Sunday, July 1, 2012

BP shelves Liberty; Firm won’t pursue North Slope project ‘in its current form,’ cites rig woes

Wesley Loy
For Petroleum News

BP is backing off its ambitious Liberty development on Alaska’s North Slope.

“After a full review of project engineering and economics, BP has decided not to pursue the proposed Liberty project, in its current form,” Dawn Patience, spokeswoman for BP Exploration (Alaska) Inc., told Petroleum News. “BP is in the process of working with regulators to discuss the potential forward plans for the project.”

BP had proposed drilling ultra-extended reach wells to tap the Liberty reservoir, located on federal leases in shallow Beaufort Sea waters about six miles offshore and 15 miles east of Prudhoe Bay.

A monster rig was to bore the wells from a satellite drilling island at BP’s offshore Endicott field, which is connected by causeway to the mainland.

In November 2010, however, BP announced it was suspending construction pending an engineering review, and the rig has stood idle at Endicott since then.

Standards not met

“We have always said that we will not proceed with the project unless we can do it safely and meet all of our standards,” Patience said. “In the end, the project as currently designed does not meet our test.”

She said the process leading up to the decision included “a detailed 18-month review of the rig systems, an analysis of the project’s risk and economics, and an assessment of the evolving regulatory framework.”

Parker Drilling Co. of Houston, Texas, fabricated the rig at Vancouver, Wash., at a cost of hundreds of millions of dollars.

Patience said the review found the rig needs “substantial modifications,” including changes to the mud system, the hydraulics and walking system, and the pipe handling, heating and utility systems. The rig also needs a new drilling support module.

BP now believes the Liberty project would cost “at least double” the original estimate of $1.5 billion.

And it would “take several more years before drilling could commence,” Patience said.

No decision has been made about what to do with the rig, she said, noting several companies had a hand in its construction.

“We expect that the issues with the rig will be worked out privately and confidentially between all the relevant parties,” Patience said.

Project drew scrutiny

At one time, BP had touted Liberty as an unprecedented effort featuring horizontal wells extending as far as eight miles.

By drilling from Endicott, and processing Liberty oil through the Endicott production facilities, BP said it could avoid the larger footprint of building an all-new Liberty production island and subsea pipeline.

The company had said Liberty was capable of producing 100 million barrels with daily production peaking at 40,000 barrels. That would significantly boost overall North Slope production, which is in decline and currently averages under 600,000 barrels a day.

The Liberty project drew heightened congressional and media scrutiny following BP’s Deepwater Horizon disaster in the Gulf of Mexico in April 2010.

The Interior Department, which regulates offshore drilling, said at the time that, in light of the Gulf spill and new safety requirements, it would review the adequacy of Liberty’s spill plan.

But Liberty was exempted from the Obama administration’s temporary offshore drilling moratorium.