Even Cuba Understands What's to Gain from Off-Shore Drilling

By DANIEL KISH


One year ago, the Obama administration ended it's blanket offshore drilling ban. But it replaced its drilling moratorium with a permitorium. The bureaucrats said they were allowing drilling, but they granted very few permits and it took months to issue a permit for new drilling.
While the Obama administration is not keen on producing energy domestically, the Cubans of all countries are going to use the technology developed by American companies in the Gulf of Mexico to access their energy resources less than 100 miles from the coast of Florida. When Cuba recognizes an economic opportunity that the administration does not, we should pay attention.
[See a collection of political cartoons on energy policy.]
Even though one year has passed since the end of the moratorium, the administration is still issuing a reduced number of permits. Before the moratorium, the administration was issuing 72 permits per month and now, a full year after the moratorium supposedly ended, they are only issuing 52 permits per month.
Not only has the rate of issuing permits slowed, but the paperwork required to satisfy the administration's bureaucrats has increased exponentially. Before the moratorium, the average permit application was 30-40 pages long. Now a permit application is 3,600 pages long. This dramatic increase in bureaucratic paperwork will create some jobs—but only jobs for more lawyers and more bureaucrats. Creating more work for attorneys and bureaucrats does not help the economy grow.
The administration's byzantine permitting requirements have lead to drilling rigs leaving U.S. waters for countries that welcome energy production. Nearly 40 percent of the deepwater rigs that were in the Gulf of Mexico before the moratorium have left. These rigs could have drilled an additional 60 wells, created 11,500 jobs and generated $6.3 billion in private sector spending. Instead of realizing these positives, the Obama administration is exporting those jobs to other countries.
[Read: How Much Oil Is There?]
The economic benefits of energy production are clear. If Congress permanently lifts the moratoria on energy exploration and production in the Outer Continental Shelf, access to these vast resources would generate:
• $8 trillion in additional economic output (GDP);
• $2.2 trillion in total tax receipts;
• 1.2 million new, well-paying jobs annually across the country; and
• $70 billion in additional wages each year.
But while the Obama administration does not seem to grasp the benefits of job creation and economic growth created by energy production, the Cubans apparently do. According to NPR, geologists estimate there may be 5 billion to 20 billion barrels of oil off the coast of Cuba (between Cuba and Florida). In the past, these resources have been out of reach, but because of the deepwater drilling technologies developed by U.S. workers in the Gulf of Mexico, Cuba will be able to access these resources for the first time. A drill rig is en route from China to Cuba and could start drilling as early as November.
It's not too often that you can say that we should look to Cuba for taking advantage of an economic opportunity, but when it comes to creating jobs and lowering the cost of energy through energy production, we should pay attention. Thousands of hard working Americans are out of work in the Gulf states because the administration isn't following Cuba's example. Now is the time to get these people back to work creating energy.

