] Oilgram News/OPR Extra A special edition from the editors of Platts July 19, 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. BP gets another day to keep Macondo shut in

„ Despite signs of seepage near BP’s shut-in comfort. “We have different views on how this said, the debate centers on the question of Macondo well, the company won approval to could come about, but not a resolution on that,” whether to leave the well temporarily capped or extend its testing of the wellbore’s integrity he said. to reopen it and reduce the risk of a subsea beyond the original 48-hour timeframe that blowout by redeploying the collection system ended July 17 as engineers huddled with gov- Seepage reports of little concern that was beginning to look like a successful ernment technicians July 19 to determine the „ Allen also dismissed the reports of seep- option for relieving pressure in the wellbore. next move at the site. With BP cancelling its age on the sea floor in the vicinity of the well Either option would be a temporary measure twice-daily technical news briefings pending fur- by saying that the science teams are just now while waiting for completion of a relief well as ther notice, however, it also was becoming getting their first unimpeded look at those the ultimate solution in August by intercepting apparent that the government’s team might be areas and must separate pre-existing condi- Macondo and killing it at the reservoir 18,000 considering a more cautious approach at tions from anything related to the well. “We feet below the surface. That collection system Macondo. That approach would involve venting do not believe these are associated with this is designed to use four vessels on the surface of oil again to establish a collection system that test or the Macondo well,” he said. In con- to siphon as much as 80,000 b/d of oil from would relieve pressure building down in the well- trast on July 18, , BP’s chief the well, which is only estimated to be leaking bore from the new sealing cap at the wellhead. operating officer for E&P, had said pressure from 35,000 to 60,000 b/d. But redeployment But statements from US National Incident Com- was rising slowly in the well as expected and of the collection system would also reopen the mander Thad Allen did little to shed light on the touted “encouraging signs” that would allow well for a brief period, sending more oil flowing extent of a debate between the two technical the new cap to remain on until permanent into the Gulf for a few days while all the con- teams over the next steps at Macondo. The sit- relief wells can be drilled in August. Suttles nections are made. uation was hazy enough to prompt analysts at said bubbles have been seen at the wellhead Houston’s Tudor Pickering Holt to predict in a since the cap was installed but BP did not Coast Guard hearings resume July 19 report that a period of “choppy, incom- think they were hydrocarbons. “In two differ- „ Fluid used as a “spacer” between drilling plete information” lies ahead for the “next sev- ent locations we’ve seen a few bubbles. This mud and seawater was the focus of question- eral weeks,” as the government and BP discuss is not uncommon but clearly it’s important ing and testimony the afternoon of July 19, the their options in the continuing response to BP’s that we check everything very closely so we’re first day of the third round of hearings held by runaway Macondo exploration well in the Gulf of monitoring that,” Suttles said. “We have done the US Coast Guard and Bureau of Ocean Mexico. Although US National Incident Comman- some simple tests to determine if these bub- Energy Management, Regulation and Enforce- der Thad Allen gave BP a third 24-hour exten- bles appear to be from hydrocarbons or from ment on the April 20 Deepwater Horizon explo- sion into July 20 for continuation of the testing, something else and at this point we don’t sion. Leo Linder, a drilling fluid specialist for he also told reporters July 19: “We are going on believe they are [from hydrocarbons],” he MI-Swaco said that, with BP’s permission,, he a day-to-day basis. We are not prepared to say it added. Suttles reiterated that the shut-in mixed and used two different batches of spac- is shut-in until the relief well is done. There are could continue until the Macondo well is killed er, resulting in 450 barrel mix of form-a- too many unanswered questions.” Allen said the after a relief well interception is made or that squeeze and form-a-set spacer material. Usu- key question concerns the pressure reading of production from Macondo could resume, using ally only one 180-barrel