As U.S. suspends deep-water oil drilling, other nations move ahead

By Juliet Eilperin and Steven Mufson
Thursday, July 22, 2010; A06

NY-ALESUND, NORWAY -- Few, if any, nations have paid as much attention to the safety of offshore drilling as Norway, which is surrounded by oil-rich seas.

In 40 years of offshore energy exploration, it has suffered just four spills -- none of the magnitude of the one in the Gulf of Mexico and none reaching the country's pristine tundra shores. Its government has made efforts to avoid the kinds of conflicts that have bedeviled the U.S. regulatory process by splitting off safety and environmental oversight duties from the Ministry of Petroleum Energy. A separate Climate and Pollution Agency weighs in on every decision about whether to open new areas to offshore drilling, and its inspectors examine rigs once they're operating.

Norway is doing more to study lessons from the gulf than many other nations. But it is also pushing ahead with offshore drilling plans, including the kind of deep-water drilling that the Obama administration has suspended in the United States.

"Easy oil is running out," said Hege Marie Norheim, head of Statoil's Strategic Agenda of Arctic and Subarctic Business Development Activities. "We've been exploring for oil and gas where it lies."

The strategy of continuing to exploit the economic opportunities of deep-water wells, even as the hazards they represent become clearer, is being pursued the world over. Other countries -- including Brazil, Canada, Nigeria and Angola -- are also moving forward with drilling, lured by oil reservoirs they are discovering that are two to six times as big as the average Gulf of Mexico reservoir and taking advantage of new opportunities offered by the U.S. moratorium.

"For places like Angola, Nigeria and Brazil, most of their production comes from the deep water," said Leta Smith, director of exploration and production trends at Cambridge Energy Research Associates. "It's a big piece of their revenue stream."

Some of these countries stand to gain from the uncertainties in the United States prompted by the disaster in the Gulf of Mexico. This month, Diamond Offshore Drilling announced that it is sending one of its deep-water drilling rigs from the gulf to Egypt. The rig, which can work in water up to 10,000 feet deep, has a new contract running at least through next June. Last week, Diamond said another Gulf of Mexico rig called the Ocean Confidence would depart for Congo.

On Tuesday, Marathon Oil Chief Executive Clarence P. Cazalot Jr. said that his company might divert a rig being built in Singapore and due to be delivered to the Gulf of Mexico in December. "If I can't use it in the gulf, I won't bring it to the gulf," he said.

Moving rigs from the gulf

Diamond has said it might move more of its three remaining Gulf of Mexico rigs to foreign countries. While apologizing for the loss of jobs in the United States, Diamond Chief Executive Larry Dickerson said, "We are actively seeking international opportunities to keep our rigs fully employed."

There are many such opportunities. Brazil, already home to much of the world's deep-water drilling fleet, is signing up more rigs. It is drilling wells nearly five miles underwater -- five times deeper than BP's Macondo well -- and nearly 200 miles offshore, at the edge of its national waters. The political debate over the area known as the "pre-salt" province has focused on how to divide the royalties from such lucrative wells, not whether to curtail exploration and development.

Libya also said last month that it would continue its offshore drilling program and gave BP a green light to go ahead with new exploration wells.

Countries are making long-term plans, as well. Last week, Canada invited new bids on nine-year leases off the coast of Newfoundland and Labrador.

Nonetheless, in light of the gulf spill, many nations are struggling with how to reconcile the desire to exploit their offshore resources with renewed concerns about safety and environmental protection.

Canada has begun a comparison of its regulations with U.S. rules, and Brazil's national petroleum regulatory agency has asked firms drilling in its waters to reassess the chances of an accident taking place off its shores. In Nigeria, President Goodluck Jonathan, a former environmental official in the strife-torn, oil-rich Niger Delta, is looking for lessons from the United States.

"Whatever we do in this country will set the global scale," said Fadel Gheit, an oil analyst at Oppenheimer & Co. "No one is going to build to two standards, just like the bumper in Japan cannot be lower than a bumper in the U.S."

Since the BP spill, Canada has focused on one specific drilling issue: whether to require companies operating in the Beaufort Sea to drill a relief well at the same time they start an exploratory wells, to have a quick way of killing the well if needed. Its National Energy Board canceled a May 11 hearing on the issue and announced it would begin a broad review of safety measures for energy exploration in the Arctic.

Learning from the BP spill

But a different regulatory authority, the Canada-Newfoundland and Labrador Offshore Petroleum Board, has already rejected the idea of drilling a relief well at the same time as an exploration well because of the risk. Sean Kelly, the board's spokesman, said in an e-mail: "A blowout can occur in a relief well, and companies need to take the same precautions drilling this well as they do for an exploration well. "

In Norway, to learn from the BP spill, the Norwegian Petroleum Safety Authority has assembled an 11-person team that is studying the federal inquiries into the BP spill and has begun analyzing the report issued May 27 by the Interior Department's Outer Continental Shelf Safety Board.

As director general of Norway's Climate and Pollution Agency, Ellen Hambro takes pride in the fact that her deputies report any drilling violations to the police, but notes that her petroleum unit has fewer than two dozen people and cannot compete with salaries offered by the private sector. "We are loaded with work, trying to keep the piles down," she said. She also assesses every recommendation to open new areas to offshore drilling.

But when the Norwegian government announced last month which new oil and gas prospects would be leased in the Barents, North and Norwegian seas, it included seven blocks that Hambro's agency said should be kept off-limits.

"Sometimes they listen to our advice, and sometimes they don't," Hambro SAID.

Hambro said it is hard to predict whether the BP spill will reshape the world's approach to taking oil and gas from the ocean's depths.

"The worst case has just happened," she said. "We don't know yet the consequences, environmental or political."

Mufson reported from Washington.

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