In U.S. Gulf, clean-up firms busy with "idle iron"

BANGALORE Tue Feb 15, 2011 12:24am IST

A slick of oil from the Deepwater Horizon oil floats near a boat off Grand Isle, Louisiana June 9, 2010. REUTERS/Lee Celano/Files

A slick of oil from the Deepwater Horizon oil floats near a boat off Grand Isle, Louisiana June 9, 2010.

Credit: Reuters/Lee Celano/Files

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BANGALORE (Reuters) - After the spill, the clean-up ... of "idle iron", the hundreds of old, disused wells, pipelines and drilling platforms scattered across the Gulf of

Mexico.

In the wake of last April's Macondo oil spill, the U.S. government has ordered some 3,500 non-producing wells in the area to be plugged for good and 650 production platforms dismantled -- a potential windfall for oilfield services firms.

Firms specialising in plug-and-abandon (P&A), such as Superior Energy Services , Hercules Offshore, Key Energy Services and Tetra Tech , are seeing an incremental revenue stream from tougher U.S. regulations on

offshore drilling.

Analysts estimate the Gulf of Mexico P&A market could more than double to $450-$600 million a year. Global Hunter Securities analyst Matt Beeby noted the P&A backlog has almost trebled in the past couple of years.

Plugging a well can earn services firms up to $250,000, while each platform removal can bring in $5-$20 million.

"With other regulations likely, (gains) will be meaningful for some of the services players," Beeby said.

Shares of Superior Energy have gained 50 percent since the BP spill, the worst offshore oil spillage in U.S. history, hitting a 29-month high earlier this month. Tetra Tech shares have risen 46 percent since August.

Tetra Tech and Superior Energy generate about half their revenue from services in the U.S. Gulf.

Regulations require "idle iron" -- wells, platforms and pipelines that are no longer producing or serving exploration or support functions related to a company's lease -- to be decommissioned no later than one year after the lease expires.

Oil and gas firms have generally been reluctant to plug idled wells and remove infrastructure, hoping they might one day be used to support other active wells nearby.

"After we saw events of the Macondo well begin to unfold, many of us began to realize we were going to live in a more regulated environment in the U.S. Gulf," Superior Energy CEO David Dunlap told a Pritchard Capital conference last month.

In the last 5 years, about 100-150 platforms were removed annually in the U.S. Gulf, said James West at Barclays Capital, predicting that figure could double to 200-350.

This could attract others such as marine construction company Global Industries to get into P&A, and West said acquisition could be one avenue they could take.

Companies like Superior Energy are already being touted as potential targets for large, cash-rich oilfield services firms such as Baker Hughes, Schlumberger Ltd and Halliburton. Superior Energy's P&A offering makes it all

the more attractive.

At the same time, existing services companies like Cal Dive International and Tetra Tech are preparing to ramp up their offerings in P&A.

Woodlands, Texas-based Tetra Tech estimates its Maritech Resources unit will spend $80 million on P&A this year. It has said incremental P&A activity would result in a much improved second quarter for the company.

Superior's Dunlap said there would be challenges for the entire industry. "But it's a tremendous opportunity for a company like Superior that has made a name for itself in these types of end-of-life activities," he said.

Oil and gas firms have 120 days to submit a company-wide plan for decommissioning affected facilities and wells, the U.S. Interior Department said in mid-September.

Once dismantled, old platforms can provide good artificial reefs, helping protect the marine ecosystem.

(Reporting by Krishna N Das; additional reporting by Mayuresh Tungare in Bangalore)

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