spacer is used as a 6,811 psi after four days of testing. Although the sealing cap that finally contained the leak. transition between drilling mud and seawater that figure stands well above the 6,000 psi when displacing mud, he said. Linder said he mark needed to confirm wellbore integrity of a „ As a result, both the government and BP was not aware of the spacer formulas being certain level, he said it remains below the found themselves in a state of uncertainty, mixed in previous uses. Linder said he had 8,000 psi threshold needed to use the recently framing the debate with a potential for conflict mixed one gallon of each fluid to make sure installed sealing cap as a plugging device with about the next move. At present, the TPH team there was no chemical reaction or setting up

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 of the spacer before it was used. No reaction „ Bertone also held back on giving further BP’s financial ability to perform under its con- occurred, he said. The spacers were com- details about other parts of his testimony. He tractual indemnity obligations.” BP is project- bined, Linder said, because the extra fluid said early July 19 that during a tour of the rig ed to be on the hook for tens of billions of could not be easily disposed of unless they with BP and executives on April 20, dollars for claims, cleanup and other liabilities were used in the wellbore. Linder said it was two of the top Transocean workers stayed from the spill. McCollum added the Gulf of unusual to use such a large spacer, but only behind in the drill shack between 4 pm and Mexico represented about 6% of ’s because such large spacers are expensive 6:30 pm CDT because “something was going total first-half 2010 revenues of $8.1 billion. and inefficient, not unsafe. Linder also testi- on.” Later that same day, Bertone’s attorney And about 65% of Halliburton’s Gulf business fied that the displacement of mud usually said Bertone could not testify as to what that relates to the deepwater, he said. occurred at 300 feet below the mudline, but “something” was, and hesitated to even the displacement of the Macondo well acknowledge that he said “something” was „ Tim Probert, the company’s president of occurred on April 20 at 8,367 feet below the going on. Panel member Jason Mathews, of global business lines, said Halliburton still mudline. Linder said he did not know why dis- the Bureau of Ocean Energy Management, believes it will take 12 to 18 months to return placement occurred so far down the wellbore. asked Bertone repeatedly whether he was to 50% of pre-Macondo activity in the Gulf, as asked to leave anyone behind, a statement he has repeatedly stated in the recent Dramatic recollection of the blast that Mathews alluded was included in months. As a result, Halliburton is planning „ Also testifying July 19 was Stephen Bertone’s statement made immediately after its Gulf of Mexico business around a deepwa- Bertone, a chief engineer with Transocean. He the April 20 explosion. Bertone did not answer. ter rig count of 17 deepwater rigs at that gave a detailed recollection of the events of Testimony is scheduled through the end of the point, down from the roughly 33 rigs that were April 20, recounting the disarray and mass week. The Coast Guard said BP official Don working there before the April 20 accident. confusion that reigned in the minutes after Vidrine, toolpusher Wyman Wheeler and drilling Probert believes only a “limited amount of the Deepwater Horizon oil rig began to disinte- engineers Mark Hafle, all with BP, have with- assets” within the industry are likely to be grate in the Gulf of Mexico, ultimately killing drawn from giving testimony this week. Robert moved to international markets, since some 11 workers and causing a massive oil spill. Kaluza, who backed out of the hearing in May equipment may not be suitable or appropriate- Bertone, however, provided fewer details after he pleaded the Fifth Amendment, is doing ly sized. “There’s always the potential that about problems that might have caused the this again and will not appear July 20. everyone doing everything at the same time explosion. Bertone said he was in his state- may have an impact, but there’s no evidence room about 9 pm on April 20, reading the first Halliburton taking steps that’s taking place at the moment,” he said. line of a book when he heard what sounded „ Giant oil services company Halliburton like a release of pressure. Then he heard a moved July 19 to minimize bruising from the „ Contract driller Ensco International unveiled thumping sound that shook the entire rig, fol- Gulf of