Gulf Oil Production Moving to Africa

[russ_watters]

It has now become less politically/economically risky to drill deep for oil off the coast of Africa than off the coast of the US:

What does it say about America’s investment climate when the Republic of Congo now attract oil rigs that once drilled the Gulf of Mexico? That’s the effect of the Obama administration’s nonstop bid to halt production here.

As millions were enjoying the World Cup last weekend, powerful engines began churning the waters of the Gulf of Mexico as Diamond Offshore Drilling began pulling its huge floating rig on a 60-day trip to the Republic of Congo...

Diamond Offshore had already moved one of its big floating rigs to the Nile River delta of Egypt a few days earlier, and now another is heading to the Congo. These facilities rent for $510,000 a day — a lot of money to lose as rigs await the Obama administration's "six-month pause" to run its course.

Industry analysts estimate that another five of the 33 rigs that have been directly idled will be leaving the Gulf for places with better business climates.

http://www.investors.com/NewsAndAnalysis/Article/540265/201007131904/Idled-Gulf-Rigs-Head-For-Africa.aspx

My dad read about this in a chemical engineering journal and mentioned it, so I googled it - it hasn't gotten much traction in the mainstream news.

 

[Evo]

It has now become less politically/economically risky to drill deep for oil off the coast of Africa than off the coast of the US: http://www.investors.com/NewsAndAnalysis/Article/540265/201007131904/Idled-Gulf-Rigs-Head-For-Africa.aspx

My dad read about this in a chemical engineering journal and mentioned it, so I googled it - it hasn't gotten much traction in the mainstream news.

Isn't the Congo smack dab in the middle of Africa?

I'll be darned, there is a tiny piece that has a coast.

 

[Ivan Seeking]

So in sixty days they could make it back when a safe method of managing drilling is found. Obviously they are highly mobile or they wouldn't be leaving so quickly.

Or maybe they have been shown that in the US, they will be held responsible for disasters. If that's the case, then good riddance.

 

[OmCheeto]

It has now become less politically/economically risky to drill deep for oil off the coast of Africa than off the coast of the US: http://www.investors.com/NewsAndAnalysis/Article/540265/201007131904/Idled-Gulf-Rigs-Head-For-Africa.aspx

My dad read about this in a chemical engineering journal and mentioned it, so I googled it - it hasn't gotten much traction in the mainstream news.

Industry analysts estimate that another five of the 33 rigs that have been directly idled will be leaving the Gulf for places with better business climates.

Given that the gulf seems to be the # 1 holding tank for these types of rigs, and the Canadian Atlantic is at 100% utilization, I'd say the Congo is the wrong direction for those rigs to be moving.

Economically speaking of course.

 

[Evo]

What is the financial loss to the US of these rigs leaving?

 

[Gokul43201]

It has now become less politically/economically risky to drill deep for oil off the coast of Africa than off the coast of the US: http://www.investors.com/NewsAndAnalysis/Article/540265/201007131904/Idled-Gulf-Rigs-Head-For-Africa.aspx

My dad read about this in a chemical engineering journal and mentioned it, so I googled it - it hasn't gotten much traction in the mainstream news.

Heard it on NPR a few days ago. And what exactly is a "nonstop bid to halt production here"?

 

[OmCheeto]

What is the financial loss to the US of these rigs leaving?

I suppose that depends on who owns them. At a utilization rate of only 38.3%, that mean that only 93 of the 243 rigs are being used. Which implies that 150 rigs are in some big "used car lot" somewhere in the gulf right now. 30 or 40 of them floating away probably won't make that much of a difference.

 

[KalamMekhar]

Upwards and onwards, they always say. When you have a government that will ban any sort of drilling at the first sign of troubles, the first thing you want to do is get as far away from there as possible.

 

[Gokul43201]

When you have a government that will ban any sort of drilling at the first sign of troubles, the first thing you want to do is get as far away from there as possible.

