As a shareholder of Deepwater focused independent oil and gas producer ATP Oil and Gas I have been sitting patiently waiting for the United States Government to allow the company to get back to work in the Gulf of Mexico. I know that permit approvals in the Deepwater are going to resume, so whether it happens tomorrow or in March isn’t that important isn’t all that important to me.
That isn’t to say though that I don’t understand how frustrating it must be for the management of ATP. The drilling moratorium ended October 12, but ATP is still waiting for approval of a permit submitted well before the end of the moratorium.
And the following all make the situation more frustrating:
- The outstanding permit relates to drilling from the 6 month old ATP Titan that is the virtual prototype for safe drilling. The Titan has a surface blowout preventer AND a subsea blowout preventer. The Titan has a subsea isolation device with controls independent of the surface BOP.
- The well permit in question relates not to an unpredictable exploration well but rather a low risk development well into an already producing reservoir.
- ATP and the rest of the oil industry drilled over 58,000 wells safely before the BP Macondo incident which was caused by a company that as has been described by peers in the industry as being negligent in drilling this well.
In the past week ATP management voiced their frustration in an open letter to President Obama that ran in both the Houston Chronicle and the Wall Street Journal. Here is the letter:
The Houston Chronicle followed up by talking to the CEO of ATP as well as an analyst in the energy industry:
http://www.chron.com/disp/story.mpl/business/energy/7355807.html
When federal officials lifted the ban on deep-water drilling in early October, Houston-based ATP Oil & Gas was ready to roll.
The small production company was finishing up work on a well that tied into its Telemark production hub about 100 miles south of the mouth of the Mississippi River. It had filed a permit to drill a sidetrack off an existing well — a relatively low-risk proposal for the world of deep-water drilling. It was even revised and updated to meet all of the new requirements imposed on deep- water permits in the wake of the Deepwater Horizon accident.
"So I kept the crew out there because I felt certain the government meant what it said," ATP Chairman and CEO Paul Bulmahn said - that permit applications that met the new guidelines would be granted.
More than 70 days later, the company is still waiting. At a price of about $330,000 per day, Bulmahn has started to get impatient, leading him to take some actions unusual for the company.
First, ATP hired Washington, D.C., lobbyists for the first time to help push its cause.
"I usually look with great disdain on lobbying efforts," Bulmahn said.
Then he wrote a personal letter to President Barack Obama - copied to Secretary of the Interior Ken Salazar and Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement - pleading with him to "Please issue a permit so we can go back to work."
And on Sunday he ran the letter as an advertisement in the Chronicle.
"I can't afford to keep these workers employed and playing cards," Bulmahn said.
It's a notion shared by many in the industry, which says a de facto moratorium remains despite the Oct. 12 announcement that the Gulf was open again for business. The administration says that's not the case, however, and that the bureau has added staff to work through the backlog of permit applications.
The bureau doesn't comment on specific permit applications that are still pending because the information is considered proprietary to the companies.
In the next few days, Bulmahn said he may have to pull the plug on the project, meaning some 200 workers will be off the clock or headed to work on offshore projects overseas. It's not just an idle threat: On Monday Israeli media reported that ATP was considering taking a stake in several offshore natural gas projects there.
"I can't comment on such speculation," Bulmahn said. "But the technology we've brought to bear in the deep water is being courted by governments around the world to help open up their natural resources offshore."
That's not to say there are no permits being issued in the Gulf of Mexico. Since July there have been 25 shallow-water permits issued, including six in December. Only 10 of those permits have seen drilling, however, meaning companies are choosing to hold off on putting crews back to work.
Only one of 15 new deep-water well permits has been granted since the moratorium was lifted on Oct. 12, with two pending as of Monday, according to the bureau's data.
But federal officials note 60 permits to modify existing deep-water plans have been granted, as well as 49 revised permits to modify well plans.
That a company like ATP must wait to get a deep-water permit is particularly frustrating to the industry, said Stephen Berman, a senior research analyst with Pritchard Capital Partners.
The company buys proven, undeveloped reserves - wells that have been drilled but deemed uneconomic by larger companies. That means it's often drilling in existing wells, often less risky than exploration wells such as BP's Macondo well that was being completed when it blew out in April, killing 11 workers and leading to the largest oil spill ever in the Gulf of Mexico.
The company's equipment tends to have more safeguards than many other operators' - deploying blowout preventers on both the seafloor and onboard the rig, for example, Berman said.
"ATP has the right business model and equipment for the post-Macondo world," Berman said. "They should be near or at the front of the line when the new permits for deep water start. But I can see their frustration as what appears to be a lot of foot-dragging."
While new wells can take years to reach production - meaning there's little direct correlation between current oil prices and new drilling - Berman said he suspects rising oil prices will likely increase the pressure on the administration to move forward issuing deep-water permits.
"The deep-water Gulf is where the large finds are, so if you're not making them, there's even more of a feeling of supply being constrained," Berman said.
ATP spent 3 years completing the infrastructure in the Gulf of Mexico and at the time of the BP spill was just beginning a long and significant ramp up of production. There are 5 more wells in that program that simply need to be drilled and tied in to existing infrastructure. In the Deepwater the infrastructure (floating production unit and pipelines are the expensive part of the process).
As the permits start rolling out ATP production is going to continue to move upward in a big way (production has already doubled from December 2009). As a shareholder I’ve been waiting a long time for this increase. BP set the company back by 6 months, but unless there is another BP type 1 in 58,000 well disaster lurking that production ramp will resume shortly.