Mexico temporary deepwater drilling force majeure notices from E&P customers on lowed by two explosions. When he opened his moratorium by “rationalizing” some of its five Gulf of Mexico rigs late July 16 that door, he smelled fuel, “as well as tasted it.” equipment and employees there to interna- include a semisubmersible and four jackups, When he reached the bridge, the engines had tional sites, company CEO Dave Lesar said stemming from a temporary deepwater drilling no power. He recalled fellow chief engineer July 19. Still, the company’s financial hit from ban and permitting delays in shallower waters. Mike Williams coming to the bridge “covered lower Gulf activity owing to the six-month ban, The deepwater semisubmersible Ensco 8500 in blood.” Bertone could only find toilet paper which was triggered by the Macondo oil spill, was contracted to Italy’s Eni and Anadarko to help clean Williams’ wound. Bertone asked translates to an estimated earnings impact of Petroleum which were paying around chief subsea engineer Chris Pleasant if Pleas- $0.05-$0.08/share for the third quarter “and $295,000/d for it. The rig is contracted until ant had activated the emergency disconnect continuing for a few more quarters,” chief June 2013. The jackups included Ensco 68 system. Pleasant said he needed permission financial officer Mark McCollum said during and Ensco 82, which can work in water depths and there was a discussion and shouting on an earnings call to explain the quarter’s up to 300 feet. They were under contract to the bridge as to who gave approval for the results. “Based on current assumptions of Chevron at respective rates around $87,500/d EDS. Pleasant then activated the system and activity levels during and beyond the deepwa- and $55,000/d. Other jackups were Ensco 86, confirmed with Bertone three times that he ter drilling suspension, we’ve begun redeploy- a 250 foot jackup, and Ensco 87, which can activated the EDS. Pleasant gave him no indi- ing close to 20% of our 2,200 employees work in 350 foot depths. Both rigs were con- cation the EDS did not work. serving in the Gulf of Mexico, as well as some tracted to Apache Corporation at rates respec- other assets,” McCollum said. Equipment to tively around $55,000/d and $75,000/d. „ In May testimony to the panel, Pleasant tes- be transferred overseas chiefly relates to Unlike some peer drillers, Ensco until now had tified that he activated the EDS, but he drilling and downhole wireline tools, and will not had force majeure claims stemming from received no verification that it worked, and support new projects that Halliburton has events in the US Gulf following the Macondo oil that the instrument panel showed it had no already won, Lesar said. Lesar also said he spill; these include a six-month deepwater hydraulic pressure. Bertone said when he left doubts deepwater rigs that are moving over- drilling moratorium and delays in shallow-water the bridge to start the backup generators, he seas to work rather than sit out the Gulf’s six- permitting. Ensco said in its fleet status report walked across the deck that was covered in month drilling moratorium will return there it has “rejected all force majeure notices as what he said looked like “snot.” Later testimo- “for some time, if at all.” invalid under the terms of the applicable rig ny from Linder indicated that the “snot” could contract.” The driller did not say why the com- have been the spacer material, described by „ In addition, McCollum emphasized Hallibur- panies invoked force majeure, but previous Linder as gray and viscous. Bertone said as ton continues to be “confident” it performed force majeure notices for shallow-water rigs in he passed the moon pool, an opening in the its cementing work on the Macondo well, recent weeks have stemmed from operators’ platform, he saw that it was engulfed in which blew out April 20, “in accordance with inability to receive well permits from the US flames. After failing to start the generators, he BP’s specifications for its well construction government in a timely manner. The delays and two others decided to abandon ship and plan, and on BP’s instructions.” “While some stem from time needed to implement stricter boarded a life raft. When the life raft line was have questioned BP’s survivability, we don’t new federal regulations on drilling equipment, temporarily caught on the rig, “I honestly believe this is a likely outcome,” he said. “But particularly blowout preventers, and more thor- thought we were going to cook,” Bertone said. clearly our indemnification is dependent on ough reviews of well designs.

2 JULY 19, 2010