Oil Projects Idle as Supply of Gear, Staff Runs Dry

Deep beneath the Caribbean Sea lies an oil field so promising that it could reverse this country’s six-year slide in petroleum production and ease its economic problems.

But no one can get to the crude.

A global shortage of oil-patch equipment has caused a two-year delay in plans by Petrobras to drill wells that would confirm early test results on the vast Tayrona field. The Brazilian company manages the site off Colombia’s Caribbean coast.

“The bottleneck is certainly delaying Colombia’s energy development,” said Petrobras’ Colombia chief, Dirceu Abrahao.

David Stangor, president of Occidental Petroleum Corp.’s operation in Colombia, added: “Prices for oil-field services and goods have steadily ratcheted up, as have delivery times.” The Westwood company also has ramped up oil exploration here.

The drilling rigs, seismic equipment, technical personnel and other necessities of oil exploration have become so scarce that Colombia and other oil producers are being forced to idle key oil projects until they can scrape together the machinery and staffing. Hold-ups of more than a year are common.

“We’re short supplies, people and equipment,” said Claude W. Thorp, vice president at Collarini Associates, an energy consulting company in Houston. “It’s a function of some significant down cycles in the last two or three decades, and of not enough young people coming into the industry. Suddenly we’ve got a booming, exciting industry with a lot of work to do.”

More work is on the way too.

Last week, San Ramon, Calif.-based Chevron Corp. said a test well in the Gulf of Mexico proved there were vast oil reserves retrievable from ancient formations in deep-water regions of the U.S. Gulf -- an area where dozens of companies have pending projects that could now move to the front burner.

The burst in demand for oil-field services and equipment was brought on by a three-year rise in oil and natural gas prices and the realization that worldwide supplies would be stretched for years by surging demand in developing countries such as China and India, as well as in the United States.

The demand leap came after two decades of declines in some kinds of equipment. An industry that had more than 4,000 drilling rigs operating in 1981 now has well below half of that to cover both oil and natural gas projects around the world. More than 100 new rigs are being built or are on order today, said Tom Kellock, head of consulting and research in the Houston office of ODS-Petrodata, a company that tracks rig activity.

“We had a 15-year period of relatively low activity, so the industry shrank down,” said Bill Severns, senior consultant at Global Insight Inc.

A rash of mega-mergers among Western oil companies also gutted the workforce. Since employment peaked in 1981, the industry has dumped more than two-thirds of its employees, dropping to about 500,000 from about 1.6 million.

The shortages apply not just to offshore platforms and on-land drilling rigs but all manner of hardware. Raw materials such as steel are at a premium.

“We’ve heard all kinds of comments about the cost of steel. They find themselves competing with the factory developments in China or bridge-building in India,” Severns said.

There’s an acute shortage of ships outfitted to carry out offshore seismic studies, reports WesternGeco, a unit of New York-based Schlumberger that specializes in seismic data gathering and analysis and that is working for Petrobras in Colombia. WesternGeco owns 13 of the 60 ships worldwide that can perform the work, and all are booked for the next six months.

“The market will be more in balance in 2008 or 2009,” said WesternGeco’s Alex Almeda by telephone from Rio de Janeiro. The company has two ships under construction in Scandinavian shipyards.

Countries such as China, which just received an order from Venezuela’s state oil company for 13 oil-drilling platforms, are rushing to fill the gap. But building the equipment takes time and money. For now, leasing an offshore oil platform can cost more than $400,000 a day and require a multiyear commitment.

To drill the Gulf of Mexico test well, Chevron paid $216,000 a day to lease Transocean Inc.’s Cajun Express drilling rig, a fee that will rise to $460,000 a day from 2007 through 2010.

Transocean, the world’s largest offshore drilling contractor, is at the center of the rig crunch. It has a more than $20-billion backlog of rig leasing contracts -- an industry record, spokesman Guy Cantwell said.

“There are no rigs available today,” said Kellock of ODS-Petrodata. “All the rigs that can work are working, and all the rigs that can’t work are being worked on so that they can work.”

The equipment squeeze has created some high-stakes juggling.

“There are all sorts of games that are being played here,” said John Parry, a senior analyst at independent research and consulting company John S. Herold. If you have rigs under contract, he said, “you can go to an oil company and say, ‘cut me in on the action, and I’ll release the rig.’ ”

That’s exactly what Anadarko Petroleum Corp. has in mind. The company has locked up 10 deep-water rigs for future projects, but an executive noted that “we have tremendous demand for those rigs and get calls continuously, and we will not give those away without getting something in return.”

Colombia’s petro-hunger is fierce.

Last year, oil companies carried out seismic tests in search of oil pockets on nearly 12,000 square kilometers of Colombian territory, a sixfold increase compared with the area mapped out in 2000, said Mauricio Salgar, chief operating officer at Ecopetrol, Colombia’s state oil company. Twenty-five drilling rigs are operating here, the most in 10 years -- but it’s not enough. This nation will see five times as many wildcat projects by foreign companies this year as in 2000.

The renewed exploration here wasn’t spontaneous. To stay self-sufficient, Colombia had no choice but to offer more favorable royalty and tax terms to foreign oil drillers to lure them back to invest in its oil fields. It did so in 2003, effectively raising companies’ share of profits from any successful oil well by 50%, Ecopetrol’s Salgar said.

It also decided to break Ecopetrol’s monopoly by semi-privatizing it. Brazil, Norway and Peru have taken similar steps in recent years to turn more oil exploration over to the private sector. Ecopetrol will sell 20% of its shares to private investors in coming months and aims to raise a total of $10 billion.

“There are no more forced associations with the state, which means it’s more dynamic here,” Petrobras’ Abrahao said.

Time was running out for Colombia, a dependable supplier that sends about 165,000 barrels a day to U.S. refineries, less than 1% of what Americans consume on a daily basis. Colombia has seen production fall from a high of 818,000 barrels a day in 1999 to 528,000 barrels a day last year.

Worse, reserves were in free fall. Proven crude oil reserves at the end of last year were 1.43 billion barrels, down by one-third since 1997.

And Colombia was on track to lose its oil self-sufficiency by 2007; if things didn’t improve, it would have to import oil.

The improved contract terms and a perception that security has increased under President Alvaro Uribe have persuaded oil companies from India, Norway, Russia, France and other countries to come to or expand in Colombia. Among the returnees is Exxon Mobil Corp., which resumed operations after a 10-year absence and is a Petrobras partner in the Tayrona project.

Recent work on existing oil fields has for the moment stopped the production slide, and Colombia now says it won’t lose energy self-sufficiency before 2012. But despite the promising indications, Colombia won’t know whether it can boost production over the longer term until wells are drilled.

“It’s the fundamental problem of the cycle that when you find oil, it could be five or six years before you can produce it,” said Stangor of Occidental, adding that there is always a long time in bringing crude to the market.

Still, the delay has a cost.

“Colombia’s late in getting in the queue, and they’re probably going to run a couple years behind” other oil projects, said Parry, the John S. Herold consultant.

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chris.kraul@latimes.com

elizabeth.douglass@latimes.com