Big oil sinks to the depths

The world has known about subsalt oil reserves since 1983 when Placid Oil began drilling in Ship Shoal on the Gulf of Mexico. But huge subsalt fields discovered off the coast of Brazil could change the way ultra-deep sea subsalt exploration is conducted. The fields explored in the 1980s were relatively shallow and limited in size, while the recent discoveries are so vast that companies hope their abundance will more than offset the additional risk and enormous investment required to reach it.

Since the discovery of ultra-deep oil reserves hidden under a thick layer of salt off the coast of Brazil, the spotlight has been on finding, quantifying and exploring these buried treasure troves. The subsalt layers, as the vast reserves have come to be known, are usually located around 7,000 meters below sea level; if the 2,500 meters of ocean water were not enough, the subsalt reserves are still lodged under three kilometres of rock, then another 2,000-3,000 metres of compacted salt, which tends to shift unpredictably. Though they may sound impenetrable, pre-salt reserves in Brazil are already producing over 14,000 barrels of oil a day, less than four years since their discovery, and is still the only subsalt area being explored so far.

But such promise comes at a price. The exploration of these reserves, found not only in Brazil but also in west Africa and the Gulf of Mexico so far, pose massive technological and safety challenges. The water pressure alone is over 1,460 pounds per square inch, and there is little to no sunlight penetration. Underwater pipelines to carry the oil back to the coast at that depth would be unfathomably expensive and could make the extraction process far too costly. The biggest issue, however, despite the depth and seeming impregnability of the terrain, is the thick layer of salt, which is not only very dense, but also very hot. In extreme temperatures like these, five kilometres closer to the centre of the world, the salt layer behaves more like a moving layer of molten plastic, which also causes the crude oil and gas to emerge at scorching temperatures.

Brazilian energy company Petrobras believes that for the ‘pre-salt’ fields in Brazil, to be developed and explored adequately, they foresee investment in the region of $200bn. But the first fields announced in 2008, off the southern coast of the Santos Basin, are estimated to be 800km long and over 200km wide. More fields are being uncovered everyday off the northern coast. Such huge quantities are hard to ignore, especially at a time when global oil reserves are plummeting. Petrobras’s huge commitment and unabated enthusiasm, despite the Macondo Blast in the Gulf of Mexico in 2010 and a more recent, less severe spill by Chevron in the Santos basin, has contributed significantly to the renewed input in ultra-deep sea drilling. » The message has been at least in part, that the industry can no longer afford to turn their noses up at difficult exploration, and that the rewards still have the potential to offset the investment.

Exploration complication
Bureaucratic challenges have affected the full development of the reserves. When Petrobras announced the discovery of the oil fields, it also made clear that its intention of exploring it alone, and imposed restrictive taxes and expensive charges for other companies seeking to partake in the sub-saline action. Petrobras announced that it would be scrapping its tried and tested concession auctions, where interested parties both foreign and Brazilian could bid for exploration rights, and replaced it with a new model that includes creating a state enterprise that will own all of the pre-salt deposits.

The model is called ‘Pré-Sal Petróleo’ and it has the authority to block any projects that it does not consider to be in the national interest. Any upcoming auctions will have to include Petrobras as its operator, a role that comes with a mandatory 30 percent stake. Winning consortiums will be able to extract enough to cover their costs, but any surplus will have to be shared with the state, bid winners will be those that offer bigger shares of their profits.

With such a stringent set of extraction regulations it is not a surprise that companies that would otherwise be bidding for the Brazilian consortium have gone looking for similar reserves elsewhere. Ultra-deep sea fields located under the salt layer have been found on the west coast of Africa and the Gulf of Mexico. Seadrill has reported that the demand for ultra-deep sea rigs has increased exponentially over the last few years, despite the US moratorium having severely reduced exploration in the Gulf of Mexico.

The Macondo well blast and subsequent spill in 2010 has left a sour taste in the industry. Safety regulations are being reviewed and standards are being raised. Understandably, the safety concerns for pre-salt layer drilling abound. The sea bed of Brazilian reserves around Santos are between 30 and 40 percent deeper than the Macondo site, and the layer of salt can be up to as much as twice as thick. There have been impressive technological advances in order to explore the pre-salt, most notably the use of new pumps that separate the oil from residual gas still at the seabed level, the products are then pumped up in different pipes. This is a fundamental process when extracting pre-salt oil, as the elevated temperatures at which the oil emerged from the reserve can pose a safety risk.

Due to the extreme depth of the ocean where the reserves are usually located also meant that traditional rigs and pipes were out of the question. Petrobras has opted for less conventional floating production and storage offloading facilities (FPSO). The FPSO facilities are built as individual units that are equipped to produce, store and drain oil, all in the same vessel. The crude is stored on board and then transported to shore on small shutter tankers that make the journey every few days or weeks. The FPSO Cidade Angra dos Reis is in operation in the Lula fields in the Brazilian pre-salt region, and according to Petrobras produces 100,000 barrels of oil per day. The Brazilian pre-salt region looks set to be served by 17 FPSOs identical to Cidade Angra dos Reis by 2017, eight of which have already been commissioned.

