Deepwater Disaster Doesn’t Change Need for Deepwater Drilling

The days of drilling a hole beneath the soil in Texas, inserting a pipe and watching oil gush out are gone. We’re never going back to those days.

It gets into what we’re dealing with here in the search for deep sea oil… The energy industry has to go deeper and deeper to make things work. Risking more and more capital – and unfortunately, lives – along the way.

Deepwater Disaster Doesn’t Change Need for Deepwater Drilling

Gary Gibson: Byron, can you start off by telling Whiskey readers a little about why we’re searching for deep sea oil in the first place? I mean, we know about peak oil already. But… is it really THAT bad that we’re having to search for oil buried beneath 12,000 feet of water? And after the water, another 10,000 feet of dense rock? That’s a lot of risk to take. Seems to be proof for the end of cheap oil theory, right?

Byron King: Exactly. The days of drilling a hole beneath the soil in Texas, inserting a pipe and watching oil gush out are gone. We’re never going back to those days.

Look at what we’ve seen in the last 20 years or so, since 1990, when the oil industry really started to go deep. There was something like an “arms race” to develop better and better deepwater technology, to go for the next levels down. We’ve seen this race to deeper and deeper water. And it’s all because the so called “cheap oil” is gone.

It used to be that drilling at 1,000 feet water depth was the edge of technology! You know, back then in the early 1990s it was 1,500 feet, then it was 2,500 feet, then it was 5,000 feet…7,500, 10,000. Now they’re drilling at 12,000 feet of water.

It’s doable. But it’s mind-blowing as well. I mean, 12,000 feet of water is where the Titanic sits. That’s how deep that water is. Let me stress: 12,000 feet is really deep water. So in 20 years, we’re gone from 1,000 to 12,000 feet: huge, huge technological leap. And the only thing that lets you do that is technology.

In the same sense you have a much, much better computer today than you did in 1990, you have much better offshore drilling equipment today than you did in 1990. You have bigger, better rigs. You have more powerful rigs. You have far better positioning, far better station keeping. You got much stronger steel. You’ve got better pipe. The way they do these risers is just astonishing. Risers are not just pieces of steel pipe. These risers are an entire, complex mechanical and hydraulic system that connects the drill ship on the surface with the workings on the sea floor 2 miles down. These things are incredible specimens of engineering.

Keeping with the risers, they’re wrapped in this stuff called syntactic foam. THis foam is super high-tech stuff. It keeps the risers buoyant. So you have riser sections that, in the air, weigh many, many tons. But in the water, it’s essentially buoyant. You can push the risers around with a little remote operating vehicle with a couple of little propellers on the back of it. So this stuff is really astonishing.

Gary: OK, so all this new technology is needed. The risks seem great. They obviously wouldn’t be doing this if the reward of finding new oil wasn’t great. But with the recent disaster in the gulf, the question on everyone’s mind is… what happens when that technology fails? So can you shine a little more light on the disaster itself. Starting maybe with all the players involved? I know you’ve recommended a lot of these deep-sea oil companies in your paid Outstanding Investments newsletter…..

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