Although the massive oil leak in the Gulf of Mexico has been reduced to a trickle based on successful attempts to finally cap the well, the permanent solution to the crisis will only arrive upon completion of the relief wells that BP is currently drilling.  The company expects the relief well to permanently end the flow of oil by mid-August.  Given the fact that relief wells represent the most certain way to kill a troubled well, should oil exploration firms be required to preemptively drill relief wells along with exploration wells?

Making preemptive relief wells a required part of deep sea oil exploration was the subject of an opinion article in today’s Wall Street Journal.  Michio Kaku, a professor of theoretical physics at City College of New York, makes the following recommendation:

In the future there should be much tighter controls on deep-water drilling, and there should be redundant systems on hand so that the well can be capped or siphoned immediately if the blowout preventer fails. Perhaps relief wells should be drilled simultaneously with the main well, since they are the gold standard for stopping oil leaks and work nearly without fail. There also has to be a standby fleet of ships with skimmers, centrifugal pumps and booms ready to handle oil once it is leaked.

One obvious problem with the idea of automatically drilling a relief well is the high cost of such a preventative step.  Drilling additional relief wells also comes with its own set of risks and requires additional drilling platforms which are extremely costly to operate.  While one may think that offshore drilling contractors would jump for joy at the thought of the additional rigs that would be required under such a policy, in reality the step would make exploration uneconomical.  Furthermore, there is clear evidence indicating that faulty well design was used for the Macondo well and it may be better to tighten regulations specifying the nature of drilling techniques rather than mandating preemptive relief  wells.

The graphic that appears below is provided by BP and illustrates the relief well process currently underway.  For a high resolution version of the graphic, please click on this link to download a pdf file.

Disclosure:  The author of this article owns shares of companies involved in offshore oil and gas exploration.

Should Regulators Require Preemptive Relief Wells?
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3 thoughts on “Should Regulators Require Preemptive Relief Wells?

  • July 20, 2010 at 8:39 pm

    It should be apparent from further looking into the safety problems that this is not an industry problem for the drillers or thier clients, simply a BP problem. Simply listen to today’s conference call by Noble Corp. (NE) to see safety-oriented those in the offshore drilling industry are today. Additionally, BP has had numerous problems in the past including the Baytown, LA refinery explosion in 2006. The majority of companies in the industry already place a hefty premium on safety. For those that disregard safety, such as BP, they should be held accountable to the fullest extent, which may include loss of drilling lisence in the future.

    • July 20, 2010 at 8:41 pm

      Interesting that you refer to Noble — I’m in the process of writing up an article on Noble’s results and call right now. Those guys are definitely straight shooters when it comes to discussing results and the implications of our misguided government policy in the Gulf.

      • July 20, 2010 at 9:26 pm

        It’s funny Ravi, I started initiating a position in NE in late May and finished in early June, right when your first article about Noble came out. I have enjoyed reading about your views on all the offshores, as it does show some extreme oppurtunities for future outperformance. This is the sector that value should looking at!

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