Company filing plans to drill up to 10 wells in the Arctic OCS starting in 2012

By Alan Bailey

Petroleum News

After several years of frustration in its attempts to start an exploration drilling program in Alaska’s Beaufort and Chukchi seas, Shell is in the process of filing new exploration plans for the drilling up to 10 wells, starting in the open water season of 2012.
The plans will entail the drilling of up to two wells per year in the Beaufort Sea and up to three wells per year in the Chukchi Sea, using the drillship Noble Discoverer and the Kulluk floating drilling platform, Shell spokesman Curtis Smith told Petroleum News in a May 2 e-mail.
The company filed its Beaufort Sea plan on May 4, with the Chukchi Sea plan expected to follow within a few days.
Two prospects
According to the Beaufort Sea exploration plan, Shell proposes drilling two wells in its Sivulliq prospect and two wells in its Torpedo prospect, with both prospects being located on the west side of Camden Bay, east of Prudhoe Bay. Sivulliq is the location of a known oil field, previously called Hammerhead.
“As with any Arctic exploration drilling program, weather and ice conditions, among other factors, will dictate the actual sequence in which the wells are drilled. All wells are planned to be vertical,” the exploration plan says.
Shell has two drilling vessels available for use — the drillship Noble Discover and the floating drilling platform, the Kulluk — but says that it has not yet made a final decision on which of these vessels to use in the Beaufort. In March, Pauline Ruddy, Shell regulatory affairs team lead, told the National Marine Fisheries Service Open-water Meeting that the company would likely use the Kulluk for drilling in the Beaufort Sea and the Noble Discoverer for drilling in the Chukchi Sea.
Discharges to be removed
Under the terms of an agreement with the North Slope communities, Shell plans to barge some of the Beaufort Sea waste streams out of region, rather than dispose these waste streams into the ocean. Waste stream to be barged out consist of sanitary waste; domestic waste; bilge water; ballast water; and drilling mud and cuttings from drilling operations below the depth of a well’s 20-inch conductor shoe.
Shell also plans to upgrade the Kulluk’s emissions technology to meet air quality standards.
The drilling vessel would be attended by a minimum of 11 support vessels for ice management, anchor handling, refueling and other tasks, the exploration plan says.
Exploration drilling would start around July 10 and continue through October 31. However, operations would be suspended, with all vessels departing the drilling area, during subsistence whale hunts that would start in late August.
Whichever vessel is used in the Beaufort, the other vessel would be available for relief well drilling, in the unlikely event of a well blowout. Shell has also been planning the construction of a containment dome that could be placed over an Arctic offshore well to contain any oil leak in the event of a well control problem.
Burger prospect
During the NMFS Open-water Meeting Ruddy said that in the Chukchi Sea Shell plans to target the Burger prospect, a 25-mile-diameter structure that is known to hold a major natural gas pool some 80 miles offshore the western end of Alaska’s North Slope.
For its Arctic drilling program, Shell still needs air quality permits from the Environmental Protection Agency. These permits are still on remand from the Environmental Appeals Board, following an appeal by Native Village of Point Hope and eight environmental organizations against the issuance of the permits.
There is also legal uncertainty regarding Chukchi Sea drilling because of an unresolved appeal case in Alaska district court against the 2008 Chukchi Sea lease sale in which Shell purchased its Chukchi Sea leases. The Bureau of Ocean Energy Management, Regulation and Enforcement is in the process of developing a supplementary environment impact statement for the lease sale, in response to a court order in that appeal.

BP puts test horizontal well into operation

Heavy oil starts
BP puts test horizontal well into operation in the Ugnu at Milne Point

By Petroleum News

Following a lengthy delay after the completion of a $100 million heavy oil test facility on Alaska’s North Slope, BP has now put a heavy oil test well into operation — at 6 a.m. on April 22 a change in torque in the well’s down-hole pump finally signaled the flow of oil through the well, something of an historic event for the North Slope oil industry, Eric West, manager of BP’s Alaska renewal team, told Petroleum News April 27. For a couple of days the well had been producing brine, injected into the oil reservoir during the drilling of the well, but the torque change indicated that oil had finally reached the well bore, West said.

West said that since the morning of April 22 the well has been producing oil at a rate of 350 barrels per day and that the test facility had delivered more than 1,000 barrels of heavy oil to the Milne Point processing facility since the oil started flowing.

“But what pleases us so much is that there has been no upset to the well,” West said. “It has produced steadily at that rate.”

And the well is only producing small amounts of sand, with sand coming up the well in quantities ranging from trace amounts to about 2 percent by volume, he said.

BP is carrying out its testing of heavy oil production from the relatively shallow sands of the Ugnu formation, to ferret out the production characteristics of the resource, with an objective of determining whether commercial-scale heavy oil production on the North Slope will be feasible both from a technical and from an economic perspective, Erik Hulm, heavy oil appraisal team leader for BP Alaska, explained to the Alaska Geological Society on April 22. Companies have been producing heavy oil elsewhere, in Canada and Venezuela for example, but no one knows whether production will prove practical in the challenging Alaska Arctic environment, Hulm said.