Where do you have such a government?

 

[KalamMekhar]

Would you wait around for 6 months while your "boss" sits on his hands, and doesn't allow you to work or make money?

 

[Gokul43201]

Would you wait around for 6 months while your "boss" sits on his hands, and doesn't allow you to work or make money?

How does this answer my question?

You mentioned "a government that will ban any sort of drilling at the first sign of troubles". I'm asking you a very simple question: what government are you talking about?

 

[russ_watters]

First, a few points of clarification:

So in sixty days they could make it back when a safe method of managing drilling is found.

120 days - it is a 60 day trip each way. And that doesn't take into account the economic calculus, which has to weigh the losses from a second 60 day trip against the profits from 60 days worth of drilling off the shore of the Congo. They may not return, even if the moratorium is lifted.

Given that the gulf seems to be the # 1 holding tank for these types of rigs, and the Canadian Atlantic is at 100% utilization, I'd say the Congo is the wrong direction for those rigs to be moving.

I suppose that depends on who owns them. At a utilization rate of only 38.3%, that mean that only 93 of the 243 rigs are being used. Which implies that 150 rigs are in some big "used car lot" somewhere in the gulf right now. 30 or 40 of them floating away probably won't make that much of a difference.

I think you misunderstood. These are rigs that became idle due to the moratorium, not a rig that was already in a "parking lot" somewhere. These are deep water rigs and there aren't as many of them out there.

 

[russ_watters]

Regarding opinions:

So in sixty days they could make it back when a safe method of managing drilling is found.

It was my impression that you were against expanded offshore drilling in the US and in favor of a ban in deepwater drilling 'until it could be made safe'...which is pretty open-ended, based on (my interpretation of) your characterizations that it is inherrently unsafe. I guess I figured you'd be happy that drilling platforms are moving from the Gulf of Mexico to Africa. Aren't you? Do you really hope they come back and do more deep water drilling in the Gulf?

This is an example of an issue where people like to ignore the consequences. We can't have it both ways: decisions - any decisions - to limit drilling off US shores has a direct result of expanding offshore drilling elsehwere, which directly acts to worsten two of the fundamental problems (interlinked) with oil: foreign dependence and the trade deficit.

If people - such as our President - want to improve the trade deficit and reduce our dependence on foreign oil, they should not be taking/supporting actions that directly do the opposite.

 

[russ_watters]

What is the financial loss to the US of these rigs leaving?

Well, we can ballpark it. The rigs themselves rent for half a million a day, but they produce on the order of 20,000 barrels a day. At $75 a barrel, that's $1.5 million a day.

They also have a crew of around 150, so that's 150 jobs lost per rig, not including any on-shore support crew (I have no idea how many that would be).

 

[russ_watters]

Heard it on NPR a few days ago.

Ok.

And what exactly is a "nonstop bid to halt production here"?

Not completely sure, but it may have something to do with Obama being on his second or third attempt at a deep water drilling moratorium. Or he may be saying something broader. I'm not really interested in his characterizations of the issue, though - I posted the article (the first I found on Google) for the factual content.

 

[russ_watters]

Regarding Obama's position on offshore drilling, hopefully people haven't forgotten already that Obama was strongly opposed to offshore drilling early in his campaign before the public opinion numbers pushed him toward begrudging support. It is not reasonable to believe that he actually supports offshore drilling, but rather he's shown support for it due to intense public opinion pressure. So anything that changes public opinion will have a chance of allowing him to go back to his core beliefs on the subject.

In addition, the "6 month moratorium": does anyone here actually believe it would only be for 6 months? Based on the games he's playing with his nuclear waste "Blue Ribbon Panel", it is not a stretch to believe he could stall in lifting the ban. In 6 months, he may just say 'meh - not safe enough yet - we're still working on it'. Then it goes into the black hole with the nuclear waste problem.

Those are the types of possibilities that a businessperson has to weigh when deciding to pick up a drilling rig and move it to the Congo.

