Hess, Chevron see first oil flow at Tubular Bells

Hess Corp.’s quest to harvest crude from its Tubular Bells field in deep Gulf of Mexico waters culminated Friday when oil started flowing at a massive production facility 45 miles from shore.

Sanctioned just three years ago, it is a sprawling, 7,500-ton structure balancing atop a 584-foot-long cylinder that plunges into the sea. By the end of the year, when production ramps up, the floating facility is expected to pull some 50,000 barrels of oil equivalent each day from three wells at the site.

Stan Bond, Hess’ vice president of deep-water development for offshore Americans and West Africa, said it’s a major accomplishment that could pay out over decades.

“It’s a dream come true, because I know we can go to that next level,” he said during a presentation to investors on Monday. “If you looked back three years ago, you couldn’t see how we were going to do that, you just had to have faith. Here we are today with one of the best fields I think Hess has ever had.”

Hess has operated the $3 billion project since 2010 and holds a 57.14 percent interest in the field, with Chevron claiming the remaining 42.86 percent.

And despite dropping oil prices, the success of Tubular Bells encouraged Hess and three other oil companies last month to sanction another big deep-water Gulf development, called the Stampede Field, with Hess again serving as the operator.

“Hess is very bullish on the Gulf of Mexico,” said Jeff Wirth, an offshore director for the firm. “We’re spending a lot of capital not only on these future projects, such as Tubular Bells and Stampede, but we’ve got a lot of activity around exploitation of our existing assets.”

Although Hess and Chevron fast-tracked the project in 2011, the initial oil discovery dates back to October 2003, when Transocean’s ill-fated Deepwater Horizon burrowed into oil-bearing sands some 24,000 feet below the surface. The reservoir is located under a 4,400 feet of water and a 10,000-foot-wide ribbon of salt, in 24-million-year-old Miocene rock.

Subsequent wells were drilled between 2006 and 2008 to appraise and delineate the field, setting the stage for the investment decision in 2011.

Then, the real work began.

Development drilling was launched at the site to bore the wells now being used for production and separate injection wells, designed to deliver water into the reservoir and aid production. Geologists and drillers designed wells so they could move tighter into oil-bearing sands and closer to the salt dome, ultimately increasing net present value by 75 percent of what it was when the project was sanctioned.

Meanwhile, fabricators in Ingleside, Texas, were building the spar hull, a 85-foot-wide, 584-foot-long cylinder that now sits vertically in the water, supporting the heavy deck. But while under construction and as it was towed to its current location in the Gulf, the spar remained horizontal, too long to rest upright in the shallower port.

At the same time, in Houma, La., workers were constructing the topsides — a three-deck structure designed to support production, house equipment and provide living quarters for about 50 crew members at a time. When a 1,000-ton main deck was placed atop the structure, it took 14 cranes to hoist it and move it in place.

The two pieces joined together at the Tubular Bells field, with giant cranes again called into duty, this time heaving the top-side structure onto the now-vertical spar.

Work has continued ever since, to link up production flow lines and a water injection line, as well as two 12-inch export pipelines designed to carry oil and gas to shore. Commissioning and testing led up to the first oil milestone on Thursday.

The project is unique in part because of its “Made in the U.S.A.” stamp; Hess said the Tubular Bells facility represents the first classic spar built inside the country. And the company calls the high pressure, vertical production tree system at the site the most advanced in the world.

Executives involved in the project said they plan on exporting the lessons from Tubular Bells to Stampede, a lower-pressure project in shallower water.

“I see a lot of good things coming out of Tubular Bells,” Bond said.

And as they move on to Stampede, Hess executives also are hoping to capitalize on market fears driven by dropping oil prices.

For example, Hess just signed a deal to rent two rigs from Diamond Offshore for $400,000 per day — a rate lower than a previous operator would have paid if it had kept renting them. Analysts suggested that showed Diamond’s desperation to ink a long-term deal, even at a discounted rate.

Bond said the Deal with Diamond “has shocked the market,” because “it’s a new level.”

“This is the perfect time to be doing a long-term project like Stampede, which is going to be over 30 years,” he said. “We’re right at the best place to be executing a project.”