] Oilgram News/OPR Extra A special edition from the editors of Platts July 20, 2010

As it has during other crises affecting oil and other energy markets, such as hurricanes Katrina, Rita and Ivan, Platts is producing this special summary of events surrounding the rig disaster in the . This special joint edition of Platts Oilgram News and OPR Extra will be published as frequently as Platts believes necessary to give its readers a quick summary of developments surrounding the leak at the wellhead, the growing footprint of the spill, and the impact these occurrences are having on markets and on US federal energy policy. Return of the top kill option

„ With BP's runaway Macondo exploration hour period that ended July 17, Allen has Allen said the preliminary idea would use the well finally under control in the Gulf of Mexico, approved extensions in 24-hour intervals, and static kill to pump mud from the top, "increas- BP and the US government continued to mull he did that again on July 20. "There are com- ing the chances of success" with the relief options July 20 for a next move--including peting theories of depletion versus leakage," well. "Static kill discussions are ongoing, and another look at the "top kill" maneuver that Allen said, explaining the debate among mem- we will have a good idea in the next 24 hours failed so spectacularly at the end of May. BP bers of the government and BP technical for detailed plans from BP," Allen said. is so eager to include what it now calls a teams working to evaluate the reason for the "static kill" that BP senior vice president Kent stable pressure in the 6,800 level. „ BP announced July 20 its first major asset Wells told reporters July 20: "If it is approved, sale to raise cash for mounting Macondo it is a 100% chance we'll go ahead with it." „ That debate pits some who believe deple- blowout bills, agreeing to sell $7 billion worth Although BP has changed the name of the tion at Macondo has revised the expectations of upstream assets to US independent operation, static kill would still use the same for pressure in the wellbore against others Apache. The deals include BP's US Permian Macondo entry points of the choke and kill concerned that the pressure level indicates a Basin assets in Texas and southeast New lines on the malfunctioning blowout preventer crack in the wellbore somewhere that could Mexico; its Western Canadian upstream natu- for injections of drilling mud to plug the flow eventually rupture if the cap is allowed to ral gas assets; and the Western Desert busi- of oil from the reservoir 13,000 feet beneath maintain it. Both Allen and Wells described ness concessions and East Badr El-din explo- the wellhead. Despite the failure of the first the static kill procedure as a maneuver to ration concession in Egypt. The company said top kill attempt on May 31, BP believes it enhance and speed success with the relief last month it would sell about $10 billion in might succeed now because the company has well seen as the ultimate solution to Macon- assets to raise cash toward its massive managed to achieve control of the well's pres- do. They said BP expects to run the casing in Macondo cleanup bills. On July 19, the com- sure through last week's installation of a seal- its primary relief well July 21 or 22 with inter- pany said it had already spent $3.95 billion ing cap that stopped Macondo's flow on July ception of the original Macondo wellbore on its Macondo response, and it could face 15 . Since then, BP has been taking pressure expected by the end of the month. "It is much larger sums for potential liabilities and readings under day-by-day approvals from US exactly where we want it, pointed in the right damages. The Apache deal does not include National Incident Commander to direction, and the intercept is for the end of BP's Canadian oil sands or natural gas liquids keep the well plugged while deciding on the July," Wells said. But he warned it might take businesses. It also does not include BP's next step. But both Allen and BP have from days to weeks to kill Macondo once the Alaska assets that were said to be for sale. stressed that nothing will take the place of intercept occurs, depending on the condition In a separate announcement earlier July 20, the relief well expected to intercept the origi- of the wellbore's outer layer. As a result, he BP said its Pakistan and Vietnam assets were nal Macondo wellbore next month for a bot- said the static kill could add pressure from now up for sale. The Apache deal's effective tom kill as the ultimate solution. Allen said in the top to enhance the process. "If the static date is July 1, with closing expected in the his daily briefing July 20 that pressure testing kill kills the flow in the casing, then you would third or fourth quarter after regulatory shows the wellbore holding steady at 6,834 have all the flow stopped working in tandem," approvals. Apache has agreed to pay BP a pounds per square inch, still below the 8,000- Wells said. "These can have the ability to cash deposit of $5 billion in aggregate on July psi threshold for confidence in using the cap have the well completely killed in less time 30, split $3.25 billion for Canada, $1.5 billion as a plug but well above the 6,000-psi mini- and reduce the execution risk. It is clearly for Permian and $250 million for Egypt. The mum that would have prompted deployment worth it to us." Allen said the procedure, if deal includes estimated proved reserves of of the cap as a collection system to siphon approved, would not begin until after BP sets 385 million barrels of oil equivalent, said oil to four vessels on the surface. Although the casing in its relief well. Warning that the Apache in a statement. Net production from BP had planned the testing for an initial 48- detailed plan has not yet been presented, the BP properties in the first half of 2010

