13 January 2009

Chevron postpones Orphan Basin drilling

Chevron has decided to postpone an exploration drilling program in the deep water Orphan Basin, according to The Telegram and CBC, due to higher than expected rig costs for 2009. 

Chevron regional manager Mark Macleod said the estimates were higher than the costs for the first well.  According to some reports, the first exploration well cost twice as much as anticipated.

In late 2007, the company committed to drilling a second well during 2008 but those plans didn’t turn into action. Rig availability  has been a consistent factor in drilling decisions since high demand has driven up costs accordingly against a relatively short supply of rigs capable of operating in deep water, difficult environments.

Chevron likely expects that demand will lessen for deep water drill rigs as the price of oil makes deep water plays less attractive. 

In addition, as the Telegram reported:

"As well, we felt we needed to do some additional technical work to re-evaluate all the prospects in the basin from a risk and cost basis," MacLeod said. "So, we've got a bit more homework to do to be ready to drill, hopefully, in 2010."

Late last year, Chevron and its partners consolidated eight Orphan Basin exploration licences (ELs) into four.
Those ELs give the companies the right to explore the seabed.

Under the consolidation, the companies will keep four reconfigured ELs until 2013. MacLeod says that consolidation didn't delay drilling.

"It's allowed us to more carefully focus on the best parts of the basin."

At the same time, Chevron is likely also looking closely at its bottom line.  The company warned investors last week that fourth quarter profits in 2008 will likely be lower than those in the third quarter. Chevron blamed the lower price of crude and natural gas.