HOUSTON Aug 30, 2006 (Dow Jones Newswires)
With "100-year storm" strength and "Category Five" anchors, deepwater drillers in the Gulf of Mexico have a lot of reassuring names for the stronger rig mooring systems they put in place after the record 2005 hurricane season.
But if another Category 5 hurricane rolls through, few in the industry would bet against a repeat performance for their rigs. Last year, Hurricane Katrina and Hurricane Rita sent deepwater rigs wandering across the Gulf of Mexico, their loose anchors destroying pipelines.
A year ago Tuesday, Hurricane Katrina made landfall in New Orleans as a Category 3 storm.
"It helps, but nobody knows how much it's going to help," said Tom Kwan, referring to the upgraded mooring systems that keep rigs from floating off. Kwan is a Houston engineer who is helping draft a new industry-wide mooring standard for the 2007 season. "I don't think you can have a goal of zero (wandering rigs)."
Katrina and Rita, along with Ivan in 2004, hurt shallow-water jackups and deepwater drillers alike. But it was semisubmersibles - partially submerged rigs that float in waters more than 4,000 feet deep - that proved most vulnerable.
In 2005, most semisubmersibles were kept in place with eight anchors, each weighing 10 tons or more. The eight-point mooring system was built to survive a "10-year" storm, or a Category 1 hurricane with winds under 80 miles per hour.
At their peak strength, Rita and Katrina more than doubled that speed. Their force was strong enough to break 17 semisubmersibles - nearly half the Gulf fleet in operation at that time - from their positions. The previous year Ivan, also a Category 5 storm, also set loose two semisubmersibles.
Once free, the semisubmersibles became the tropical equivalent of 30,000-ton icebergs, each dragging eight or more 10-ton anchors across the sea floor.
Some rigs drifted for 100 miles or more, but were relatively unharmed. Others washed up on shore, heavily damaged. Houston-based Transocean Inc. (RIG), one of four major semisubmersible operators in the Gulf, spent $135 million on Katrina- and Rita-related repairs.
The anchors also ripped through the Gulf's seabed, which is a tangle of pipelines, wells and other oil and gas infrastructure.
The Minerals Management Service, a federal agency that regulates offshore drilling, believes that 16 out of 545 damaged pipelines were victims of wandering rigs. But one of the 16 was connected to Royal Dutch Shell PLC's (RDSB.LN) Mars platform, which was able to return to 140,000 barrels a day of crude production until July 2006.
"The (MMS) is concerned about ... the potential for catastrophic damage to key infrastructure and the resultant pollution from future storms," the agency wrote in new mooring recommendations it released in May.
By the time the MMS released its recommendations, most of the major deepwater drillers were already in the process of installing new mooring systems that exceeded federal regulations.
Of 32 semisubmersibles reported by the online oil and gas trade publication Rigzone to be in the Gulf, at least 24 are equipped to survive a 100-year storm or are scheduled to enter the shipyard for an upgrade before the 2007 hurricane season.
A 100-year storm is defined roughly as a strong Category 2 or weak Category 3 hurricane, with winds under 111 mph. Post-Katrina, the "once-a-century" standard, has largely replaced the 10-year storm measure.
"Companies have done this voluntarily," said Chris Oynes, the MMS regional director for the Gulf of Mexico, at an Aug. 22 forum on hurricane preparedness held at Rice University. "It's a business necessity."
And not just for drillers. While five Noble Corp. (NE) semisubmersibles spend 90 days each in shipyards for mooring upgrades over the next year, customers will continue to pay dayrates as if the rigs were still out drilling.
Oil and gas companies typically don't own the semisubmersibles that drill their wells. Instead, they pay companies like Noble anywhere from $200,000 to $400,000 a day over a fixed period. In an unusual arrangement, Royal Dutch Shell PLC (RDSB.LN) and Anadarko Petroleum Corp. (APC) will pay 95% of dayrate for the first 60 days in the shipyard, and 80% of dayrate after that. That amounts to $20 million to $32 million a rig.
Noble itself will pay $10 million to $15 million a rig to upgrade four semisumbersibles to 12 anchors - twice what rival drillers Transocean and Diamond Offshore Drilling, Inc. (DO) are spending. A fifth rig will be upgraded from 12 to 15 anchors, at a cost of $45 million to $55 million, the company said in October.
The upgrades are engineered to allow the rigs to withstand 158 mph winds, a "1000-year" storm at the lower end of Category 5.
A Noble spokesman declined to discuss the contracts beyond what was outlined in the company's fleet status report.
Shell and Anadarko will save money in the long run if the upgrades prevent a rig from wandering off in a storm, said Arun Jayaram, an analyst with Credit Suisse in Houston.
"If you have a rig that's blown off location ... it can cost you a lot of money," Jayaram said. "When times are good and oil is at $70 plus a barrel, it's just a win-win."
Room For Improvement
There are serious questions as to whether any of the drillers' approaches will make a difference if another Katrina forms in the Gulf of Mexico.
Of course, 2005 saw four "thousand-year" storms - Katrina and Rita, as well as Emily and Wilma, both of which avoided oil and gas-producing areas of the Gulf.
No matter how many anchors rig operators add, there's no way to predict with absolute certainty whether a rig will come through a storm undamaged.
"A lot of things depend on whether you get a direct hit, or just an edge," said Kwan, the engineer.
That's why both MMS and major energy producers in the Gulf are focusing as much on damage control as preventing wandering rigs in the first place.
MMS is asking companies to install "black boxes" on all semisubermsibles to record when and why problems occur in a storm, MMS Director Johnnie Burton said Tuesday at a forum on Gulf energy production in Houston.
And while she praised rig operators for building mooring systems that "will stand forces 50% better than they did last year," she called for more steps to be taken to improve anchor design.
But cooperation between the MMS and the oil services industry may be close to hitting a wall on that front. Going too far beyond the 100-year storm standard could require expensive redesigns for semisubmersibles, which are short on free deck space for extra anchor lines and other mooring equipment, Kwan said.
"If we go too high, rigs will be leaving the Gulf of Mexico," Kwan said. "If we go too low, it might not do much. It's a very, very difficult time right now."
Copyright (c) 2006 Dow Jones & Company, Inc.
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