Is the next oil boom under water?
Snarled by safety concerns just three years ago, deepwater oil drilling may take deep pockets but it could come with deep rewards, Graeber writes.
Strong growth in international drilling activity helped increase quarterly profits for some of the largest oil companies in the industry. Oil services company Baker Hughes Inc. said last week the number of rigs counted internationally increased 2.3 percent when compared to last year. Rig operator Transocean, meanwhile, said it was looking to tap into oil deposits in water depths previously out of reach to explorers. The drilling technology may be expensive but the rush offshore seems worth the risk for major investors.
Schlumberger Ltd. (SLB) and Baker Hughes Inc. (BHI), two of the world's largest oil services company, last week reported increases in their quarterly profits thanks in part to a surge in international drilling. In its rig count last week, Baker Hughes said it saw the number of rigs working in the United States drop by 100 when compared with the same time last year. Internationally, however, it said the number of rigs rose by 30 to 1,284 when compared with 2012. Its rig count serves as a gauge of the demand of the world's appetite for oil and natural gas.
For contractors, the streak was no different. Transocean saidthe total value of new contracts it secured since Sept. 18 was $2 billion. That's up from the new contract total of $64 million in its September fleet status report. The company last weekannounced it secured a five-year contract to build a drillship for Chevron that could operate in water depths of up to 12,000 feet. Transocean set a world record in July by drilling a well in 10,411 feet of water off the coast of India. Further west, BP, Chevron and now Cairn Energy are looking at frontier developments off the West African coast. Morocco, in particular, seems to be the new darling for emerging developments. Cairn, based in Edinburgh, said last week operations at its first well offshore Morocco would begin "shortly." It said activity there would be the first deepwater work of its kind off the coast of the West African nation. (Related article: Ex-Halliburton Manager Faces Jail for Destroying Deepwater Horizon Evidence)
Offshore activity grabbed the world's attention when Transocean's rig, Deepwater Horizon, caught fire and sank in the Gulf of Mexico in 2010. BP and U.S. Justice Department lawyers are still discussing just how much oil spilled from the wreckage. Even by the most conservative standards, the amount is staggering at 2.4 million barrels. Three years and a ban on offshore drilling later, however, and lawmakers in the U.S. Senate passed legislation for oil drilling along the U.S.-Mexican maritime border. Though House leaders may balk over some of the language in the bill, pro-oil Republican legislators may find the 172 million barrels of oil and 304 billion cubic feet of natural gas to good to resist.
In most cases, it costs more than $500,000 per day for an oil company to lease a rig from a company like Transocean. Nevertheless, global energy research company Wood Mackenzie expects $114 billion to be sunk into deepwater activity by 2022. Snarled by safety concerns just three years ago, deepwater activity may take deep pockets but it could come with deep rewards.