Shell, BP and Chevron set to ring bell in deep water Gulf of Mexico

Implications: Drilling Editor Nina M. Rach reported in the September 8 issue of the Oil & Gas Journal that Shell Exploration & Production Company had erected the 555 feet long truss which is called “Perdido Regional Host”. A drilling rig will be set upon the topsides of the spar for additional drilling and work over. Production from Great White, Tobago and Silvertip oil fields that are located within a 15 mile radius will flow to storage tanks inside the spar. Storage and processing capacity of the spar is 100,000 bbl/day of crude oil and 200 million cubic feet/day of natural gas. Shell has a 35% interest and partners BP have 27.5% and Chevron 37.5 %. This will be the first development to obtain commercial production from the deep water Lower Tertiary. Water depths range from 7,500 to 10,000 feet. Temperatures in the several reservoirs vary from 150-200° Fahrenheit. Oil gravity varies from 18-40° A.P.I. Production problems are expected. First production estimated for year end 2009.

Analysis:  The story began in 1996, 1997 and 1998 when the leases were first acquired. Exploration found the three fields between 2002 and 2004 and delineation, testing and development operations have brought the project to near completion in late 2009. During the leasing era, crude oil prices were below $20/bbl and in December 1998, dipped below $10/bbl. When Great White was discovered in 2002, crude oil was priced at about $24/bbl. When silvertip was found in 2004, crude oil was selling at $35/bbl with a spike in October to $52/bbl. Since then prices have steadily risen to a 2008 maximum of $147/bbl in July and then fallen to $100/bbl today. What will the price of crude oil be in December? More importantly, what will the price of crude oil be in December of 2009 when first production from Perdido begins? Given the financial turmoil that exists today, particularly in the U.S., crude oil prices should be substantially higher in late 2009, possibly $200/bbl. Much will depend upon worldwide economic recovery and more importantly, worldwide inflation. The several financial rescues in the U.S. can only lead to high speed printing press operations. This implies much higher crude oil prices. So why do the oil companies pursue what appear to be such romantic goals? Why spend countless billions to develop a product whose price is an unknown quantity? They do it because oil men are that way. Of course, they follow closely the decline of the world’s super giant reservoirs and they have confidence that crude oil and natural gas will still be required by tomorrow’s society. They may have sell it for gold ingots or Russian rubles but they are confident that the market will be there.