 

[OmCheeto]

Well, we can ballpark it. The rigs themselves rent for half a million a day, but they produce on the order of 20,000 barrels a day. At $75 a barrel, that's $1.5 million a day.

They also have a crew of around 150, so that's 150 jobs lost per rig, not including any on-shore support crew (I have no idea how many that would be).

hmmm... So 33 rigs have been idled, which implies that 117 rigs were already idle.
117 previously idle * 20000 bbls/day * $75/bbl * 365.25 days/yr - rental costs = $42.3 billion/yr in lost revenue, before the moratorium went into effect.

Why is it now that we are worried about lost revenue and lost jobs?

http://www.chron.com/disp/story.mpl/business/7101738.html"
July 9th, 2010
...
And the Ocean Endeavor's exodus probably won't be the last, according to oil industry officials and Gulf Coast leaders who warn that other companies eager to find work for the now-idled rigs are considering moving them outside the U.S.
...

So it's only been 8 days since the first rig left.

And 4 days since the second one left:

"[URL
Another deepwater rig leaves Gulf[/URL]
July 13, 2010

The Congo project is expected to generate about $234 million in total revenue.

$234 million isn't quite so significant as $42 billion.

"[URL
U.S. Shallow-Water Drilling Delay May Be Nearing End, Hercules's Noe Says[/URL]
Jul 17, 2010
...
Before the BP spill that begin with an explosion on a rig on April 20, the Interior Department was approving 10 to 15 shallow-water drilling permits a week for new wells, Noe said.
...

Well that's a peculiar number. At 10 permits a week, 117 idle rigs should have been operational in 3 months.

In a statement yesterday, the Interior Department said nine shallow-water drilling requests are pending while regulators evaluate their compliance with rules on how companies would respond to a worst-case blowout scenario.

That sounds prudent to me.

Seventeen of 36 applications for permits not subject to the worst-case requirement, such as sidetrack and bypass wells, have been approved, the department said.

So it's not like we've shut down the gulf, just potentially deadly, environmental disaster, can't shut it down because we don't really know what we are doing at these depths, kind of wells.

 

[russ_watters]

hmmm... So 33 rigs have been idled, which implies that 117 rigs were already idle.

Again, you're comparing two different sets of rigs and calling something "lost revenue" that didn't exist anyway.

 

[edward]

Here is an interesting PBS interview with the CEO of Diamond Offshore Drilling.

http://www.pbs.org/nbr/site/onair/gharib/larry_dickerson_of_diamond_offshore_drilling_100713/

It appears that their drilling rigs will be gone for at least a year.

 

[KalamMekhar]

My bet is they will be back in 850-1000 days.

 

[OmCheeto]

Here is an interesting PBS interview with the CEO of Diamond Offshore Drilling.

http://www.pbs.org/nbr/site/onair/gharib/larry_dickerson_of_diamond_offshore_drilling_100713/

It appears that their drilling rigs will be gone for at least a year.

Interesting article.

Good to see the industry agrees with us:

GHARIB: So do you think, then that at some point there is going to be certain standards on safety and drilling and that these will become international standards, so no matter where you drill, these are the kinds of new rules and restrictions that the industry is going to have to deal with? Is that your take on this?

DICKERSON: No. I think this will be largely U.S. standards. Other parts of the world have already in place some standards that probably are more robust than those in the U.S.

Let the rigs leave, until we can decide on how to keep a clean sandbox.

 

[brainstorm]

This seems to me like more posturing in the game of influence oil-speculation. Probably the main goal is to get media attention and stimulate public pressure to win them back. It's like when you walk away from the thing you're buying to try to get the salesperson to sweeten the deal, or in this case allow you to drill for oil.