Petrobras has begun exporting its model FPSOs to some of its interests in the Gulf of Mexico, namely the Cascade Chinook reserve located on Walter Ridge, 300km off the coast of Louisiana and » the deepest in the region. However, not many Gulf of Mexico wells use this type of technology. In 2010 Shell, BP and Chevron started drilling in the Palomino Canyon area, though instead of relying on FPSOs, the three concession holders opted for a direct vertical access spar, Perdido, the deepest in the world. The spar serves as a hub that controls the development of three distinct fields and covers an area with a 48km radius. Drilling at 2,925m below the sea level, Perdido has the capability of producing 100,000 barrels of crude per day. The platform comprises a 170m cylindrical par which is secured to the sea bed by powerful anchor piles, which hold it in place. According to Shell, there are 22 vertical access wells linked to the spar at any given time, and an additional 12 tiebacks from subsea completions.

Peak point
Petrobras’ perceived lack of manners in the Brazilian pre-salt region prompted many other companies to seek out their own subsaline spot. Companies that missed out (or opted out) of the Brazilian auctions have been investing in finding other areas with similar geographic conditions, and research led many to the west African coast. Chevron, which has held operations in Angola for four decades, needed the spark generated by the Brazilian discovery for it to start looking farther offshore and deeper within the bowels of the earth. West Africa’s oil reserves, particularly in countries such as Gabon, have been declining rapidly in the past 15 years, so the prospect of discovering subsalt reserves as vast as Brazil’s is hugely promising for firms.

According to geologists, the biggest and most accessible subsalt reserves are likely to be found off the coast of Angola. Three significant discoveries have already been announced in the bay of Cuanza, which is being explored by Goldman Sachs’ Cobalt International Energy. In 2007, the Texas company paid $24m for Angolan drilling licenses outside of Kwanza. In February it announced the discovery of vast amounts of oil that preliminary reports suggested could yield up to 20,000 barrels per day.

In December 2011, the Angolan national oil agency Sonangol auctioned off 11 concessions for subsalt drilling in Kwanza, including two blocks for BP, one for Cobalt, one for Repsol, and two for Total. The current forecasts, according to Sonangol, aim to increase the country’s current production from 1.6 million barrels a day to over two million by 2014. Though the figure is in excess of Angola’s current quota of 1.57 million barrels per day quota, imposed by its membership in the Organisation of the Petroleum Exporting Countries, plans to maximise extraction capacity are going ahead while the country renegotiates the existing restrictions.

Subsalt oil reserves have also abated fears over peak oil. In 2006 oil production was at an all-time low, and there was much speculation that oil production would peak by 2015 before plummeting even more. But with the vast reserves discovered in Brazil, west Africa and the Gulf of Mexico as well as the technology to explore potential undiscovered subsalt fields elsewhere, concerns have subsided and the mood is more optimistic. Petrobras and Sonangol, together with their partners, are working to make subsalt ultra-deep sea drilling a constant fixture in the oil industry, and in order to achieve that they need to reduce safety risks and increase production.

A safety net  
In 2010, the explosion of Deepwater Horizon in the Gulf of Mexico deeply scarred the oil industry. Not only were 11 rig workers killed in the blast, but the subsequent leak proved so hard to stem that 4.9 million barrels of crude escaped and contaminated the sea and Louisiana coastline. The disaster highlighted how woefully unprepared the operation was in case of a blast; it also called into question the many safety issues that come with the exploration of subsalt oil reserves because of their depth, geographical location and difficult access points.

Following the explosion, the US passed a moratorium on ultra-deep sea drilling in the Gulf of Mexico while safety regulations were reviewed. The ban has since been lifted but The Heritage Foundation reported that a year after the spill, applications for drilling permits in the Gulf region were down by 71 percent due, at least in part, to new rules that demand that applicants prove they have the technology and resources readily available to contain spillages. According to specialists at Boots & Coots, well control in extreme environments can cost anywhere between $5m and $20m, based on spread costs exceeding $750,000 per day.

But international standards often do not discriminate between ultra-deep wells and those of a lesser depth, so despite adhering to regulations companies might not be fully equipped to handle accidents on a level like the Gulf of Mexico spill. Petrobras, for instance, which is in full compliance with both national and international standard regulations, lists on its website a fleet of 14 large scale ships, 80 airplanes and 200 smaller vessels that are at hand in the event on an emergency. All of their drills are purported to have failure detection systems and block valves to safely interrupt the flow of oil and gas in the event of a problem. But there is no specific mechanism in place to stem the flow of oil and gas in the case of a blast, let alone one in deep sea exploration zones. And while it is true that accidents such as the Macondo explosion are extremely rare, the extent of the damage that can potentially be caused by an out-of-control well at such high pressure found at more than 2,000m under water is vast. The depth also means that no matter how prepared a vessel might be, it could be very difficult to respond quickly in case of a blast.

After the Deepwater Horizon explosion it took over a fortnight to drill the first emergency relief well. It was almost three months before test oil and drilling mud started being slowly pumped into the leaking well. The top of the well was then cemented off. It was not a high-tech solution, but at a depth of 2,400 metres below the sea, even the simplest solutions can take monumental resources and ingenuity. While companies operating in subsalt regions today preach that their security policy consists of stringent accident prevention policies, it is near impossible to eliminate the chance of any mistakes occurring completely.

The increased danger makes the exploration of subsalt reserves extremely risky and expensive. Petrobras is planning investments in upwards of $200bn in order to fully explore its sites in Brazil, and similar investment will be required in Kwanza. But the potential rewards are colossal. Subsalt oil reserves tend to be vast and the oil is of a good quality. Yet to ensure that resources can continue to be explored in a safe and long-lasting way, research into new technology will have to keep evolving. It seems that as the American moratorium and new regulations may have delayed the exploration of subsalt reserves in the area, it may also guarantee a higher standard of operations that must be duplicated globally if these reserves are to remain valuable resources rather than dangerous burdens.