RIGS BAILING ON GULF

This is bad news for the oldtimers who say more oil from the Gulf of Mexico is the answer to high oil prices and growing US dependence on foreign supplies. Drillers themselves do not judge the Gulf reserves to be large enough to warrant long-term commitments -- yet another reason why it is vital to think in terms of New Energy.

Rig Owners Leave Gulf for Longer-Term Deals
Vasanth Sridharan, September 17, 2007 (Dallas Morning News via RigZone)

WHO
Owners of oil and gas drilling rigs: Mike Mullen, owner, accommodation rig company Energy Equipment Resources Inc.; Steve Lawrence, CEO, rig broker Clarksons Offshore;

The rig owners are moving on... (click to enlarge)

WHAT
Rig owners are taking their drilling equipment out of the Gulf of Mexico (GoM) in favor of sites where bigger reserves promise longer term work.

WHEN
Rigs in deep water GoM, 1997: 122
Rigs in deep water GoM, Fall 2006: 91
Rigs in deep water GoM, Fall 2007: 72

Geology of the Gulf fields. (click to enlarge)

WHERE
Rigs are moving to Africa, Brazil and the Middle East.

WHY
- There is a shortage of deep water drilling rigs in the oil and gas industry because (1) low oil prices in the 90s did not incentivize exploration or maintenance and (2) new work worldwide has stretched every remaining resource and capacity to its limit.

The Texas Railroad Commission oversees drilling in the GoM.
- Uncertainty of reserves makes oil and gas lease-holders reluctant to give rig owners long term contracts. Insurance and regulatory burdens add to the rig owners inclination to take longer term contracts elsewhere.
- Low levels of reserves in GoM wells is due to the Gulf fields’ maturity. Even new well production drops off faster than in newer fields.
- Interestingly, onshore drilling in Texas is increasing. 2004 to present: revenue has nearly doubled (to $3.2 billion+) and yearly rig average up to 746 (from 504).

This is the density of drilling rigs in the Gulf's offshore shallow waters. Deepwater is, of course, not nearly so heavily worked. But it's an indication of the region's maturity. (click to enlarge)

QUOTES
- Texas Railroad Commissioner Elizabeth Ames Jones: "It's very important to understand that the hydrocarbons don't grow on trees; these rigs can pick and go where the economic conditions are better for them…"
- Mullen: "In Brazil, we're looking at seven-year options," he said. "I don't know of any five-year contracts in the U.S. gulf."
- Lawrence: "If the oil and gas was there, people would pay the insurance premiums, they would pay the higher wages…You can make more money somewhere else, so they go."