Gulf of Mexico Oil Spill Blog Oil Drilling Challenges

Oil Drilling Challenges

gulf of mexico oil spill oil drilling

Drilling challenges slowly reshape oil exploration

BP oil spill prompts new regulations for drillers

By Myra P. Saefong, MarketWatch

TOKYO (MarketWatch) — More than six months after the Deepwater Horizon drilling rig sank, resulting in an estimated release of nearly 5 million barrels of crude oil into the Gulf of Mexico, regulations have tightened and the industry is just getting a taste of the potential changes and challenges ahead.

For awhile, the U.S. government’s temporary halt on new deepwater drilling seemed to be among the industry’s biggest long-term worries in the wake of the big oil spill at the site of BP PLC’s /quotes/comstock/13*!bp/quotes/nls/bp (BP 42.98, -0.01, -0.02%)  Macondo well in April.

The Obama administration implemented a six-month moratorium on deepwater oil drilling immediately after the spill, then lifted that ban on Oct. 12, several weeks ahead of schedule.

Even so, “recovery of deepwater drilling in U.S. waters will be very slow and will take several years,” said Beth Sewell, a managing partner at Quantum Power & Gas Services.

Randy Stilley, chief executive officer of Seahawk Drilling Inc. /quotes/comstock/15*!hawk/quotes/nls/hawk (HAWK 9.00, -0.09, -0.99%) , told MarketWatch on Tuesday that “it’s anyone’s guess when the first new deepwater drilling permit will be issued, and … it would seem likely that new permits for deepwater drilling will be very slow in coming.”

Before the blowout on April 20, there were 33 deepwater rigs and 45 shallow-water rigs working in the U.S. Gulf of Mexico, he said.

Most of the deepwater rigs are currently idle and some have already left for work in other regions. Among the shallow-water drillers, where there has been no official moratorium, the working rig count has dropped to 27 rigs, he said.

“Without a significant increase in the pace of drilling permits being issued for both shallow and deepwater drilling in the Gulf of Mexico, more rigs will go idle between now and the end of the year,” Stilley said.

Drilling pains

Oil drillers have obviously suffered in the wake of the oil spill and it could very well be a pain that lasts.

“There will likely be some big changes within the industry, some of which will spill over to other areas and countries,” said Lew Watts, chief executive officer of global energy advisers Lew Watts & Associates. Read a story about the lessens learned from the oil spill

Among those changes, the contractual relationship model between operators and service companies will move to shift more liabilities to service companies, creating “upward pressure on costs of products and services,” he said.

Also, the scale of liabilities at risk overall “could prove problematic” for the smaller independent drillers, with only those with large balance sheets able to afford to play, said Watts.

Stilley said that “from a profitability standpoint, every driller in the Gulf of Mexico has seen their profits drop and this will likely escalate during the fourth quarter of 2010.”

For BP, the cost of the spill, so far, is a bit more transparent. The oil giant saw pre-tax charges related to the spill of $7.7 billion in the third quarter and $32.2 billion in the second quarter.

“As for other companies operating in the Gulf, there is definitely a voluntary ‘belt tightening’ going on as far as their internal drilling procedures are concerned, and that will intensify for some time to come,” said Sewell. “These companies will take every step necessary to be sure they do not encounter a major spill in the future.”

Shallow offshore drilling — drilling in less than 500 feet of water depth — will be hurt as well. Read more..

source: Drilling challenges slowly reshape oil exploration Commodities Corner – MarketWatch

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One Response to Gulf of Mexico Oil Spill Blog Oil Drilling Challenges

  1. Pingback: Drilling for Dough « Oil & Gas Stocks Research & Information Exchange Traded Funds NYSE AMEX NASDAQ ETF

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