But the potential prize is huge, he said.



Billions of barrels

Of the 70 billion or so barrels of oil so far discovered in the central North Slope, only about 40 billion barrels consist of conventional light oil that readily flows up a well bore and through a pipeline. The remaining 30 billion barrels are relatively viscous, thus requiring specialized production techniques, Hulm said.
Within the thicker grades of oil, BP distinguishes between what it calls viscous oil, with a consistency of syrup, and heavy oil, with a consistency of honey or molasses. On the North Slope, BP and ConocoPhillips have in recent years started to produce viscous oil from the sands of the Schrader Bluff/West Sak formation, using horizontal wells and waterflood techniques. But no one has yet attempted to tap into the estimated 12 billion to 18 billion barrels of heavy oil in the shallower Ugnu formation — heavy oil is generally too viscous to flow unaided through a pipe.

Being quite depleted in hydrogen relative to light oil and also being difficult to flow, heavy oil is less valuable than light oil. On the other hand, with high oil prices and with North Slope light oil production declining, companies are moving across the oil viscosity spectrum, seeking new commercial opportunities with more difficult resources. And, with BP hoping to use North Slope light oil to dilute the heavy oil for pipeline transportation, the company wants to see if it can achieve success in heavy oil production before light oil production rates decline to a point where it becomes impractical to ship the heavy oil to market — refining the heavy oil into a less viscous fluid on the North Slope for export by pipeline would be prohibitively expensive, Hulm said.



Two methods

For its test production, located on S pad in the Milne Point field, BP is using two techniques, both involving the pumping of oil into a heated tank at the surface, where sand is separated from the oil for disposal through the Prudhoe Bay grind-and-inject facility. The Ugnu sands, rather than being a conventional solid rock, are unconsolidated.
The first technique, called cold heavy oil production with sand, or CHOPS, involves drilling a vertical well through the Ugnu reservoir and then using what is called a progressive cavity pump, a down-hole pump with an augur-like rotor spinning at high speed, to draw the sand-oil mixture into the well and up the well bore. Small holes, known as wormholes, propagate from the well, out through the reservoir sand, increasing the exposed surface area of sand from which oil can be sucked and providing channels for the oil to flow into the well.

A rod passing down the well bore from the surface turns the pump’s rotor.

In 2008 BP successfully demonstrated the extraction of some oil from the Ugnu using a single CHOPS well, as a precursor to investing in the heavy oil test facility that it has since built.

The second technique involves the drilling of a horizontal well through the reservoir, with slots in the steel well liner creating a large area of contact with the reservoir, allowing oil to enter the well, as in a conventional oil field. A progressive cavity pump located downhole, in the area where the well bore steepens from the horizontal en route to the surface, will push the thick oil up the well. The pump will also draw down the pressure in the horizontal section of the well thus reducing the reservoir pressure — the drop in reservoir pressure should cause gas to effervesce from the oil and drive the oil towards the well, West explained.



Geologic investigation

Hulm explained that BP had arrived at the location and design of its heavy oil test after an exhaustive investigation of the geology of the Ugnu and an evaluation of various heavy oil production techniques.
Quite a lot of information about the Ugnu can be gleaned from the various wells that have passed through this formation en route to drilling targets in the established oil reservoirs deeper below the North Slope, Hulm said. Rock cores pulled from some of these wells provide evidence about the detailed nature of the Ugnu deposits, while well log data enable the extrapolation of rock information to wells from which well cores were not obtained. And seismic data provides a regional picture of the geometry and extent of the Ugnu formation.

Piecing together data from these various sources, geologists have determined that the Ugnu sands commonly fill what must have been meandering river channels within ancient river delta systems during the late Cretaceous and early Tertiary. The most promising looking oil reservoir units consist of multiple sand-filled river channels, stacked together to form large sand bodies in the subsurface.

