August’s 'Dog Days' Always Create Offshore News

This August marked 50 years of federal offshore leasing, another lucrative lease sale, and delivery of the first jackup rig rated to drill in up to 550 feet of water.

August, it seems, always is an extremely good month for news in general. Nobody knows why, exactly. It probably isn’t even defensible in the light of fact. But many journalists regard the dog days of August as the “newsiest” ones.

It’s certainly true this year. August 2003 has been a particularly newsy period so far for the offshore segment of the petroleum industry. Take August 7, for instance. It marked the 50th anniversary of the passing of the U.S. Outer Continental Shelf (OCS) Lands Act, which President Dwight D. Eisenhower signed into law on August 7, 1953.

Basically, that law authorized the federal government to grant leases on OCS lands--out beyond state-controlled coastal offshore acreage--to private companies for developing oil, gas, salt, and sulfur resources.

But that wasn’t all. The law had been preceded two months earlier by the Submerged Lands Act of 1953, which established federal jurisdiction over offshore lands beginning three nautical miles from shore. That gave coastal states title to a three-mile stretch of water-covered acreage extending from their coastlines.

The law, however, did not pertain to Texas and, oddly enough, to the west coast of Florida. Those states, in earlier lawsuits that went to the U.S. Supreme Court not once, but several times, were awarded title under the act to three marine leagues (about 10.4 miles) of their coastal waters, mainly because that had been their declared territory as sovereign nations before they were admitted into the Union. The three-mile limit did, however, cover Florida’s east coast, mainly because there was very little OCS on that side of the state anyway, and the limit was established mostly for national defense reasons.

In any case, U.S. territorial waters have been extended several more times since. They now go out to at least 200 miles offshore, and other nations around the world are extending their jurisdictions, as well.

The significance of those two 1953 laws, and the several years’ worth of legal battles that preceded them, was that they set in stone how both federal and state governments would divvy up their offshore acreage, mainly for the purpose of leasing it for offshore oil and gas development. And, of course, it also set down how each would benefit from lease payments and, ultimately, from royalties and taxes on oil and gas produced from beneath those leases.

It was a big deal then, and it’s still a big deal. Since OCS leasing was divided among them, it has brought the federal government and the state governments of Texas, Louisiana, Alabama, and California enormous revenues from bid bonuses, lease rentals, production royalties and tax revenues aggregating at least in the hundreds of billions of dollars, if not more. And, of course, it has brought oil and gas companies many times that in gross revenues, not to mention net profits, from selling offshore oil and gas.

But still more significant offshore petroleum industry news has occurred so far in this hot month of August.

Just last week (August 29), the federal government held another of its regularly scheduled OCS lease sales. That event, Western Gulf of Mexico Sale No. 187, offered 3,996 tracts comprising nearly 22 million acres offshore Texas and Louisiana. It attracted $148.7 million in high bid bonuses from 63 companies on only 335 of those tracts, however. That makes it almost identical in total high bids to the previous OCS sale in the Gulf (No. 184), held last November, which netted $148.6 million in winning high bids for 368 tracts.

The apparent high bid on each block in such a sale must go though an evaluation process by the U.S. Minerals Management Service (MMS), which oversees such activities, to ensure that the federal government, and hence the American public, receives fair market value for it. Though changes are seldom made, actual winning bids usually are announced a month or so after sale results are made known.

Interestingly, pre-sale speculation was that companies would bid more strongly on blocks located on the OCS in water depths of 600 ft (183 m) or less. Actually, says MMS, about 54 percent of the tracts that received bids last week are in ultra-deepwater, beyond the OCS, beginning in water depths of more than 2,625 ft (800 m). This apparently reflects the interest by oil companies in exploring for larger discoveries beneath such water depths, which expand the companies’ proved reserves and carry with them deepwater royalty reduction incentives set forth by the MMS.

Nevertheless, a number of the most recent OCS sales have resulted in companies leasing blocks back up on the shelf, where for several years a drilling campaign has been ongoing in search of natural gas at significantly deeper geological horizons. In fact, that campaign also benefits from royalty reductions for gas discovered at drilling depths of 15,000 ft (4,575 m) or more.

Which brings up still another noteworthy August news event.

Houston-based Rowan Cos. last Monday (August 18) took delivery of its newest self-elevating mobile offshore drilling rig, the Bob Palmer, at a finishing yard in Sabine Pass, TX.

This $240 million jackup rig, fabricated during the last several quarters at Rowan’s own Marathon LeTourneau construction yard on the Mississippi River at Vicksburg, MS, is perhaps the biggest rig of its type in the world. An enhanced version of Rowan’s heavy-duty Super Gorilla-class jackup, the Bob Palmer is outfitted with three 713-ft (217.5-m) legs and, with larger ocean-bottom support structures, or spud cans, can drill wells in the Gulf of Mexico or other comparatively temperate areas in water depths up to 550 ft (168 m). That effectively gives the rig the capability of drilling practically anywhere on the Gulf of Mexico OCS.

In harsher marine environments, such as off Eastern Canada or in the greater North Sea area, the Bob Palmer would be rated to drill in water depths to 400 ft (122 m), still a significant water depth in those areas.

However, the Bob Palmer also is capable of drilling ultra-deep wells. It is outfitted with beefed-up power, hoisting equipment, and mud circulation capacity to drill wells far beyond the 15,000-ft point. In fact, its first assignment will be for El Paso Production Oil & Gas Co. The 25,000-ft (7,625-m) well will be drilled in South Tambalier Area Block 114 in 140 ft (42.7 m) of water, which Rowan officials said would be a good test for the drilling equipment without the added complication of operating near the rig's design water depth limit.

Rowan and several other offshore contract drilling companies, including GlobalSantaFe Corp. and TransOcean, both of Houston, and ENSCO Inc., of Dallas, already have built or are building jackup rigs with similar deep drilling capabilities. Most, including still another Rowan rig currently under construction in Vicksburg (the Scooter Yeargain), are rated to drill to 25,000 ft (6,100 m) or deeper in water depths of between 375 ft (114.4 m) and 475 ft (145 m).

Such water depth and deep drilling capabilities promise to make these new deepwater jackups more and more valuable, not only in the Gulf, but in other areas of the world. Future drilling on the limits of the OCS off Trinidad, Venezuela, Mexico, West Africa, India, and even off Russia most likely would benefit from the availability of such equipment.

While the water depth capabilities of bottom-supported mobile drilling rigs have deepened over the years, it’s perhaps of some historical interest to note that only 30 years ago, the water depth limit for existing jackup rigs anywhere in the world was something like 100 ft (30.5 m). Only a scant decade later, it was 300 ft (91.5 m), with floating rigs (ships and semisubmersibles) tackling almost everything deeper. Today, however, with much better steels and far more precise loading and wind/wave data in their possession, naval architects and designers are extending jackup rigs’ water depth capabilities, as well as drilling depth limits, significantly. If the need were to arise, the industry probably could come up with jackups capable of drilling 30,000-ft (9,150-m) wells in 600 to 700 ft (183 to 213.5 m) or more of water.

And if they were to design and build the first such jackup, it most likely would be finished sometime during the month of--you guessed it--August.