by Tom Bower
His self-confidence reflected oil’s changing fortunes. Twenty years earlier oil had sold at less than $10 a barrel. Without money, exploration was limited. In the late 1980s the Gulf of Mexico had been classified as an area where inadequate technology prevented new oil being found. Rising oil prices since 2003 had invigorated the search, and technological advances delayed the death certificate. With prices hovering around $25 a barrel, the public assumed that the international oil companies would continue to produce unlimited supplies. The oil chiefs knew the opposite. Finding new oil was becoming harder, and opportunities to enter oil-producing countries were diminishing, although new technology consistently embarrassed the pessimists. Within the Big Brain Room were the architects of BP’s latest success, which had restored the company’s credibility. In 2004 “Thunder Horse,” a 59,500-ton, semi-submersible cathedral, the world’s biggest platform, had been towed from Korea and positioned over an “elephant” reservoir in the Mississippi Canyon, identified by the US Department of the Interior as Block 778, 125 miles south of New Orleans. Designed to extract an astounding 250,000 barrels of oil and 200 million cubic feet of natural gas from four miles beneath the waves every day, it led to chatter among the Gulf’s aficionados that BP was overtaking Shell, the pathfinder in the region.
Since 1945 oil had been extracted from the Gulf’s shoreline waters, especially by Shell. For years the deep-water limit was assumed to be 1,500 feet. John Bookout, the head of Shell’s exploration in the Gulf, challenged that assumption, believing that the Gulf, like Prudhoe Bay in Alaska, would minimize America’s reliance on imported oil. In May 1985 the drill ship Discoverer Seven Seas began boring 12 exploratory wells in 3,218 feet of water. Oil was found, and a Ram-Powell platform weighing 41,000 tons was towed to the site. That project, also financed by Amoco and Exxon, confirmed that oil could be recovered from the depths and be piped 25 miles along the seabed to terminals.
Bookout next focused on the nearby Mars field, 130 miles southeast of New Orleans. In 1987 Conoco had lost millions of dollars drilling dry holes there. Unable to afford further exploration from rigs floating 3,000 feet above the seabed, the company sold the rights to Shell. Bookout was convinced that the drill should have been placed just 400 yards away. Soon after Shell’s purchase, Jack Golden, BP’s head of exploration in the Gulf, offered to buy a third of Shell’s investment in return for sharing a proportion of the cost. Passive investment, or “farming in,” by competitors was not unusual in big projects. Even the mighty oil corporations needed to mitigate their risks. Golden had regretted BP’s tardiness in bidding for the US government’s first round of 10-year licenses for deep-water exploration in the Gulf, and his irritation was compounded by Shell’s perfunctory rebuff of his offer. Shell’s executives did not want to share their potential profits, especially with BP. Over the previous decade they had enjoyed watching BP’s struggle to survive, and some hoped their rival might even go out of business, allowing Shell to absorb the wreckage. But just one year later the companies’ fortunes were reversed. Shell had wasted $300 million drilling a succession of dry holes in the Chukchi Sea off Alaska. In urgent need of finance, the same executives had reluctantly agreed to Golden’s offer to share in the Mars field. In return for paying 66 percent of the well’s costs, BP would receive one third of Mars’s income. In May 1991, Shell struck oil. “Getting Mars was a bonanza in 1988,” said Bob Horton, BP’s chief in America. “Mars saved BP from bankruptcy.” Dean Malouta, Shell’s skilled Greek-Italian inventor of sub-sea technology, would bitterly agree: “We are crazy to give BP a lifebelt. They brought nothing to the table except money.”
Shell’s discovery, and the introduction of new engineering techniques, washed aside a whole lexicon of uncertainties and prejudices that had gripped the Gulf’s explorers. Not only had Shell’s engineers drilled deeper than anticipated, but the gush of oil was far greater than anyone had expected. Even before the rig for Mars was built and towed from Italy, Shell had broken another world record. In 1993, using a rig tied to the seabed by barn-size anchors in 2,860 feet of water, the company’s geologists had found a giant reservoir called Auger 5,000 feet below the seabed, while in 1995 at the nearby Mensa field, abandoned in 1988 as technically too difficult, Shell’s new technology and about $290 million enabled oil and gas to be extracted from 5,400 feet.
