37% increase in the price of oil (WTI) from 1 January to 31 May. This suggests that stabilized GoM production may have peaked pending first oil from several new projects.

Key production questions:

  • Will new production from Mad Dog 2, Vito, PowerNap, Thunder Horse South 2, and the recently sanctioned Whale project offset high depletion rates elsewhere in the deepwater GoM?
  • Looking further ahead, is deepwater GoM production sustainable without increased drilling activity? Per BSEE data, only 33 deepwater wells were started in 2021 YTD, just 18 of which are classified as exploratory. Drilling is thus at historic low levels. For reference, there were 477 wells started in 2001, 149 of which were exploratory. This level of activity facilitated a 30% growth in oil production, peaking at 2 million BOPD in 2019.

Regardless of one’s views on the urgency and timing of the “energy transition,” is there any doubt that oil and gas will continue to be important to our economy and security for years to come? If not, should deepwater GoM production, with its relatively low carbon intensity, be a core element of our energy strategy? To better understand the trade-offs, I suggest that BOEM’s Environmental Studies Program conduct a peer reviewed assessment of the carbon intensity of domestic and international supply alternatives. Product transportation considerations should be included in this assessment.

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In light of energy security and price considerations, rebounding oil demand, uncertainty about the long-term viability of non-conventional onshore production, and the elimination of most other offshore options, sustaining deepwater GoM production should be a high-priority U.S. policy objective. The deepwater GoM also offers significant environmental advantages in that approximately 1.6 million BOPD are produced from only 58 widely dispersed surface facilities that are well maintained, closely monitored and inspected, and distant from shore. Another advantage of US deepwater production is the low carbon intensity relative to other sources of petroleum (more on this in a later post).

EIA (Chart 1) projects relatively stable GoM production over the next 2 years. Platt’s (Chart 2) is forecasting a slight decline in 2021 production primarily because of COVID-related delays in the initiation of production at Shell’s VIto and PowerNap and BP’s Mad Dog 2 and Thunder Horse South 2 facilities. Based on the latest available EIA data, current stabilized GoM oil production appears to be in the 1.7-1.8 million BOPD range.

Going forward, the concern is the high rate of reserve depletion and the absence of drilling activity needed to replace reserves. Schlumberger data through 2016 (Chart 3) show depletion rates rising to above 20%, the highest (by far) of the offshore regions analyzed. I was unable to find more recent data, but unless this trend line has made a sharp turn, production declines are likely in the next 3-5 years. Further, drilling trends do not suggest the likelihood of significant reserve growth. Data from BSEE’s Borehole File (Chart 4) indicate deepwater well start activity that is comparable to the moratorium years of 2010 and 2011. Even more concerning is the absence of exploratory drilling (chart 5) and the very few operating companies that are drilling deepwater wells. Only five operators have spudded deepwater exploratory wells in 2021 YTD. One US supermajor hasn’t started a well since 2019, and another US major has essentially exited the Gulf.

Deepwater production trends are not easily reversed, so dialogue is urgently needed to assess the implications of declines in drilling, reserves, and industry interest. As the resource manager on behalf of the public, BOEM is the logical choice for initiating these discussions. BOEM’s Norwegian equivalent, the Norwegian Petroleum Directorate (NPD) demonstrates the importance of pro-active land management. The NPD has done an outstanding job of sustaining exploration activity and production consistent with Norwegian safety and environmental values, which are among the highest in the world. On their website, NPD provides ongoing updates on exploration, production, and reserve depletion parameters. Their competency and commitment to sustaining production on the Norwegian shelf is underscored in this news release, an excerpt from which is pasted below:

Exploration is of great importance for the long-term value creation on the shelf. The supply of oil and gas resources from new discoveries, as we have seen so far this year, is necessary so that activity in the petroleum industry does not fall sharply after 2030. Without new discoveries, production can fall by more than 70 percent in 2040 compared to 2020, says Torgeir Stordal, director of Technology and coexistence in the Norwegian Petroleum Directorate.

NPD, July 21, 2021
monthly crude oil production from U.S. federal gulf of Mexico
Chart 1, EIA GoM Production Forecast
Chart 2

cid:image006.jpg@01D2C0D3.5EE7AEC0

Chart 3: Depletion calculated as annual production divided by proved-developed reserves at end of same year

Chart 4: Data from BSEE Borehole File; 2021 Data as of 7/23
Chart 5: Data from BSEE Borehole File; 2021 Data as of 7/23

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40 years ago today, drilling began on the first two exploratory wells on Georges Bank, a large seafloor feature that separates the Gulf of Maine from the Atlantic Ocean. The Cape Cod Times headline (below) attests to the drama that was unfolding 155 miles southeast of Nantucket. After years of debate, oil embargoes, gas lines, and the threat of future supply disruptions had tipped the political balance in favor of offshore leasing, and OCS Sale No. 42 (North Atlantic) was held one week before Christmas in 1979. Looking back, I find it remarkable that only 19 months elapsed between the lease sale and the initiation of drilling. During that time, bids were evaluated, exploration and spill response plans were drafted by the operating companies and reviewed by the Federal regulators and six coastal states, fisheries issues were addressed, and a comprehensive monitoring program was developed and initiated. Perhaps most impressive was the manner in which government (Federal and State), industry, and academic professionals with very different personal opinions about offshore drilling collaborated to assess and monitor impacts and mitigate risks.