The entire formation slopes west to east, lying about 2,000 feet below the surface on the western side of the central North Slope and being 5,000 feet deep to the east. Many geologic faults cut through the strata, breaking the reservoir into a multiplicity of compartments but also trapping oil in the sand bodies by juxtaposing the sand against more impervious rocks.

The heavy oil in the Ugnu has formed as a result of bacteria eating the originally formed light oil. And, with the bacteria becoming increasingly active at lower temperatures, the oil at the relatively cold, shallow western end of the Ugnu is heavier and thicker than the oil at the deeper and less cold eastern end, Hulm said.



Choice of technique

That variation in depth and oil type from one part of the Ugnu to another has a critical impact on the choice of technique used to extract oil from the Ugnu sands.
Hulm described a hierarchy of heavy oil extraction techniques, some of which have a multiyear track record of successful use and some of which are more hypothetical in nature. Methods that have seen success in some parts of the world can be broadly categorized as mining, hot extraction and cold extraction.

The direct mining of heavy oil deposits can be eliminated as a possibility for heavy oil production on the North Slope, in part because of the depth of the Ugnu sands and in part because of unacceptable environmental impacts, Hulm said. Hot extraction, typically involving the injection of steam into the underground sand to reduce the oil viscosity, has been used with success in Canada and is a possible candidate for North Slope use. Both CHOPS and the use of horizontal wells are examples of cold oil extraction techniques and both have track records of success in some places.

But the best technique to use in a particular situation depends on the particular combination of oil and rock properties that a would-be heavy oil producer is dealing with, Hulm said.

“It’s actually the rock and fluid properties that dictate which of these methods is going to work,” he said.

For its North Slope heavy oil production test, BP determined that cold techniques — CHOPS and horizontal wells — would be most appropriate. These techniques seemed suitable for the reservoir depths, sand qualities and oil viscosities within the North Slope units where BP is operator, Hulm explained. And the use of cold techniques would avoid some engineering challenges potentially associated with pumping hot steam through well pipes in the North Slope permafrost, he said.

However, it is likely that a hot, steam-driven technique would be more appropriate in the shallower and heavier oil deposits, more toward the western end of the Ugnu, he said.



Risk assessment

Using the results of its geologic analysis, BP developed a set of maps depicting the relative risks to successful cold heavy oil production at different places, using parameters such as the rock porosity, sand thickness and oil quality. The maps led BP to the selection of the Milne Point S-pad as a suitable test location. The location sits over stacked, Ugnu channel sands and is within reaching distance of several reservoir zones and a couple of faulted reservoir compartments, Hulm said.
And BP sees the possibility of 7 billion barrels of oil in place in reservoir areas earmarked as candidates for cold production. If cold extraction works the recovery factor would likely be around 10 percent, but could approach 20 percent, Hulm said.

As a proof of concept exercise, BP is trying out two horizontal wells and two CHOPS wells in an initial test phase, West said. It will take about a week to draw down the pressure in the horizontal well that has gone into production, after which the heavy oil team will monitor the well for a week before starting up the first CHOPS well, he said.

But extracting heavy oil from a reservoir below 2,000 feet of permafrost in the Arctic represents a move outside the envelope of industry experience of using cold heavy oil extraction techniques, Hulm said. And the production characteristics of the Ugnu reservoir and oil are unknown. Moreover, the use of surface-driven rods to spin the progressive cavity pumps at the bottoms of wells necessarily deviated far from the vertical in the North Slope’s drilling-footprint-conscious environment will present some particular technical challenges.

