Oil Explorers Drill on, Unfazed by BP’s Gulf of Mexico Spill

By Joe Carroll

May 4 (Bloomberg) — Offshore oil producers such as ConocoPhillips and Anadarko Petroleum Corp. are pressing ahead with drilling even as BP Plc struggles to contain a Gulf of Mexico spill that may cost $12.5 billion to clean up.

The Gulf remains attractive to explorers because deep-water discoveries there have averaged almost four times the global average during the past decade, Frank J. Patterson, Anadarko’s vice president for international development, said yesterday at the Offshore Technology Conference in Houston.

BP, the biggest oil producer in the Gulf, deployed boats, remote-controlled robots, booms and detergents to combat a growing oil slick triggered by an April 20 rig explosion that killed 11 people and resulted in a leak from a subsea well. The spill threatens to disrupt fishing and tourism from Louisiana to Florida and may cost BP and its partners in the well $12.5 billion, according to analysts at Sanford C. Bernstein Ltd.

At the Houston conference, the world’s biggest offshore- drilling convention, the spill didn’t temper producers’ enthusiasm over offshore oil prospects.

“It’s remarkable how many deep-water plays around the world have been lightly explored or not looked at at all,” said Larry Archibald, Houston-based ConocoPhillips’s senior vice president for exploration. “We’ve got an increased focus on high-impact wildcat wells.”

Stricter Regulations

Energy companies in search of untapped fields holding millions of barrels of crude have few alternatives to rock formations hidden beneath thousands of feet of water, said Robert Fryklund, vice president of industry relations at energy- consulting firm IHS Inc.

“Will we continue to invest in the deep water? Yes,” Dave Lawrence, executive vice president for exploration at Royal Dutch Shell Plc’s U.S. unit, said at the conference.

Tougher U.S. drilling regulations that may result from the BP incident probably won’t dissuade producers from expanding into deeper seas, Fryklund said.

“The event that happened is a tragedy, and there will be changes going forward,” Fryklund said yesterday at the conference.

ConocoPhillips is amassing deep-water exploration leases as far afield as Bangladesh, Archibald said. The company is negotiating production-sharing agreements with the South Asian nation to cover those tracts, he said.

Focused on Exploration

Such deep-water prospects will fuel ConocoPhillips’s exploration program for decades, Archibald said. Four years after its $36.1 billion purchase of U.S. natural-gas producer Burlington Resources Inc., ConocoPhillips has decided the best way to increase its resource base is through exploration, rather than acquisitions, he said.

About 70 percent of the world’s oil discoveries in the past two years have been offshore, Fryklund said. With global demand expected to rise as much as 18 percent in the next 10 years, energy producers will have no choice but to exploit crude deposits under thousands of feet of water and hundreds of miles from shore, he said.

“There’s still lots of running room in deep-water plays,” ConocoPhillips’s Archibald said.

Tony Hayward, chief executive officer at London-based BP, said in a May 2 interview that the future of offshore drilling in the Gulf may depend on how well his company handles the spill and its aftermath.

Shares Drop

During a May 2 visit to Louisiana, President Barack Obama said the slick may become “an unprecedented environmental disaster.”

California Governor Arnold Schwarzenegger no longer supports a plan to allow limited drilling for oil off the state’s coast because of the Gulf of Mexico spill, Aaron McLear, his spokesman, said yesterday.

Schwarzenegger had advocated letting Plains Exploration & Production Co., operator of four California offshore oil platforms, expand into waters near Santa Barbara.

BP has lost almost $23 billion in market value since the Transocean Ltd. rig it was leasing, the Deepwater Horizon, exploded and caught fire above the Macondo well 41 miles (66 kilometers) from the Louisiana coast. BP has a 65 percent stake in the well, and Anadarko has a 25 percent interest.

Anadarko, based in The Woodlands, Texas, has declined 13 percent since the BP spill. Geneva-based Transocean, the world’s largest offshore oil driller, has tumbled 21 percent.

Pressure-Control Device

Cameron International Corp., the Houston-based maker of a subsea pressure-control device designed to prevent a blowout on the Deepwater Horizon, fell 13 percent the day after its role in the drilling project was reported by Bloomberg.

Anadarko, which operates the biggest floating natural-gas platform in the Gulf, boosted its deep-water exploration prospects by 25 percent in 2009 and expects to add to that inventory this year, Patterson said.

“This industry tends to withdraw during times of economic upheaval and during times when you’ve had a bad run of exploration,” Patterson said. “You have to have an exploration focus if you’re going to be successful.”

Cobalt International Energy Inc., the oil explorer whose largest shareholders are Goldman Sachs Group Inc. and a First Reserve Corp. fund, plans to drill 10 exploration wells in the Gulf of Mexico during the next two years and four or five such wells in West Africa, said Jim Farnsworth, chief exploration officer.

Since its founding four years ago, Cobalt has accrued 200 exploration leases in the Gulf and four in West Africa, all of them in deep water, Farnsworth said.

“If you don’t do it well, you should get out of it,” Farnsworth said of deep-water exploration.

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