Gulf Oil Leak Will Stall Offshore Drilling Expansion

David Axelrod, an adviser to President Obama, said this morning that no new drilling offshore of the US will be authorized until the cause of the explosion and 5,000-b/d leak from the Macondo well is known. The well exploded on April 20th, and the semi-submersible rig Deepwater Horizon owned by TransOcean Ltd. (NYSE:RIG) and operated for BP plc (NYSE:BP) sank in 5,000 feet of water. Eleven crew members are still unaccounted for and presumed dead.

Axelrod’s comments really aren’t big news, except that they will halt drilling in the Gulf of Mexico which is the only place offshore the US where drilling has been permitted for the last 30 or more years. President Obama’s move to open drilling off the Atlantic coast were nowhere near being implemented, but it is certain that this disaster in the Gulf will create an enormous outcry to put the brakes on any further development.

There has been no offshore incident similar to this since the 1969 blowout offshore of Santa Barbara, California. That incident effectively closed the Pacific coast to further exploration. Since then, most oil spills have been the result of wrecked or leaking tankers, with Exxon Mobil Corp.’s (NYSE:XOM) Exxon Valdez being the most memorable.

Until recently, offshore drilling in the US has been done in water less than 500 feet deep and quite close to shore. Deeper wells, up to a few thousand feet underwater have been drilled and operated in the Gulf for many years. But so-called ultra-deep wells, at ocean depths greater than about 4,000 feet, are reasonably recent developments and only a few have been drilled.

And it is not only water depth that makes these wells tricky. The Macondo well was drilled to 18,000 feet below the sea floor. The temperatures and pressures at those depths are extreme, and drilling and operating such wells is at the cutting edge of knowledge and technology. In effect, every well is a prototype.

While the cause of the explosion at Macondo is not known for certain, what is known is that the blowout preventers (BOPs) did not engage as they should have to stop the flow of oil and gas to the surface. BP sent remotely operated vehicles (ROVs) to the sea floor, but has failed so far to force the BOPs to engage.

Today the company is going to lower a coil of tubing down to the well-head and spray a dispersing agent at the flow of oil to reduce the amount of oil that will rise to the surface and move inexorably toward the Louisiana coast.

BP is also trying two other strategies to staunch the flow of crude. The company is building a large dome structure that it hopes to place over the leak to contain the oil. Then it would insert a funnel-like device into the dome and pump the oil to the surface and into tankers to carry away. Such an operation has never even been attempted before at these depths.

BP’s other option is to drill a relief well that would intercept the Macondo well below the sea floor. BP expects to spud the well today or tomorrow.

BP’s Relief Well Plan

If the plan is successful, BP will force fluids down the hole followed by cement that would effectively kill the well. The downside to this is that it might take as much as three months to drill the relief well, during which time the flow of oil would continue.

If nothing can be done to stop the flow of oil unless and until a relief well is completed, the Macondo well will become the biggest oil spill/leak disaster in US history. No matter what it will have a chilling effect on development of offshore oil and gas for years, if not decades.

Some might argue that is as it should be. A disaster of this sort, which has cost 11 lives so far and is certain to cause extensive environmental damage along the Gulf coast, should force the government and the oil companies to review everything they do or plan to do to prevent an accident like this from ever happening again.

Every bit of that is true. But developing oil will always have its dangers and everyone’s best efforts may not be enough to make such a guarantee. Ultra-deepwater wells are the future of offshore drilling, and this incident calls that whole future into question.

Paul Ausick