Deep-water oil exploration has been disrupted from the Gulf of Mexico to Brazil by the discovery of faulty bolts used in safety equipment less than three years after the worst-ever U.S. maritime crude spill.
Energy explorers such as Chevron Corp., Royal Dutch Shell Plc and Transocean Ltd. said they have been directed by U.S. regulators to suspend work aboard rigs that employ General Electric Co. devices connecting drilling tubes to safety gear and the seafloor. The equipment must be retrieved so defective bolts can be replaced, the U.S. Bureau of Safety and Environmental Enforcement said in an alert issued on Jan. 29.
Installing new bolts and resuming drilling may take as long as three weeks for each rig, Credit Suisse Group AG said. For oil companies paying upwards of $600,000 a day to rent the most-sophisticated deep-water vessels and another $500,000 a day to staff and supply each of them, the delays may be significant, said Craig Pirrong, director of the University of Houston’s Global Energy Management Institute.
“This certainly will be costly for the industry,” Pirrong said in a telephone interview yesterday. “This is a result of increasing government scrutiny of deep-water activities. The question is, will the increased costs be so onerous that they discourage some companies” from searching the deep oceans for crude.
Lower earnings from the Gulf may be a consequence for service companies due to potential for longer downtime than expected, Bill Herbert, an analyst at Simmons & Co. in Houston, wrote today in a note to investors.
“GE bolt revelations yesterday galvanized the market as Macondo scar tissue sensitivity remains acute,” he wrote. “Think of this as a modest tropical storm, albeit in January.”
Defect Discovery
The defect was discovered last month after a leak of drilling fluid was linked to bolts that failed because of stress corrosion, according to the Jan. 29 alert. The regulator didn’t identify the owner of the rig or which oil company was leasing it. GE declined to identify the manufacturer of the bolts.
Nations with active offshore crude exploration have been alerted to the bolt defects, said Sean Gannon, a spokesman for Fairfield, Connecticut-based GE. In the Gulf of Mexico, 24 of the 83 rigs actively drilling wells at the time of the alert carried connectors that may have flawed bolts, the bureau said. Of those, six rigs have so far been cleared to return to drilling operations.
Global Regulators
“Everyone in the industry is aware of it,” Gannon said in an interview yesterday. “We’ve contacted every customer, global regulators. There’s a whole overlapping set of layers where active drilling rigs in particular have been apprised and they’re on top of it.”
About 30 to 40 GE customers are potentially affected, Gannon said in an e-mail.
Anadarko Petroleum Corp., the second-largest U.S. independent oil and natural gas producer by market value, said it will be swapping out bolts at its Phobos well and a Caesar/Tonga development well.
“We will be able to replace the bolts at the next available stopping point with minimal downtime and no impacts on production,” John Christiansen, a spokesman, said today in an e-mail.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.