The problem is that oil-politics aren't stereotypically friendly negotiations with compassionate winners and good losers. Gulf drilling seems relatively safe to me compared with going somewhere in Africa in between numerous conflicting regimes. Maybe this is going to turn out to be an AU government opportunity to demonstrate its management abilities with regard to balancing economic and social-environmental interests, including potentially violent military conflict. Wouldn't it be nice if everyone could just get along and come up with a sustainable plan and global treaty for oil-harvesting and distribution so that people wouldn't have to fight over it?

 

[edward]

It looks like it is now a political football.

These are drill rigs moving out. There are still nearly 4000 production rigs in the gulf.

http://oceanexplorer.noaa.gov/explorations/06mexico/background/oil/media/platform_600.html

EDIT: A significant number of new drill ships are under construction.

http://dalesdesigns.net/drillship.htm

I am more concerned about the fact that America doesn't produce these high tech behemoths.

Korean companies: Samsung, Daewoo, and Hyundai are the big producers. A few are built in Norway.

 

[Evo]

It looks like it is now a political football.

These are drill rigs moving out. There are still nearly 4000 production rigs in the gulf.

http://oceanexplorer.noaa.gov/explorations/06mexico/background/oil/media/platform_600.html

A significant number of new drill ships are under construction.

But only a handful are deep sea rigs, in comparison. Those are the ones that are potentially problematic.

 

[edward]

But only a handful are deep sea rigs, in comparison. Those are the ones that are potentially problematic.

Ironically the Deepwater horizon had drilled a number of wells in the gulf. Last septmeber they brought in a record deep well that is in production

Her work included wells in the Atlantis and Thunder Horse Oil Fields, a 2006 discovery in the Kaskida field, and the 2009 Tiber oilfield.[9][10] On September 2, 2009, Deepwater Horizon drilled on the Tiber oilfield with a vertical depth of 35,050 feet (10,680 m) and measured depth of 35,055 feet (10,685 m), of which 4,132 feet (1,259 m) was water, which was in this time the deepest oil well in the world.[10][11][12][13] The well was more than 5,000 feet deeper than the design specification on the company's fleet list.

http://www.godlikeproductions.com/forum1/message1082003/pg1

Edit: I just now noticed that last line in the quote

 

[mheslep]

My bet is they will be back in 850-1000 days.

Given the cost of lost income during a move is $30M, why do you believe the redeployed rigs would ever come back?

 

[mheslep]

Let the rigs leave, until we can decide on how to keep a clean sandbox.

What do you expect are the consequences of such a decision? The lost oil is going to replaced by another source. You are probably aware that the Gulf oil will be replaced by imported oil, often transported by tankers. The spill risk of tankers is known to be much higher than that of drilling platforms.

 

[brainstorm]

What do you expect are the consequences of such a decision? The lost oil is going to replaced by another source. You are probably aware that the Gulf oil will be replaced by imported oil, often transported by tankers. The spill risk of tankers is known to be much higher than that of drilling platforms.

The problem is that there has been years of high gas prices to stimulate greater conservation and cultural adaptation to reduce oil-usage and demand. GW Bush proclaimed addiction to oil and B Obama campaigned on a platform of reducing oil-dependence through technological innovations and substitution with more renewable sources. Instead of rallying for cultural-economic changes to promote conservation and reduce usage/demand, oil-consumers rallied for expanded domestic drilling to leverage lower prices on the global market. Is it any wonder, then, that the supply-side is taking up the challenge and competing for the business? Everyone wants access to an oil market where demand is as inelastic as N America. Once the balance of production is sufficiently shifted away from domestic production, the oil-price will likely be re-inflated by some act of war or who knows what. At that time, if oil-demand continues to be as inelastic, it will be another free-for-all selling $4/gallon gas at the pumps (or more).