Depending on the test results, BP could determine that some other production technique is required, Hulm said. However, at some time in the future heavy oil production will hopefully deliver a substantial new resource to market and bring a new source of revenue to Alaska, he said.

http://www.petroleumnews.com/pntruncate/40812990.shtml

Deep-water drilling in the Gulf of Mexico could resume within weeks

Path Clears for Deep-Water Drilling

By BEN CASSELMAN And DANIEL GILBERT
Deep-water drilling in the Gulf of Mexico could resume within weeks under a policy announced Monday by the Obama administration, which has come under increasing criticism from the oil industry and politicians in the region over the impact of the drilling halt.

Oil and gas exploration in the Gulf's deep waters has been stopped since May, when President Barack Obama announced a six-month drilling moratorium in the wake of the April explosion of the Deepwater Horizon drilling rig, which killed 11 workers and set off the worst offshore oil spill in U.S. history.

The administration lifted the ban in October—a month ahead of schedule—but hasn't issued any permits for new deep water oil wells.

On Monday, The Wall Street Journal reported that the delay has hurt both the oil industry, which has seen billions of dollars in projects put on hold, and the Gulf Coast's economy, which has been hit hard by the slowdown.

The administration said Monday that it would clear the path for 13 companies, including Chevron Corp. and Royal Dutch Shell PLC, to resume work on a handful of wells that were already approved and under way when the moratorium took effect. The 16 projects must still comply with strict new safety rules announced after the Deepwater Horizon disaster, but in most cases won't be subjected to new environmental reviews.

The announcement means that some drilling could resume in a matter of weeks, although the exact timing remains unclear. But the policy doesn't affect the more than a dozen permit requests that were pending when the moratorium took effect or have been filed since. Those must still undergo enhanced environmental reviews.

GE Bets on Deep Water Oil With $1.3 Billion Wellstream Bid Access thousands of business sources not available on the free web. Learn More Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, the newly formed federal agency in charge of offshore drilling, said projects that were interrupted by the moratorium deserved special consideration.

"For those companies that were in the midst of operations at the time of the deep-water suspensions, today's notification is a significant step toward resuming their permitted activity," Mr. Bromwich said in a statement.

Oil companies in recent weeks had become increasingly pessimistic about a quick resumption of drilling in 2011, with some predicting that the wait would last into the second half of the year. On Monday, the industry praised the decision but said more details were needed.

"It appears to be a step in the right direction," Randall Luthi, president of the National Ocean Industries Association, a trade group, said in an interview. However, he said, "there are still major questions and some confusion among the companies about what is being required."

Elgie Holstein, a staff expert for the Environmental Defense Fund, an environmental group, said he didn't see any reason for projects halted by the moratorium to be treated as special cases. But he said the new policy was reasonable as long as regulators enforced the new safety and environmental rules. "I actually thought it was a balanced response," Mr. Holstein said. "It does relieve some of the pressure that the Gulf Coast has been feeling from an economic standpoint."

The administration has come under increasing pressure from Republicans and some Gulf Coast Democrats to allow drilling to resume. On Monday, lawmakers reacted cautiously to the announcement. Sen. Mary Landrieu, a Louisiana Democrat who has been a vocal critic of the administration's drilling policy, said some projects could still be thwarted.

"We need to know more about the conditions under which drilling will be allowed to resume and make sure those conditions don't actually undermine the intent," Ms. Landrieu said in a statement.

Doc Hastings, the Washington Republican who is incoming chairman of the House Natural Resources Committee, was also skeptical.

"Today's announcement by BOEMRE only ensures the possibility that previous drilling activity can resume at some point in the future if certain requirements are met," Rep. Hastings said in a statement. "The Obama administration can prove it's serious about resuming drilling in the Gulf by actually issuing permits and allowing people to return to work."

—Siobhan Hughes and Tennille Tracy contributed to this article.

Oil reserve totals depend on price

By RICHARD W. RAHN

If you had to bet whether the price of oil would be higher or lower 10 years in the future, what would you say?

