That is an extremely ignorant article.
The oil companies can't drill those new leases
Sure they can.
There's plenty of existing leases to drill, and they aren't drilling those either,
Not every offshore federal lease block of 5760 acres has recoverable reserves under it. Furthermore when there are reserves, before drilling can be done a lot of geological work has to be done, environmental impact statements drawn up, permits obtained, etc. So the existence of lease blocks without existing producing wells means nothing. Go down to the bottom of this post and read about Blackbeard - the worlds deepest dry hole that a group of companies poured $200M down. Now another company is gonna spend another $75M to take it even deeper.
This is one of those non-producing leases opponents of drilling talk about.
and there seems no particular interest in rapidly expanding capacity in order to actually drill them.
That would be wrong. There's a boom in construction of new rigs and drill ships going on. And companies are paying drillers record lease rates to drill now.
But each company can hold those leases, and borrow against the value of those leases, and trade those leases, so that's the primary value of the new offshore plots -- as tradable assets on the speculative market. If we give them the leases (that is, charge them at the usual pittance), we're vastly increasing their available capital, vastly increasing the capital of the entire speculative market, and they don't have to lift an actual finger to see it happen. No drilling; no additional exploration; nothing. Only the creation of new paper.
The guy seems to be confusing speculation in oil markets - crude oil futures which are traded on exchanges - with oil leases. People lay down money on leases (and its NOT pittances) for one reason - because they hope to find oil or gas reserves under them. Just like McMoran in the article below.
Also federal leases are wasting assets - they expire in 10 years unless there is production or ongoing efforts to attain production going on.
A Famed Dry Hole Gets a Second Shot
By Russell Gold
21 July, 2008
The Wall Street Journal
McMoran tries "deeper drilling" for natural gas in what is already the world's deepest dry hole.
Remember the 9-percenter claim that oil companies aren't exploring on their offshore acreage. Blackbeard is one of those offshore leases that's still non-producing that Pelosi talks about. Read this and see if you can still believe that.
McMoRan Exploration Co. is leading a renewed effort to find natural gas in a site known as one of the world's deepest dry holes.
Exxon Mobil Corp. walked away from the legendary BLACKBEARD prospect in the Gulf of Mexico in 2006 after drilling to more than 30,000 feet without a payoff. But high energy prices have emboldened the industry, stirring wildcatter passions and prompting companies to look anew at previously abandoned projects.
Earlier this year, McMoRan Co-Chairman James R. "Jim Bob" Moffett decided the site was worth another shot. Most of the hard work -- drilling to 30,000 feet -- had already been done by Exxon, Mr. Moffett told investors. McMoRan just needed to get down another couple of thousand feet to find out what was there.
Almost all of the big Gulf fields discovered over the past decade are in thousands of feet of deep water. But if BLACKBEARD hits a big pocket of gas, the strike could set off a new frenzy of drilling in the Gulf's shallow waters, and McMoRan -- which has the rights to drill on nearby acreage -- would be in a prime position to capitalize.
McMoRan's drill bits have been churning through ancient rock at the BLACKBEARD site since March. On Thursday, the New Orleans-based company reported it was below 32,550 feet, the deepest penetration of the earth ever recorded, according to drilling data from IHS Inc. And it's going deeper.
But oil companies don't drill to set records. They justify their investment by making a commercial find. Mr. Moffett said Thursday he believes BLACKBEARD could hold natural gas equivalent to anywhere from 300 million to two billion barrels of oil, which would make it one of the biggest finds in years.
But nothing is sure until the gas begins to flow. Exxon, one of the most technologically adept producers in the world, failed in its efforts at the site. Exxon declined to discuss its experiences with BLACKBEARD, but the company must have had a good reason for abandoning the well, says Alan Verret, executive director of the Offshore Operators Committee, an association of energy companies that operate in the Gulf.
"They don't buckle under pressure. They saw something that made them give up," he says, joking that McMoRan's BLACKBEARD gamble is "like opening a Chrysler dealership in downtown Tokyo."
Blackbeard's potentially huge clutch of untapped energy, located only 30 miles from the Louisiana coast in 70 feet of water, has tantalized energy companies from the start. But any gas is buried so deep that very few of them have had the experience to take up the challenge.
In early 2005, Exxon decided to try. In an effort that transfixed the industry -- including Mr. Moffett -- the company drilled for 20 months to a depth of 30,067 feet. Then, in August 2006, before the well reached its target depth, Exxon gave up the effort and plugged the well. At the time, Exxon executive Jeff Johnson explained to investors that extraordinarily high pressure and temperatures were causing the hole to collapse, raising fears of a dangerous blowout.
If industry reports, unconfirmed by Exxon, are correct, the company spent more than $200 million on the well, making it one of the most expensive dry holes ever drilled.
The industry is littered with expensive failures, but BLACKBEARD proved too tempting to let go, especially in today's record-price environment, where any reasonably promising prospect is worth a try. Indeed, there are more drilling rigs at work in the U.S. today than at any point since 1985, according to Baker Hughes Inc.
Mr. Moffett, the 69-year-old founder of McMoRan Exploration, is a geologist and inveterate risk taker. He discovered the giant Grasberg copper and gold mine in Indonesia, parlaying it into global mining giant Freeport-McMoRan Copper & Gold Inc. The oil-and-gas exploration company was spun off from the mining assets in 1994.
Last August, McMoRan paid $1.1 billion for a package of shallow Gulf of Mexico assets, including BLACKBEARD, from Newfield Exploration Co., Exxon's former partner on the well. Studying the geology, Mr. Moffett found it similar to successful wells drilled by other companies in the deeper parts of the Gulf.
He now says that if McMoRan decides to keep drilling to 35,000 feet, it will cost about $75 million.
Earlier this year, Mr. Moffett said on a call with Wall Street analysts that he would beef up the blowout equipment, which is supposed to control the well if the drill bit pierces a pressurized gas pool. If that happened, gas would shoot up, like air rushing out of a pricked balloon.
For the project, McMoRan teamed up with Energy XXI Ltd., which paid $5.5 million for a 20% stake in the well drilled by Exxon. Plains Exploration & Production Co. took a 35% interest for $9.7 million. And Italy's Eni SpA held a previously acquired stake.
Energy XXI Chairman and Chief Executive John D. Schiller Jr. sees BLACKBEARD as a relatively small investment with an enormous potential payout. But, he adds, "none of us are betting our company on this well. If it's dry tomorrow, we're still going to have a good year."
So far, Mr. Moffett said Thursday, the drilling "has been fairly routine." He noted that recently drillers experienced a "kick" -- a sign that the drill bit was encountering the kind of porous rock that typically contains gas.
But even Mr. Moffett struck a note of caution. "We're very optimistic," he said. "But remember: I'm a geologist, and I have to be optimistic to do this job." |