Hopefully, consumers will commit to strategies of sustainable conservation by that time, but if not they will get a free ride to the cleaners. Really something like the Kyoto treaty would be a good idea, except for the grounds shouldn't be global warming but rather simply limiting the rate of global fossil-fuel depletion. Governments should not be allowed to trade credits in order to foster greater per-capita consumption among some people. Instead they should be required to adopt cultural practices of governments that achieve conservation standards. Governments that achieve cultural means of conservation should also increase migration to promote lifestyles and economic practices that facilitate greater conservation. In this way, people who find themselves stifled in innovating culturally due to local constraints can have the opportunity to circumvent those constraints. It's bizarre to think of having oil-addiction refugees detoxed among people who are less oil-dependent, but peer-pressure may be too strong a factor for adequate economic-cultural innovations to occur within habituated social-networks.

 

[mheslep]

The problem is that there has been years of high gas prices ... GW Bush proclaimed addiction to oil and B Obama campaigned on a platform of reducing oil-dependence through technological innovations and substitution with more renewable sources. ...
.

How are all of those disparate statements relevant to my post on spill risks increasing with imports to which you responded?

 

[brainstorm]

How are all of those disparate statements relevant to my post on spill risks increasing with imports to which you responded?

sorry, I should have been more explicit. I was responding to your assumption that demand would not change and lost domestic production would HAVE TO be replaced with imports. I was trying to point out that you are right that there are more, or at least different, risks and costs of importing - but that consumers and businesses have had many years to establish sustainable conservation habits. By the end of $4/gallon gas, most people had become aware of how dependent many economic activities are on fuel costs, so you would think there would be more interest in increasing conservation through economic and cultural reforms. So, in direct response to your issue of spill risks, I'm sure that is one issue along with others - but I question whether it will ever be enough to motivate concerted effort to adapt economic activities to radically reduce oil-dependency. People simply don't believe in change they can't believe in, whether it is possible or not. There used to be a culture of overcoming adversity and believing in the unbelievable to achieve the impossible. What happened to that?

 

[KalamMekhar]

Given the cost of lost income during a move is $30M, why do you believe the redeployed rigs would ever come back?

New administration, new incentives to come back. 30$ mill is a drop in the pond.

 

[Char. Limit]

New administration, new incentives to come back. 30$ mill is a drop in the pond.

I have to agree with this new sentence here. $30 million dollars may seem like a lot to you and me, but you have to remember that the net income of BP in one year is http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/B/bp_fourth_quarter_and_full_year_2009_results.pdf". What does $30 million matter to them?

 

[CRGreathouse]

I have to agree with this new sentence here. $30 million dollars may seem like a lot to you and me, but you have to remember that the net income of BP in one year is http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/B/bp_fourth_quarter_and_full_year_2009_results.pdf". What does $30 million matter to them?

Hmm. I suspect there are managers at BP below the CEO who are responsible for only a portion of BP. I imagine that the least-powerful manager who is still in charge of a given rig will find $30 million dollars to be very significant.

 

[Office_Shredder]

Hmm. I suspect there are managers at BP below the CEO who are responsible for only a portion of BP. I imagine that the least-powerful manager who is still in charge of a given rig will find $30 million dollars to be very significant.

I confess to being ignorant of BP's organizational chart, but I would be very surprised if there was someone that was in charge of only one or two rigs who also had the power to choose where in the world they set up shop. These decisions probably come from higher up the food chain

 

[billiards]

Tone of the article seems a bit sensationalist if you ask me, and misleading.

As far as I could tell two rigs have headed to Africa in the midst of this ban and five more might follow (out of 33 from one company). Not a huge deal, really. They probably need more rigs in Africa right now anyway, as new deep water plays have been opening up following a recent surge in exploration. I wonder how many rigs have made this journey before the disaster? We can't necessarily assume that they have gone there because of the ban -- they might've made the journey anyway in pursuit of a good business opportunity. Afterall, those rigs were idle before the disaster, or merely drilling exploratory holes, and so better use might be made of them offshore Africa. As far as I understand, the ban is only on any new activity; rigs that are currently producing are still allowed to produce. It's not as though that all activity in the Gulf has completely ground to a halt (as some people seem to be assuming).