Some argue that the world is running out of low-cost oil and that oil prices will get higher and higher. Others argue that the current high price of oil will cause a flood of new oil, much of it from nonconventional sources; hence, prices will fall significantly (provided the political class in Washington, D.C., does not continue its energy and environmental death march policies).

The case for much lower oil prices is as follows. There are hundreds of years of oil supplies (at present and projected consumption levels) if oil in oil sands and shale is properly included in reserves. In some places, such as Saudi Arabia and Iraq, there is still much low-cost oil ($15 a barrel or even less) that can be produced for decades, but not in an amount sufficient to meet the world's demand; hence, much higher-cost oil is also pumped. This higher-cost oil includes much of the offshore oil (the huge cost of the mammoth drilling rigs has to be amortized over each barrel of oil produced) and on-shore oil in hard-to-reach places and/or produced from low-production wells.

Oil reserves are largely a function of price. Global proven reserves of conventional oil obtainable at prices of less than $40 per barrel are estimated at more than 1.3 trillion barrels, with much of it concentrated in the Middle East. Additionally, reserves of so called "heavy oil," the largest reserves of which are in Venezuela's Orinoco area, are estimated at 1.2 trillion barrels, and most of this . . .

could probably be recovered for less than $50 per barrel.

The reserves of oil sands, which are actively being mined in Canada's Alberta Province, are estimated to be 1.8 trillion barrels. Experts estimate that much of this can be produced for $45 per barrel or less. Global reserves of oil shale are estimated at more than 3.3 trillion barrels, with 70 percent in the United States (primarily in Colorado, Utah and Wyoming).

Shell Oil Co. last year announced it has developed a process for extracting the oil from the shale, without mining, at a price of roughly $35 per barrel. The United States also has the world's largest reserves of coal — enough for hundreds of years of production at present levels. Coal also can be turned into liquid petroleum (as the Germans and South Africans proved decades ago). Current estimates of the conversion cost are as low as $35 per barrel.

Does it seem a bit odd that the current price of oil is more than twice the cost of producing all the oil the world presently needs and will need long into the future? The reason the price is so high is that the supply has been artificially constrained by governments. Most (88 percent) of the conventional oil reserves are owned by governments, and these governments have underinvested in new production. As is well-known, the U.S. government has restricted offshore and onshore drilling, shale development, and coal conversion.

Some politicians argue, even if the U.S. government started to allow increased production, that it would be seven to 10 years or more before there would be additional output. This is nonsense. Oil wells can be drilled at an average rate of 1,000 feet or so per day, which means that the average U.S. well can be drilled in a week. It does take a few weeks to set up the pump and install the separation tanks, etc., but new land wells can be producing within months, even if the product has to be trucked rather than piped away.

Drilling in the Arctic National Wildlife Refuge in Alaska would not take all that long for some production to get started. Politicians often confuse the time it takes to get peak production from a field as compared to some production — each additional well takes time, plus the necessary new piping collection infrastructure for each additional well.

Offshore wells do take a lot longer, but most of the time involved is the government permitting process, not the physical production of the rigs, drilling and so forth. If the government gave a full green light to production of oil shale in the Rocky Mountains, it might take several decades to reach full production, but some production would be accomplished in the next couple of years.

The very same politicians who claim we cannot increase oil production quickly are often the same ones who tell us we need to move to alternative forms — windmills and solar, etc. — without seeming to understand these desirable technologies will take far more time to meet the goals of "energy independence" than ramping up oil production. Speaker of the House Nancy Pelosi said she would not allow a vote on more drilling because she wanted "to save the planet," without seeming to understand, if increased oil production does not take place in the United States with all its environmental safeguards, it will take place where U.S. environmental law cannot be enforced — and that is not healthy for the planet.

Fortunately, the people are beginning to understand they are paying twice more for a gallon of gasoline than is necessary, and the global environment is not benefiting. Less expensive energy and a cleaner environment are most likely to be achieved quickly not with alternative energy sources but with an alternative set of congressional leaders.