Friday, July 02, 2010

No Relief for British Petroleum in Sight

BP plc's (BP-$28.50) first relief well has detected metal casing from the Macondo wellbore in the Gulf of Mexico. A scheduled attempt to intersect and plug the damaged well come August, however, could be delayed if the U.K.-oil major fails to address the concerns of a congressional subcommittee investigating the Deepwater Horizon spill.

Rep. Ed Markey (D-Mass.), who chairs the House Energy and Environment Subcommittee, is growing impatient with BP's remarked lack of preparedness for all things "oil spill." For example, at a House hearing held yesterday, Markey and other committee members heard BP America CEO Lamar McKay confess the company has no response plan in place, should a hurricane or tropical storm pass over the oil spill zone.

The well reached a depth of 16,275 feet on June 23 before a ‘ranging' run spotted the approximate locale of the MC (Macondo) 252 well. As explained by Kent Wells, BP senior vice president in charge of subsea spillzone efforts, electromagnetic range testing isn't an exact process. It requires:
  • Placing a cable into the end of the wellbore;
  • Sending out an electric current; and,
  • Picking up the subsequent magnetic field signature around the wellbore.
Although the first well has closed to within about 20 feet horizontally of MC-252, drilling in rock several miles down to determine the exact location of 6-inch piping in the damaged wellbore is worse than stumbling in a darkened gymnasium -- limited to using only one hand, walking along the four walls -- to find the light switch. Nonetheless, the company remains ahead of schedule. Subsequent drilling and ranging runs will continue over the next few weeks, steered toward a target intercept depth of approximately 18,000 feet, said Wells.

Video feeds from the sea floor are showing hydrocarbon columns bubbling up from fissures removed from the drill site. There are worries the original methane gas explosion aboard the Deepwater Horizon rig has compromised the structural integrity of the well and pipe casings. Echoing this concern, Markey forwarded a letter of inquiry to BP's Tony Hayward dated June 23, demanding the chief executive provide documentation on wellbore condition and relief well efforts, including answers to:
  • Likelihood that filling the relief wells with drilling mud will result in fractures and a subsequent loss of pressure;
  • Measurements, images, and other documents related to the condition of the casing inside the wellbore, as well as any future plans for such measurements going forward;
  • Any survey(s) to identify hydrocarbon leakage from the sea floor; and,
  • All documents related to the geologic formation in which the Macondo well is located, including reserve estimates of the total amount of oil and gas contained in the target reservoir.
The goal is to drill the first relief in parallel with the damaged piping -- to within five feet horizontally and 200 feet vertically of the intercept point.

During one of his daily briefings with the press last week, incident commander Admiral Thad Allen, said "kill" operations were expected to begin the second week of August, when BP will try plugging the old well with heavy drilling mud and cement.

Given its pathetic record of transparency, whether Hayward and the board can provide assurances that hydrocarbons flowing directly into the ocean from the wellbore or the sea floor won't complicate plug activities is doubtful. Efforts to stop the spill in the Gulf are being described as "chaotic." But it's the new Bureau of Ocean Energy Management (erstwhile Minerals Management Service) charged with approval and oversight of BP's contingency plans.

Whether President Obama chooses to heed the cautions of Markey or the Ocean Bureau is entirely his call -- after all, he is the boss of the regulatory agency. This being a mid-term election year, in my opinion, the president might just err on the side of caution and request BP management to delay the intersect of the first relief well with the damaged wellbore until BP starts acting like a more responsible partner in this cleanup fiasco.

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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