The protesters pictured above were dispatched to the Zapata Saratoga drilling rig from the Greenpeace vessel Rainbow Warrior. Given the remote location, the protest was unexpected. However, the drilling operation was not disrupted and no action was taken against the protesters. Four years later, the Rainbow Warrior was bombed by French commandos while in port in Auckland, NZ prior to planned protests against French nuclear testing in the South Pacific. Sadly, one crew member was killed during this incident.

Below is a list of the exploratory wells that were drilled on Georges Bank. In addition, two off-structure geologic test wells were drilled in 1976 and 1977. None of the wells discovered commercially significant oil and gas resources. However, gas shows led to erroneous press reports such as the article below. In 2000, the Minerals Management Service (MMS) published a summary of the geologic findings.


Operator
Lease No.
Block/Well
Rig

___________

Water
Depth
(ft.)


_________


Lat/Long
Miles SE
Nantucket

____________


Onsite


__________



Spud

________


Offsite


_________


Well
Depth
(ft. )

________

Exxon
0170
133/1
Alaskan Star
22540°49’05”
67°56’03”
112
7/22/817/24/81 11/24/81 13,808

Shell
0218
410/1
410/1R
Saratoga
45240°34’24”
67°12’32”
155
7/10/81
8/8/81
7/24/81
8/10/81
8/8/81
3/31/82
875
15,043

Mobil
0200
312/1
Midland
26040°39’27”
67°45’55”
125
11/21/8112/8/816/27/8219,652

Exxon
0153
975/1
Alaskan Star
20941°00’24”
67°37’19”
125
11/24/8111/25/813/10/8214,313

Tenneco
0182
187/1
Alaskan Star
30040°46’15”
67°23’19”
140
3/10/823/12/828/22/8217,744

Shell
0210
357/1
Saratoga
26540°36’51”
67°44’41″1
128
4/2/824/14/829/27/8219,090

Conoco
0179
145/1
Aleutian Key
30040°49’59”
67°17’06”
145
5/9/825/13/828/25/8214,115

Mobil
0196
273/1
Midland
30240°41’04”
67°30’12”
140
6/28/826/30/829/13/8215,190
Excerpted from “Georges Bank Exploratory Drilling, 1981-1982” by EP Danenberger

Regulatory policy lessons from the Georges Bank experience:

  • Regulators with overlapping responsibilities function best as a joint authority, particularly at the field level.  While MOUs/MOAs tend to be primarily for the purpose of protecting regulatory turf, joint authorities focus on the specific mission and how the performance objectives they can best be achieved. Capt. Barry Eldridge had the foresight to co-locate a USCG Marine Safety Detachment, headed by Bob Pond, adjacent to the USGS office at Barnstable Municipal Airport.  This facilitated cooperative reviews, coordinated inspections, and joint exercises.  This collaboration led to the first ever unannounced offshore response drills.    Similar USCG/DOI organizational arrangements have proven effective in the Pacific and in the Gulf of Mexico, particularly for monitoring hurricane preparations and responses.
  • Strive to conduct regulatory functions at a single field office.  USGS had the foresight to assign exploration plan review, environmental assessment, and coordination with State government responsibilities to our district office.  As a result, our environmental specialists, geologists, engineers, and inspectors worked together, along with our State and Federal partners, from the initial planning to the decommissioning stages.  Positive working relations were developed and everyone was informed and involved.  A subsequent reorganization changed the structure of our office and led to greater control from Washington, which (unsurprisingly) was not helpful.  
  • Transparency may be a bit of a buzzword, but it’s critical to regulatory success.  Other than proprietary geologic information and well reports, we fully informed our regulatory partners about the status of activities, all incidents and near-misses, and any operational issues. Conveying news that is not-so-good, like the mooring failures that were experienced by 2 Georges Bank rigs, is part of the mission.
  • Those regulating the operations should be informed about and a part of the environmental monitoring programs. Our office worked closely with the Woods Hole and other scientist conducting the comprehensive Georges Bank Monitoring Program.  In support of Mike Bothner, USGS Woods Hole scientist, we tracked every drilling fluid additive, and verified the materials that were available on each rig.  Mike conducted a material balance on the barite and looked for chromium and other metals in sediments near the well sites. His outstanding work is summarized in this paper.  