Oilgram News / OPR Extra

]Director of News: John Kingston This special edition of Platts Oilgram News and Platts OPR Extra is published by Platts, a division of The McGraw Hill Companies. Registered office: Two Penn Plaza, 25th Floor, New York, NY 10121-2298. Officers of the Corporation: Harold McGraw III, Chairman, President and Chief Executive Officer; Kenneth Vittor, Executive Vice President and General Counsel; Robert J. Bahash, Executive Vice President and Chief Financial Officer; John Weisenseel, Senior Vice President, Treasurer. Copyright © 2010 by Platts, The McGraw-Hill Companies, Inc. Platts is a trademark of The McGraw-Hill Companies, Inc.

The McGraw-Hill Companies SPECIAL EDITION HOME was 28,000 b/d of liquid hydrocarbons and scrutiny, and that it violated US laws. The fil- followed properly, there may not have been a 331,000 Mcf/d of natural gas, or a total of ing, made in the US District Court for the blowout." Current Interior Secretary Ken approximately 83,000 boe/d. Apache noted Eastern District of Louisiana, was an amend- Salazar also testified, saying that responsibili- that, by comparison, it produced 646,866 ment to a suit Ensco filed July 9 against the ty for the BP blowout must be shared by gov- boe/d in the second quarter. The transaction original moratorium, and other changes made ernment regulators from both the Obama and also adds 2.4 million net acres to Apache's by the US government, after BP's Macondo Bush administrations. "Prior administrations global portfolio, the company said. well blowout on April 20. Defendants named and this administration have not done as include the Interior Department and its head, much as we could have done relative to mak- „ A list of 20 well problems aboard the Deep- , as well as the Bureau of Ocean ing sure there was safer production in the water Horizon rig leading up to the April 20 Energy Management, Regulation and Enforce- Outer Continental Shelf," Salazar said. "I explosion in the Gulf of Mexico was released ment, and its head, . The believe that after drilling some 40,000 wells in July 20 by a US Coast Guard and Bureau of suit says both the moratoriums violate the the Gulf of Mexico, all of the nation...were Ocean Energy Management, Regulation and Administrative Procedure Act (APA) and outer lulled into a sense of safety and what the Enforcement joint panel. But the panel mem- Continental Shelf Lands Act (OCSLA). The Deepwater Horizon perhaps drives home more bers--who were prepared to question key BP first six-month deepwater drilling moratorium than anything else is that we need to revisit personnel aboard the rig about the anom- was struck down in court last month, with that basic assumption with respect to safety." alies–-got little satisfaction from the BP wit- the judge calling the ban "arbitrary and capri- Democrats on the House Energy panel nesses who backed out of testimony, were cious." The second moratorium bans new slammed the former Republican administra- not aboard April 20, or were not qualified to deepwater exploratory drilling until November tion for having a cozy relationship with industry answer questions about the problems aboard 30. The bans are similar, with a key differ- and not insisting on tighter regulations of the rig. They did, however, learn of problems ence being that the old moratorium banned blowout preventers and other similar items with the blowout preventer days before the new deepwater drilling in waters of 500 feet because they would have been too costly. explosion, and received information on the or deeper while the new ban does not use Democrats were particularly critical of a report plan for the well’s completion. water depth as a criteria, but instead sus- produced by an energy task force headed by pends activities on the basis of drilling con- former Vice President Dick Cheney. That group „ The problems began, according to the figuration and technology. "The second mora- promoted expanded drilling and noted that investigation, at 1:30 p.m. on April 19 when torium is substantially the same as the first deepwater drilling had an impressive environ- BP had to put additional pressure on the and violates the APA and the