Image: Oil spill workers connect sections of oil booms
John Moore  /  Getty Images
Oil spill workers connect sections of oil booms to protect marshlands in Hopedale, Louisiana on Thursday.
updated 5/14/2010 7:44:14 AM ET 2010-05-14T11:44:14

On May 7, in a darkened room called the hive at BP's command center in suburban Houston, technicians were closely watching video feeds from the oil company's underwater robotic vehicles. They showed a 40-foot-tall concrete-and-steel device called a container dome being carefully lowered into the depths of the Gulf of Mexico.

BP executives had great hopes the dome could help siphon off most of the oil from its ruptured well that was spewing an estimated 5,000 barrels of oil each day into the Gulf. The device soon proved to be a bust. Said BP Chief Executive Officer Tony Hayward: "There is an enormous amount of learning going on here, because we are doing it for real [for] the first time."

Oil executives like Hayward had better get used to a steep learning curve. While the magnitude of the BP spill has captured headlines, the operation that precipitated the disaster wasn't out of the ordinary. Operating in deep water has become a major focus of oil companies, thanks to big undersea deposits, drilling advances, and the willingness of nations such as Brazil and the U.S. to allow rigs off their shores.

While drilling at depths of 5,000 feet or more was almost unheard-of 20 years ago, about 6 percent of world oil production now comes from deepwater wells. And that is set to double over the next 20 years, according to Peter Jackson, an analyst at IHS CERA.

Indeed, six of the world's 10 largest discoveries in the last two years have been in deep water, believed to be home to much of the remaining large energy deposits outside the Middle East. Deep water is crucial to production in the U.S., where it accounts for more than 50 percent of offshore output and about one-quarter of overall production.

"There is going to be subsea exploration because there has to be," says General Electric CEO Jeffrey Immelt. "If it doesn't happen here it is going to happen off the coast of Angola, the coast of Brazil, other places around the world."

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As the BP accident shows, the oil industry is not fully prepared for this new reality. Over the last 30 years, BP and other companies have pushed into deeper and deeper water with remarkably few serious incidents.

The Macondo well on which the BP-leased Deepwater Horizon rig encountered disaster on April 20 was in 5,000 feet of water, now a normal operating environment for BP and other oil giants. Italy's ENI, for instance, operates a field in similarly deep water just miles from BP's troubled project with no problem.

While this benign track record may not have lulled the companies into complacency, they have never before been forced to face up to how difficult it might be to deal with an accident on the sea bottom at depths of a mile or more. "The industry has drilled over 5,000 wells in greater than 1,000 feet of water and has not hitherto had an issue of this sort to contend with," says Hayward. "You can have all sorts of theoretical capability available, but until you actually get to use it in anger, it's difficult to figure out what is necessary."

Perhaps that's because the technology of deepwater drilling has also outstripped the methods of cleaning up a potential mess when things go wrong. BP and its fellow oil majors have spent tens of millions on seismic techniques for acquiring data under the salt layers often found in deep water and on the supercomputers and scientists needed to analyze the results. But the company's response when things went awry, at least to this spill, has been surprisingly old school.

BP has ordered up a flotilla of skimmer ships, launched an air force of planes to drop chemical dispersants onto the expanding slick, dispatched 1.2 million feet of boom barriers to trap floating oil, and employed an army of beach and swamp cleaners. None of this activity addresses the key issue: how to stop the continued leaking of oil.

"As the industry goes further offshore, the level of investment in research has to be comparable for cleanup as for exploration," says J. Robinson West, chairman of Washington-based consultants PFC Energy.

It's become clear that the industry has no surefire way of dealing with problems on the sea bottom a mile below the surface. That's one reason some environmentalists are already arguing that deepwater drilling should be banned outright. "Disaster response plans are totally inadequate," says Athan Manuel, lands protection director at the Sierra Club. "There is no such thing as safe offshore drilling."

Still, with global energy demand estimated to grow by up to 18 percent in the next 10 years, energy producers will have no choice but to exploit oil deposits under thousands of feet of water, says Robert Fryklund, vice-president for industry relations at consulting firm IHS.

That's why the Macondo mess may lead to stiffer requirements designed to reduce the likelihood of future accidents rather than a drastic reduction of offshore activity. On May 11, Energy Secretary Ken Salazar announced moves to toughen inspections and oversight of offshore drilling rigs. The Obama administration had already announced a 30-day moratorium on new drilling permits and that it would separate the safety operations of the federal Minerals Management Service from its royalties and leasing functions.

The administration hasn't publicly backed away from offshore drilling. That stand will be put to the test as congressional hearings continue into safety procedures used by oil companies—or if the growing spill begins to foul the U.S. coastline rather than just the sea itself.

"This will always be a risky industry," says John Hofmeister, a former president of Royal Dutch Shell's U.S. business. "There is going to be constant scrutiny of how much risk for how much gain."

Oil companies like BP have plenty of experience drilling in deep water. They're still relative newcomers on dealing with disaster.

Copyright © 2012 Bloomberg L.P.All rights reserved.


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