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Much ado about nothing courtesy of the Associated Press:

Copies of the forms submitted by more than 100 inspectors, engineers and permit reviewers in five Gulf coast offices were obtained by the AP under the Freedom of Information Act. Personal information, such as the names of the employees, their friends and their family members, was blacked out to protect privacy. But the companies with ties to government workers were disclosed, and they represent a who’s who of the offshore oil and gas industry, from majors like Chevron, Shell and BP to smaller companies such as W&T Offshore Inc., Ankor Energy LLC and Hilcorp Energy Co.

So yesterday we linked an article about proposed legislation that would, among other things, require that offshore inspectors have “at least three years experience in the oil and natural gas field.” Today, we read contradictory (and silly) comments like the one below in the AP piece that criticize such experience. How would you like to be an oil and gas inspector or prospective offshore regulator?

“It’s nearly impossible to determine where the oil industry ends and the government’s regulatory agency begins,” said Scott Amey of the Project on Government Oversight, after reviewing AP’s data. “These new instances indicate that BOEMRE staff are connected to individuals and oil companies, which raises concerns about lax oversight and the integrity of the agency. Without enhanced enforcement authority and independent oversight of these potential conflicts, I’m uncertain that BOEMRE can assure the public that it is truly watchdogging the offshore oil industry.”

Give these people a break. I have seen absolutely no evidence that improper government-industry relationships or compromised inspections had anything to do with the Macondo blowout or any other recent incident. Inspection and engineering personnel are under continuous scrutiny well beyond what most employees would accept, and recuse themselves from assignments if there could be even a perception of a conflict of interest.

The US offshore program, and every other safety regulator, needs people who understand the operations and technology that they regulate. These regulators need to communicate regularly with industry personnel on operational and regulatory issues. Too little interaction with their professional peers is a greater danger than too much. You don’t advance safety technology and procedures, and resolve concerns, without communication.

DOI offshore personnel have had and will continue to have more than enough oversight; time to move on to another cause.

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Our friend Tore Fjågesund from WellBarrier sent us this clever poster.

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The Commonwealth of Virginia, home of BOE headquarters, continues to provide national leadership on energy issues, most notably offshore oil and gas exploration.  The Governor (Republican), both US Senators (Democrats), and both candidates for the US Senate support offshore leasing.

“Opening up and expanding Virginia’s offshore resources to responsible natural gas and oil exploration holds significant promise for boosting needed domestic energy production while bolstering the commonwealth’s economy.” Quote from Senator Jim Webb in the Richmond Times Dispatch


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From Bloomberg.com:

A force majeure notice was delivered to the government of Ghana and Ghana National Petroleum Corp. after an anchor- handling accident damaged the rig, Dallas-based Kosmos said today in a statement. The Marianas was scheduled to arrive July 10 for drilling, Kosmos said.

Kosmos said it anticipates that either the Marianas or a substitute rig will be “available soon” to drill the Cedrela-1 well in the West Cape Three Points Block. Transocean, based in Vernier, Switzerland, reported yesterday it evacuated 108 of 121 workers on the rig after it took on water while preparing to leave an Eni SpA drilling site off Ghana.

The market for deep-water rigs in that part of the world is so tight that Kosmos will likely have to wait at least a month for a comparable drilling vessel, said Brian Uhlmer, an analyst at Global Hunter Securities in Houston. Moving an unused rig from the Gulf of Mexico could take about 45 days.

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  1. Will Transocean be releasing any details on yesterday’s “water ingress?” Will the results of their internal investigation ever be made public? (We are still waiting for their report on the fatal crane incident last August offshore Nigeria.)
  2. Will an independent investigation be conducted? Will the authorities in Ghana participate?
  3. Did the damage that the Marianas incurred during Hurricane Ike (2008) or Tropical Storm Ida (2009) in any way contribute to yesterday’s apparent structural failure?
  4. When will we have an international system that ensures (a) prompt, independent, and complete investigations of all significant accidents, and (b) the timely release of findings?

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Per Platts:

Deepwater driller Transocean confirmed that its semisubmersible rig Transocean Marianas operating off the coast of West Africa had taken on water early Wednesday, forcing the evacuation of some crew members.  “A water ingress was noticed onboard the Transocean Marianas during operations offshore Ghana” for Italian major Eni, Transocean spokesman Guy Cantwell said. “The rig is stable at this time. There are no injuries, and all non-essential personnel are being evacuated.” 

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