After the Deepwater Horizon incident in the US Gulf of Mexico the industry knew that there would be consequences and it appears that the first victim is UK listed oil company, Royal Dutch Shell.
The Obama administration has announced that they are halting any new drilling offshore Alaska until 2011 at the earliest. This impacts directly on Shell’s plans to drill five exploration wells in Alaska’s highly promising Beaufort and Chukchi Seas later this year.
Shell paid $2.1 billion in 2008 to lease blocks in the Chukchi Sea and has spent billions more in preparatory seismic work and overhauling a drilling rig to meet federal air emissions standards for the work.
It is unlikely that Shell will be the only casualty. A likely outcome of the Macondo well blow out will be higher offshore drilling costs. Tougher permitting systems and inspection regimes for safety equipment; higher specification for key safety components, more redundancy features and more extensive clean up plans are all likely to be regulatory and legislative changes made as a result of the incident.
Insurance premiums for deepwater drilling have already jumped 40% and may rise further if US lawmakers raise the liability cap for oil spills from $75 million to $10 billion.
Whilst the oil majors may be able to absorb these costs it could result in fewer oil fields being developed and lower overall production in the US. Some independents may be deterred from doing business offshore altogether.
Meanwhile subsea efforts continue to focus on progressing steps to stem the flow of oil from the well through top kill. The pumping of heavy drilling fluids under pressure into the BOP started 2 days ago (May 26) and the latest press release from BP indicate that the full top kill procedure could extend for another 24 to 48 hours.
Drilling of two relief wells began on May 2 and May 16; however, it is estimated that each of these wells will take three months to complete from the commencement of drilling. Almost 1,300 vessels are now involved in the response effort, including skimmers, tugs, barges and recovery vessels. Other vessels currently on location include Boa Sub C, Ocean Intervention-III, Skandi Neptune, HOS Iron Horse, and Helix’s well intervention/light drilling semi Q-4000.