Last week, the big news in offshore drilling was the gusher of offshore discoveries around the world. One of the highlights was the discovery of the Guadalupe oil prospect in the Gulf of Mexico by Chevron Corporation (NYSE:CVX), BP plc (NYSE:BP), and another partner. The discovery confirmed that there are still a lot of opportunities in the Gulf of Mexico -- a point that was hammered home this week thanks to more compelling news from the Gulf. That said, it wasn't all good news in the Gulf, so let's begin with the bad news first.
The remnants of Deepwater Horizon
A new study came out this week on BP's Deepwater Horizon disaster from 2010. The study, by the chief scientist on the federal damage assessment research ships, estimates that nearly 10 million gallons of oil coagulated on the ocean floor around the damaged oil rig. What's being called a "bathtub ring the size of Rhode Island" appears to be the leftovers from the oil spill that sent about 172 million gallons of oil into the Gulf that year.
BP is disputing the findings, saying the author of the study did not identify the source of the oil, leading to a gross overstatement of the amount of oil that might have come from the 2010 oil spill. BP contests that the oil wasn't tested to find its chemical fingerprint that would identify if it came from its failed well or from a natural oil seep. Further, BP believes researchers grossly overstated the impact area because of the mapping technique used.
Even if that's the case, it seems like the more than four-year oil disaster simply won't stop haunting the company, reminding us all that offshore drilling is not without risk. However, it also forces oil companies to work hard to prevent another disaster from ever happening, which will open up the very compelling potential found deep within the Gulf.
Another deepwater oil find in the Gulf of Mexico
While researchers are looking for oil on the ocean floor, oil companies continue to drill much deeper in search of new oil discoveries. Last week, Spain's Repsol and Colombia's Ecopetrol did just that, announcing the Leon discovery. The find, which was located in the same Keathly Canyon part of the Gulf of Mexico as Chevron's Guadalupe discovery from last week, was drilled to a total depth of more than 31,000 feet; that's about six miles down. The drillers found a 500-foot column of oil, which suggests that this is a pretty large oil deposit. However, further testing will need to be done to determine just how much oil could one day be recovered.
A stampede of investments
The final piece of news in the offshore drilling sector this week was the announcement by Hess Corp (NYSE:HES), Chevron, and two other partners that the Stampede project in the deepwater Gulf of Mexico has been given the green light. The $6 billion project is expected to start producing in 2018. Once complete, the project will produce about 80,000 barrels of oil per day and has the potential to recover 300-350 million barrels of oil equivalent.
The Hess-operated project will use a two rig drilling program that will drill six production and four injections wells starting in the fourth quarter of next year. The fact that Hess and Chevron are using two drilling rigs to complete the project is great news for the offshore drilling industry, as oil companies had really scaled back on drilling, leaving many drilling vessels without contracts. This project will at least provide some work for two vessels starting late next year.
The Gulf of Mexico remains an important growth area for the offshore drilling industry. Clearly, there is a lot of oil underneath the Gulf that can keep America's economy well fueled for years. However, BP's 2010 spill reminds us that oil needs to be recovered safely, as the consequences of a mishap are often disastrous.