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Oil drilling goes high tech
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September 3, 1996: 9:03 p.m. ET
Deep-water drilling could help U.S. reduce dependency on overseas oil
From Correspondent Sean Callebs
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GULF OF MEXICO (CNNfn) - Volatility in the Middle East and wildly fluctuating oil prices are two of the reasons industry experts have been calling for the United States to reduce its dependency on overseas crude.
New technology finally may have the answer with a new oil production process called deep-water drilling.
Royal Dutch Shell is leading the way in the new method, in which long, thin tendons are used to drill through the ocean floor, replacing costly old metal derricks.
Shell Oil is investing $1.2 billion in its new oil drilling operation, located 70 miles south of Louisiana where the mud floor is more than half a mile from the company's floating rig known as Mars.
Gaurdie Banister, manager of product operations for Shell Offshore, said the oil industry has never before been able to coax crude from such depths.
Banister said the company is not putting pressure on the project's managers, but he predicts it will be successful.
"I don't really feel pressure to make Mars successful. I think we all understand how important it is to the industry and to Shell. But I feel we are confident we are going to deliver on this project," he said.
When Shell began work on the maze of pipe and steel, virtually all U.S. oil companies thought there was no oil left in the Gulf of Mexico.
Shell dedicated a tremendous amount of resources and money to develop Mars. Now other oil companies, Wall Street analysts and Shell investors are eagerly waiting to see if this billion-dollar-plus project becomes a success.
It costs $500 million more than a traditional off-shore rig. So project officials know Mars must generate a high volume of crude if it is to make money. Currently, two of the rig's 24 wells are pumping oil.
"The first one we brought on is a record holder for producing 15,000 barrels a day in the Gulf of Mexico. We're bringing on another as we speak. We hope it is going to blow that other one away," said Bob Markway, Mars project leader for Shell Offshore.
Shell expects Mars will eventually produce 140,000 barrels of oil a day. That's a drop in the bucket on the global scale since global oil consumption is 70 million.
Currently, the United States depends on overseas crude for roughly two-thirds of the 18 million barrels a day it consumes.
Analysts like Michael Rothman, who follows the oil industry for Merrill Lynch, say deep-water drilling could arrest the plunge in U.S. production, which has been on a steady decline since the late 1970s.
Shell believes the Gulf still holds more oil than Alaska's Prudhoe Bay, the country's biggest oil reserve. Rothman said that may not be a lofty prediction. (114K WAV) or (114K AIFF)
Shell is now the acknowledged industry leader in deep-water drilling, a distinction that has bolstered its stock.
"Anytime you have a changing situation that offers new investment opportunities, obviously that is going to be attractive to investors. That is what you have there," Markway said.
The rest of the industry now finds itself playing catch-up. British Petroleum, which owns about a quarter of the Mars project, is considered second to Shell in deep-water drilling.
Texaco and Chevron recently began initial work on deep-water projects, but by the turn of the century, it is expected there will be as many as 40 deep oil wells in the Gulf.
Shell's gamble has pumped new life into an industry. But the celebration is tempered since meeting the rich potential of deep-water drilling is still a long way off.
For every job created offshore, there are about eight new land-based support jobs. One company having success offshore is Diamond Offshore, the world's largest supplier of deep-water drilling tools.
Diamond went public in Oct. 1995 at $24 a share and is now trading at about $54 a share. That's not bad for an industry that lost more than 500,000 jobs in the 1980s.
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