That isn’t to say though that I don’t understand how frustrating it must be for the management of ATP. The drilling moratorium ended October 12, but ATP is still waiting for approval of a permit submitted well before the end of the moratorium.
And the following all make the situation more frustrating:
- The outstanding permit relates to drilling from the 6 month old ATP Titan that is the virtual prototype for safe drilling. The Titan has a surface blowout preventer AND a subsea blowout preventer. The Titan has a subsea isolation device with controls independent of the surface BOP.
- The well permit in question relates not to an unpredictable exploration well but rather a low risk development well into an already producing reservoir.
- ATP and the rest of the oil industry drilled over 58,000 wells safely before the BP Macondo incident which was caused by a company that as has been described by peers in the industry as being negligent in drilling this well.
In the past week ATP management voiced their frustration in an open letter to President Obama that ran in both the Houston Chronicle and the Wall Street Journal. Here is the letter:
The Houston Chronicle followed up by talking to the CEO of ATP as well as an analyst in the energy industry:
http://www.chron.com/disp/story.mpl/business/energy/7355807.html
When federal officials lifted the ban on deep-water drilling in early October, Houston-based ATP Oil & Gas was ready to roll.
The small production company was finishing up work on a well that tied into its Telemark production hub about 100 miles south of the mouth of the Mississippi River. It had filed a permit to drill a sidetrack off an existing well — a relatively low-risk proposal for the world of deep-water drilling. It was even revised and updated to meet all of the new requirements imposed on deep- water permits in the wake of the Deepwater Horizon accident.
"So I kept the crew out there because I felt certain the government meant what it said," ATP Chairman and CEO Paul Bulmahn said - that permit applications that met the new guidelines would be granted.
More than 70 days later, the company is still waiting. At a price of about $330,000 per day, Bulmahn has started to get impatient, leading him to take some actions unusual for the company.
First, ATP hired Washington, D.C., lobbyists for the first time to help push its cause.
"I usually look with great disdain on lobbying efforts," Bulmahn said.
Then he wrote a personal letter to President Barack Obama - copied to Secretary of the Interior Ken Salazar and Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement - pleading with him to "Please issue a permit so we can go back to work."
And on Sunday he ran the letter as an advertisement in the Chronicle.
"I can't afford to keep these workers employed and playing cards," Bulmahn said.
De facto moratorium?
It's a notion shared by many in the industry, which says a de facto moratorium remains despite the Oct. 12 announcement that the Gulf was open again for business. The administration says that's not the case, however, and that the bureau has added staff to work through the backlog of permit applications.
The bureau doesn't comment on specific permit applications that are still pending because the information is considered proprietary to the companies.
In the next few days, Bulmahn said he may have to pull the plug on the project, meaning some 200 workers will be off the clock or headed to work on offshore projects overseas. It's not just an idle threat: On Monday Israeli media reported that ATP was considering taking a stake in several offshore natural gas projects there.
"I can't comment on such speculation," Bulmahn said. "But the technology we've brought to bear in the deep water is being courted by governments around the world to help open up their natural resources offshore."
25 in shallow water
That's not to say there are no permits being issued in the Gulf of Mexico. Since July there have been 25 shallow-water permits issued, including six in December. Only 10 of those permits have seen drilling, however, meaning companies are choosing to hold off on putting crews back to work.
Only one of 15 new deep-water well permits has been granted since the moratorium was lifted on Oct. 12, with two pending as of Monday, according to the bureau's data.
But federal officials note 60 permits to modify existing deep-water plans have been granted, as well as 49 revised permits to modify well plans.
That a company like ATP must wait to get a deep-water permit is particularly frustrating to the industry, said Stephen Berman, a senior research analyst with Pritchard Capital Partners.
The company buys proven, undeveloped reserves - wells that have been drilled but deemed uneconomic by larger companies. That means it's often drilling in existing wells, often less risky than exploration wells such as BP's Macondo well that was being completed when it blew out in April, killing 11 workers and leading to the largest oil spill ever in the Gulf of Mexico.
Extra safeguards
The company's equipment tends to have more safeguards than many other operators' - deploying blowout preventers on both the seafloor and onboard the rig, for example, Berman said.
"ATP has the right business model and equipment for the post-Macondo world," Berman said. "They should be near or at the front of the line when the new permits for deep water start. But I can see their frustration as what appears to be a lot of foot-dragging."
While new wells can take years to reach production - meaning there's little direct correlation between current oil prices and new drilling - Berman said he suspects rising oil prices will likely increase the pressure on the administration to move forward issuing deep-water permits.
"The deep-water Gulf is where the large finds are, so if you're not making them, there's even more of a feeling of supply being constrained," Berman said.
ATP spent 3 years completing the infrastructure in the Gulf of Mexico and at the time of the BP spill was just beginning a long and significant ramp up of production. There are 5 more wells in that program that simply need to be drilled and tied in to existing infrastructure. In the Deepwater the infrastructure (floating production unit and pipelines are the expensive part of the process).
As the permits start rolling out ATP production is going to continue to move upward in a big way (production has already doubled from December 2009). As a shareholder I’ve been waiting a long time for this increase. BP set the company back by 6 months, but unless there is another BP type 1 in 58,000 well disaster lurking that production ramp will resume shortly.
