BP: Biggest Player in deepwater oil

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- BP, the company responsible for the worst oil spill in U.S. history, is the largest operator of deepwater drilling systems in the Gulf of Mexico.

The British oil company currently has eight floating production systems in the Gulf developing fields located more than 1,000 feet below the waterline, according to a study from Douglas Westwood, an international research firm focused on the oil and gas industry.

In addition to two rigs in less than 1,000 feet of water, BP operates the largest production platform ever brought into operation in the region. The Thunder Horse semi-submersible drilling rig is capable of extracting 250,000 barrels of oil per day from sources more than 1,800 feet below the surface.

But the company's deepwater operations, along with all others in the Gulf, have been put on hold for six months pending an investigation by a presidential commission into what caused the explosion onboard the Deepwater Horizon, a rig operated by BP, which caused a spill that has yet to be fully contained.

Questioning safety: The spill has wreaked havoc on commercial fishing and tourism in the Gulf and has fowled large swathes of coastline in Louisiana, Alabama and Mississippi. It has also raised questions about the safety of deepwater drilling and exposed the inadequacy of current government regulations on the oil and gas industry.

BP has acknowledged that the spill is an environmental catastrophe, and has pledged to pay all costs associated with the disaster. But the company would not speculate about the future of its deepwater operations before the ultimate causes of the disaster are determined.

"What we need to focus on now is securing the well, containing the spill, defending the shoreline and getting it cleaned up," said BP spokesman John Pack. "We'll think about tomorrow, tomorrow."

To many critics of BP, however, the current disaster is evidence that the company underestimated the risks involved with deepwater drilling and failed to adequately prepare for the worst.

"The truth of this matter is that such an event was entirely conceivable," said Sen. Ben Cardin, D-Md., during a hearing Wednesday. "BP officials simply did not want to spend the money necessary to reduce the likelihood of it happening or to have on hand the resources to contain it and they weren't forced to do it."

BP isn't alone: While it is the largest operator in the Gulf, BP is not the only company developing deepwater oil fields in the region also known as the Outer Continental Shelf.

As of the end of last year, there were 35 drilling vessels operating in the deep waters of the Gulf, and there are at least 18 deepwater prospects that could be developed over the next few years, according to Douglas Westwood.

That makes the Gulf of Mexico the third largest deepwater market after Africa and Latin America.

Anadarko (APC, Fortune 500) is the second largest operator in the Gulf. The Woodlands, TX-based company has four operational deepwater production systems, most of which are in between 3,000 and 5,000 feet of water.

In addition to floating production systems, there are 33 deepwater drilling rigs active in the Gulf, according to the International Association of Drilling Contractors. Among them are rigs owned by Noble Corp. (NE), SeaDrill (SDRL) and TransOcean (RIG), the company that owned the Deepwater Horizon.

The Noble Danny Adkins, a deepwater rig owned by Noble, is capable of drilling in as much as 12,000 feet of water. The rig has been contracted by Shell (RDSA) and was in the process of completing formal performance testing in May.

Deep water drilling here to stay: Despite concerns about safety and the ongoing fallout from the spill, the growth of deepwater drilling in the Gulf is likely to continue over the long term.

That's largely because many existing oil fields are nearly depleted. At the same time, global demand for oil is expected to rebound significantly over the next several years, particularly in developing economies.

President Obama, speaking in Washington on Thursday after meeting with lawmakers, renewed his call for an energy agenda that includes renewable sources like solar, wind and biodiesel. But he acknowledged that "we are going to be reliant on fossil fuels for many years to come."

Global energy demand is expected to rise 40% over the next two decades, with fossil fuels accounting for the majority of that increase, according to a 2009 report from the International Energy Agency.

And the industry is banking on that demand growth. Oil companies will spend a total of $167 billion over the next four years on deepwater projects around the world, up 37% over the previous four years, according to Douglas Westwood.

By 2020, the group forecasts that deepwater production will rise to over 2 million barrels per day from just under 1.8 million barrels per day. At that level, deepwater production would represent more than half of total offshore production.

Supporters of offshore drilling often argue that exploiting domestic sources of oil in the Gulf and undeveloped parts of Alaska will make the nation less dependent on imports from unfriendly nations. They also say oil remains a more cost-effective fuel than alternatives.

"Alternative fuels will eat money," said Lucian Pugliaresi, president of the Energy Policy Research Foundation, a non-profit organization funded partly by the oil and gas industry. "Because of the nature of petroleum, the cost of production is less than its value in the marketplace."

Analysts say it's too soon to speculate how the outlook for deepwater drilling could change, but most are expecting tighter regulations going forward.

The government has already taken steps to increase safety requirements for companies operating in the Gulf, most of which focus on improving the performance of blowout preventers, a fail-safe device that appears to have malfunctioned on the Deepwater Horizon.

Even some critics of the industry acknowledge that banning deepwater drilling is not a good idea.

"We still don't know precisely what went wrong here," said David Goldston, director of government affairs at the Natural Resources Defense Council. "We don't know what the level of risk is or how easy it is to prevent."

Correction -- An earlier version of this story said the Noble Danny Adkins was conducting tests on a well at 12,000 feet. The tests were being conducted on equipment onboard the vessel.  To top of page

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