Three of the biggest offshore producers in the United States last week reported that they have ramped up drilling in the Gulf of Mexico (GOM), and BP plc also expressed optimism that it would join its peers by the second half of this year.

Chevron Corp. has no plans to alter its long-term GOM strategy, the company’s North American exploration and production chief said Friday.

“Despite the regulatory environment, Chevron remains bullish on the Gulf of Mexico,” Gary Luquette told financial analysts during a conference call.

In 2010 Chevron planned to drill four wells, which were delayed by the deepwater drilling moratorium. “Now we’re ready to get back to work and the wells are our top priority,” he said. “We will do so once the new permit requirements are fully understood, and regulators establish an efficient method with what is expected to be a backlog of permit applications.”

In late March Chevron USA Inc. was granted the first permit for new exploration given to any operator after the moratorium was lifted (see NGI, March 28). A rig arrived two days after the permit was granted and “we will soon be drilling,” said Luquette. Another permit to drill the Buckskin prospect was filed in mid-April, and approval is expected “in the next week or two.” In addition, Chevron received a permit to drill a second injection well at the Tahiti development and drilling is under way.

“We have three deepwater drillships in the Gulf, and two have returned to work. One is awaiting the permit for Buckskin,” he said. “Activity is slowly beginning to ramp up. It’s too early to know what the ‘new normal’ is or what the activity levels will be…but we are hopeful that the [Obama] administration shares our wish to move forward and develop reserves.”

Chevron’s near-term deepwater drilling program will require approval of 10 plans, and 15 drilling permit applications for both development and exploration wells in total would be submitted, Luquette explained.

Development wells at the promising Jack/St. Malo prospects in the Lower Tertiary trend remain on the schedule to ramp up in the “second half of the year,” he said. The deepwater development was sanctioned last year (see NGI, Oct. 25, 2010). “That was when the wells were always planned, and we expect the start-up to stay on track. If the permit is delayed more, the start-up could be impacted.”

Luquette said the new federal regulations required to operate in the offshore are taking more time and most likely will be more costly. For instance, he said the new design requirements for casing wells will be higher, and casing is about 10% of total well costs. However, even at a higher cost there would be no changes to the long-term plans.

“It’s too early to say, but I don’t think so.”

Shell Launches Cardamom Deep

A U.S. unit of Royal Dutch Shell plc began drilling a new well in the GOM in March, CFO Simon Henry said Thursday. Shell has applied for eight permits to drill in the GOM under the more stringent rules enacted by the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM), and of the 10 approved by BOEM to date, Shell has snagged two, he said.

In March Shell gained federal approval to launch Cardamom Deep, the first new deepwater exploration plan in the GOM under BOEM oversight (see NGI, March 28).

“Drilling is under way,” Henry said. “We started drilling three weeks ago and we are drilling exploration wells now.”

Henry explained that Shell has submitted eight applications to date to drill offshore, including two new exploration plans. “Cardamom was approved, and the Appomattox permit has been deemed complete. It hasn’t been approved, but it is considered complete. Those are the only ones for new drilling.”

Last June front-end engineering and design of a field development plan to bring Cardamom onstream was begun. As many as eight production wells are expected to flow through Shell’s Auger tension-leg platform in Garden Banks Block 426. The Cardamom well is being drilled by the Noble Jim Thompson semi-submersible rig.

The Appomattox prospect, in more than 7,000 feet of water in the Mississippi Canyon, was discovered by Shell in early 2010. Two wells already have been drilled in the prospect to more than 25,000 feet below the seabed, the first encountering 530 feet oil pay, the next 380 feet.

Separately, Henry noted, the producer was granted approval early this year to drill an existing well at its Perdido Development, and is “also about to drill” there. Shell and 12 other GOM producers were given the go-ahead in January to continue working on existing projects as long as the projects were in compliance with the revised BOEM rules (see NGI, Jan. 10).

The Perdido Development ramped up last year just weeks before the Deepwater Horizon accident (see NGI, April 5, 2010). Called the world’s deepest offshore drilling and production facility, the first producing platform in the promising Lower Tertiary Trend is able to produce annual peak production of more than 200 MMcf/d of gas and 100,000 b/d of oil.

In addition to its permitted drilling, Shell has five floating drilling units in the GOM, and it is drilling workovers and some completions off of some platforms.

“Of the floaters we’ve got that are already new-regulation ready, one is close, one has been taken to Brazil for awhile,” Henry said. “We are getting back to work, but it’s still slow progress.”

Shell earlier this year estimated that 50,000 boe/d of expected production in the GOM would be lost that “otherwise would have been achieved without the moratorium,” he noted. In February Henry said the GOM hiatus cost the company about $260 million in 2010 (see NGI, Feb. 7). Shell took a $25 million charge in 4Q2010 for the cost of idled drilling rigs and postponed an estimated $700 million in planned offshore investments.

Even though drilling in the GOM is restarting, “we won’t change the 50,000 boe/d losses…and we would like to see the rest of the applications approved as well.”

ExxonMobil also began drilling the Hadrian 5 exploration well in March, “within days of receiving approval,” Investor Relations Chief David Rosenthal said Thursday. And Friday Chevron Corp. CEO John Watson said the company has resumed work on its Moccasin well, which was suspended last June.

“The resumption of deepwater drilling activity in the Gulf of Mexico is vital to improving our nation’s energy security and supporting the economic recovery,” said Watson. “We are working with the government to improve the efficiency and transparency of the permitting process.”

BP plc CFO Byron Grote also said last week that he’s optimistic the company will get back to business by the second half of this year.

BP was the biggest producer in the GOM before the Deepwater Horizon disaster last April, with output of around 433,000 b/d, and company officials await permit approvals like their peers. BP’s GOM output has fallen by an estimated 100,000 b/d year/year because of the deepwater drilling moratorium.

“We, like everybody else, are watching the progressing of the permitting process,” Grote said. “We expect it to be done in an orderly fashion, with due process exhibited by regulatory authorities as appropriate in this situation…Irrespective of permitting, we have a number of things we want to do to make sure we have it right before proceeding in the Gulf of Mexico…It’s a combination of getting permits…and to be in an appropriate position to do all of our activities safely…managing risks…

“We expect to be back and actively drilling during the second half of the year.”

B-H Sees Only ‘a Fraction’ of Drilling Revived

Baker Hughes Inc. CEO Chad Deaton told analysts last week that GOM activity is expected “to be at a nice build for the rest of the year.” However, he expressed concern about the level of activity going forward. A “significant amount of work,” he noted, has been contracted and work for several other permits that are being reviewed already has been assigned.

“We are encouraged by the recent permitting activity. However, we also recognize that the 10 deepwater wells recently permitted to be drilled will only be a fraction of the activity levels we saw before the drilling moratorium was announced.

“This level of activity is insufficient to offset the 380,000 b/d, or 23%, drop in Gulf of Mexico oil production forecast by the EIA [Energy Information Administration] for 2012 compared to 2010,” Deaton said (see related story).

“We have continued to invest in our training, safety and competency assurance programs during the last year, and we are well positioned in the Gulf of Mexico, with our suite of advanced technology and services and experienced personnel, for a resumption of deepwater drilling activity.”

Thirty-three rigs were operating in the GOM prior to the Macondo well blowout; there are 13 rigs “permitted but not necessarily working” there today, Deaton noted. “We expect to see a second wave of permits — 11 permits — hopefully to come sometime in 3Q2011 or 4Q2011…for a total of 21 rigs, plus or minus.

“I don’t think all of them will be back to drilling at the end of this year. I think there will be some challenges…but business will be building” through the rest of the year.

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