OCSLA for simi- mental record. "With the Cheney task force cement shoe valves, and BP reported low lar reasons, among others," said Ensco in its report, the first condition of the disaster-- pump pressures. Problems continued April filing July 20. rewriting the offshore drilling policies to priori- 20 as there was reported high U-tube pres- tize speed rather than safety--was set in sure in the drilling pipe of 2,324 psi, when „ Two former heads of the US Interior Depart- motion," Representative Edward Markey, pressure should have been 1,628 psi. The ment on July 20 defended their record of safe- Democrat-Massachusetts, said. flow out of the well exceeded the flow in sev- ty and oversight of offshore oil and gas devel- eral times that day. Lambert, who was on the opment in the wake of the April 20 BP Macon- „ UK Prime Minister David Cameron said July rig floor until about 7 p.m., said that the do blowout in the Gulf of Mexico. Dirk 20 he "completely" understood widespread annular was leaking. The panel’s list of prob- Kempthorne, who served as Interior secretary anger in the US over BP's calamitous oil spill lems says that the pressure continued to under President George W. Bush from 2006 to in the Gulf of Mexico and sought to discon- build on the drill pipe. A first negative pres- 2009, and his predecessor Gale Norton nect the British oil major from renewed con- sure test showed 1,250 psi. A second nega- (2001-06), both said their decisions on drilling cern over the release of Lockerbie bomber tive pressure test showed 1,400 psi. Accord- in the Outer Continental Shelf were based on Abdul Baset al-Megrahi. All but one question ing to the list compiled by the panel, the a 40-year record of safety and a belief that directed at Cameron during a televised joint pressure reading--which should have been regulations were strict enough to prevent an press conference with President zero--was explained away by a accident. "All of us, present and former admin- dealt with Megrahi's release employee as a “bladder effect” or “annular istration officials, governors, members of Con- or the Gulf oil spill. "I completely understand compression,” because of heavier mud in the gress and citizens, never contemplated an the anger that exists right across America. drill pipe. Also testifying was Ross Skidmore, accident of this magnitude could ever hap- The oil spill in the Gulf of Mexico is a catas- identified as the BP subsea well supervisor, pen," Kempthorne testified in front of a sub- trophe," Cameron said. "It is BP's role to cap who was in fact subcontractor from Swift committee hearing of the House Energy and the leak, clean up the mess and pay appro- Energy, aboard only to help move the rig to Commerce Committee. "Had we thought so, I priate compensation. I'm in regular touch the next well. In trying to explain the actions am confident that both the executive and leg- with senior management at BP, and the presi- of the men, Skidmore told the panel that islative branch would have worked on a biparti- dent is too, to see that happens." Cameron, workers aboard the Deepwater Horizon may san basis to prevent it," he said. Norton said however, cautioned that it would benefit no have had the mindset that “We’re through, she felt that safety regulations enacted during one to punish BP so severely so as to cripple the job is done,” and that “everything is her Bush administration tenure were sufficient the company. "Equally, of course, BP is going to be OK.” to prevent the Macondo blowout. "Based on important to both the British and American media reports, it appears that the decisions economies," he said. "Thousands of jobs on „ Contract driller Ensco International July 20 made by BP in the last days and hours before both sides of the Atlantic depend on it. So filed suit against the latest US drilling mora- the blowout were the primary cause of the it's in the interests of both our countries, as torium, saying it was "substantially the blowout," Norton said. "If regulations on the we agree, that it remain a strong and stable same" as a prior moratorium that fell under books and industry best practices had been company for the future."

2 JULY 20, 2010