From Bloomberg:
Exxon Mobil Corp., Royal Dutch Shell Plc and two other oil companies will spend $1 billion to research and build a containment system to handle deep-water oil spills in the Gulf of Mexico.
Exxon, Shell, Chevron Corp. and ConocoPhilips will each give $250 million to establish a non-profit organization, the Marine Well Containment Co., to produce and manage the equipment. The system will be designed and built over the next 12 to 18 months to handle spills of 100,000 barrels a day in waters as deep as 10,000 feet (3,048 meters), the companies said in a statement yesterday.
The oil industry has been criticized by lawmakers in the U.S. for being unprepared to deal with deep-water accidents, following the explosion of BP Plc’s Macondo well in the Gulf of Mexico on April 20. The blast killed 11 people, caused the worst oil spill in U.S. history and resulted in a six-month ban on deepwater drilling in the Gulf.
“For an incident in deeper waters with higher production levels, the response capability of containment and spill response is proven by this incident to be inadequate,” Jim Mulva, chief executive officer of Houston-based ConocoPhillips, said in an interview yesterday. The companies have been working with the government for six weeks on the project, Mulva said.
The plan may also aim to blunt punitive new government regulations on drilling, ClearView Energy Partners LLC, a Washington-based policy analysis firm, wrote in a note to clients.
Drilling Moratorium
A six-month moratorium on deep-water drilling was issued in May after the sinking of the Deepwater Horizon rig, which BP leased from Transocean Ltd. A federal judge in New Orleans rejected the ban as too broad, and Interior Secretary Kenneth Salazar responded July 12 with new drilling suspension rules that have kept deep-water rigs idle.
Salazar said the six-month drilling moratorium was put in place while the government reviews drilling safety and industry’s ability to contain a well blowout and respond to another oil spill. The containment system proposal is “a beginning point with the conversation relative to how we address those three fundamental issues,” Salazar said at a hearing of the House Oversight and Government Reform committee today.
“The proposal announced yesterday is an interesting one,” Michael Bromwich, director of Interior’s Bureau of Ocean Energy Management, Regulation and Enforcement, said at the same hearing. “We’re going to want to review and study it carefully. We’ll ask for more elaboration on it from the companies.”
Standard Equipment
The new container system may become standard equipment for offshore drillers in the U.S. and probably would be adopted in other places around the world, wrote ClearView analysts Kevin Book, F. Chase Hutto and Amanda Fessenden.
The equipment would add costs for the industry, while also providing potential new business for oil-service companies, the analysts wrote.
“Exxon Mobil is taking the lead on the engineering- construction phase,” said Alan Jeffers, a spokesman for the Irving, Texas-based company. “We’re going to ask others to join and those who choose not to join can have access to the equipment via commercial arrangement.”
BP, based in London, isn’t participating in the containment project.
“They’ve certainly been informed of what the four companies have been doing,” said Mulva. “When the Macondo incident is ultimately resolved and the well is killed, we expect in due time that BP will join the effort.”
BP’s Focus
BP summoned offshore experts in April, including some from the four companies, to help devise ways to halt the leak after a failed attempt to contain the gusher. The company has spent $3.95 billion on the response as of July 19.
“Our focus right now is the response to the current situation,” Scott Dean, a BP spokesman, said yesterday. “We’ve said from early on that there will be lessons learned from this incident and we’re sure that changes will be made in the industry.”
Early designs are for a containment system with a tight seal that will fit over a well near the seabed and channel oil and gas through pipes leading to vessels at the surface that will collect and store the fuel, according to a fact sheet distributed by the new group. The system will be able to mobilize in 24 hours.
“If we all do our jobs properly, this system will never be used,” Rex Tillerson, CEO of Exxon Mobil, said in the statement. “The extensive experience of industry shows that when the focus remains on safe operations and risk management, tragic incidents like the one we are witnessing in the Gulf of Mexico today should not occur.”
To contact the reporter on this story: Allison Bennett in New York at
abennett23@bloomberg.net; Katarzyna Klimasinska in Houston at
kklimasinska@bloomberg.net.
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