BP's other problem - not enough oil!

Commentary By Ron Beasley

While BP has a problem with too much oil at the Deepwater Horizon site it has the opposite problem elsewhere in the Gulf.

At
another platform in the Gulf � this one owned and operated by BP, unlike
the Horizon � the problem is the opposite: Not enough oil is coming
out.

Thunder
Horse is the massive 60,000-ton, $1 billion production platform that
BP, after some engineering difficulties, brought into operation in 2008.
It was supposed to produce 250,000 barrels of oil a day.

It
hasn't gotten close.

Production
from Thunder Horse's main field reached a peak of about 172,000 barrels
a day in January 2009, then began declining, falling to 61,000 barrels
by December, according to data from the Minerals Management Service.

�The
field has collapsed,� said Matthew Simmons, CEO of Houston-based Simmons
& Company International, an investment banking firm specializing in
energy. Simmons, author of Twilight in the Desert, has
studied the Thunder Horse data along with production at most other
deep-water wells.

BP's
initial projections that Thunder Horse would produce 1 billion barrels
of oil now seem unrealistic, Simmons said.

And Thunder Horse is not alone. 

While
the energy industry talks up the potential of deep-water production,
many of the wells drilled so far show rapid declines similar to those
that appear to be happening at Thunder Horse. The wells are among the
most expensive drilling projects in the world, and the exploration
companies need rapid payouts to generate a return on their investment,
Simmons said.

In all,
he's tracked as many as 25 deep-water wells that show rapid declines.

�That's
been the pattern in all the deep-water fields,� he said. �We are at the
twilight of offshore oil and gas.�

Because
of the high drilling costs, companies typically drill few secondary, or
appraisal, wells, which help determine the size of a reservoir.

We have two things going on here.  Deep-water wells are expensive so the companies have to produce as much oil as they can as fast as they can which shortens well life.  Since exploration is expensive they drill fewer appraisal wells which means they never really know the actual size of the  reservoir.

The Deepwater Horizon disaster will certainly result in additional requirements and regulations which will add to the cost of exploration and production in deep-water.  Add that to the uncertainty and cost and it may turn out that deep-water exploration is just too expensive.

The
energy industry became so enamored of its technology that it thought
deep water was the next frontier � plentiful reserves in a politically
stable environment. Instead, the promise of the �deep-water decade� is
fading as quickly as production from the platforms that were supposed to
usher it in.

�We've
got to get off being so smug,� Simmons said of the industry. �The easy
stuff is all gone.�

Cross Posted At The
Moderate Voice