Finding those big reservoirs of oil had been coups for the geologists. In their Houston office, John Bookout’s team had plotted and recreated an area of the Gulf called the Mississippi Basin. Located just beyond the mouth of the Mississippi River, they traced where the river’s sand had been deposited 25 million years earlier, and deduced the sites of potential oil reservoirs. Their findings were confirmed in 1995. Predictions that production at Mars would peak at 3,500 barrels a day were far outstripped as it hit 13,500 barrels a day, with the promise of 30,000 in the future. Dean Malouta was an equal architect of that success. At Auger’s wellhead, 5,412 feet below the sea’s surface, Shell installed a production system and pipeline to bring the oil onshore. The production rig was held in position by six thrusters on its hull, linked by computers to acoustic beacons on the ocean floor that transmitted signals to hydrophones on the rig. Shell’s triple success reinforced the entrenched despondency in BP’s offices across town.
Ever since David Rainey arrived in Houston in 1991, the gloom in BP’s headquarters had been seared on his mind. After three years’ work, BP had hit yet another dry well. “Sycamore” in the Gulf’s KC Canyon had wasted $20 million. Jack Golden had taken the failure personally. “Every time we hit a dry hole,” the wizened American explorer told Rainey, “we look back and see that we didn’t have to do this.” In the race for survival, Golden was as conscious as others that the oil majors’ share of the world’s reserves had fallen to 16 percent, and the national oil companies, driven by politics rather than economics, were less inclined to give them access to their oilfields. Five years later, BP’s continuing depressing record imperiled the company’s existence. At least BP could rely on its share of the profits from Shell’s success at Mars — where two more reservoirs would be found at deeper levels, promising to deliver 150,000 barrels a day — and learn lessons from Shell’s success, replicated in “Bongo 1,” 14,700 feet below the sea off Nigeria’s coast. “We’re taking two years off and focusing on learning,” Golden declared.
In 1996, Shell’s success turned sour. The company struck a succession of dry holes in the Gulf, as did their rivals at BP, Texaco and Amoco. After the seventh dry well, everyone stopped. Exxon’s explorers congratulated themselves for their refusal to risk millions of dollars just as oil prices were falling, and for waiting until others had neutralized the hazards. The failures coincided with the US government’s announcement of a second auction of leases for deep-water exploration in the Gulf. Shell’s breakthrough should have triggered a boom to buy new leases, but the rash of dry wells caused head-scratching across Houston.
The explorers gradually realized that a mile-thick layer of salt beneath the seabed, below the silt that had poured out of the Mississippi River and above the oil-bearing rocks, was causing scientific mayhem. Finding oil relies on plotting formations of rock created up to 60 million years ago. Based on a century’s experience, geologists know which rocks are likely to contain oil. Their knowledge guarantees some predictability in the Middle Eastern deserts, the Siberian tundra and the North Sea. In those areas, the question was not whether oil would be found, but whether the quantity was sufficient to make its exploitation commercially viable.
Identifying rock formations 70,000 feet below the Gulf’s surface was technically feasible. Ships dragging seismic equipment were regularly crisscrossing the Gulf, firing sound bops to the seabed and, every millisecond, recording the pattern of echoes zooming back from below. Old-timers recalled watching pallets of magnetic tape of seismic data being unloaded by forklift trucks: processing them through nine-track computers took three months. Twenty years later, all that information could be stored on an
iPod and analyzed by computer within two hours. But either way, the results in the Gulf were notoriously inaccurate. As the seismic soundwaves passed through the salt, the ricocheting bops from the rock strata were grossly warped. “Recording the sound through salt,” Rainey realized, “is like photographing through frosted glass. The image and the sound is distorted.” Identifying the location of oil through salt was impossible. Shell’s early successes had been due to nothing more than luck. “Don’t worry,” David Jenkins, BP’s head of technology, assured John Browne. “You’ll find more Mars-like oilfields once we can see through the salt.”
Texaco and Amoco had developed computer programs to show two-dimensional images of rocks, slightly reducing the risk of dry holes. During the 1990s the experts predicted that 3D, and even 4D, images would further reduce the risk but only drilling produced conclusive evidence. On the grapevine, BP’s executives heard Shell’s boasts about its success with Chevron at the Perdito field in the Gulf, which it claimed was the result of superior seismic processing. “It’s a strong indicator of our success,” said Dean Malouta. Rainey was dismissive about Shell’s reliance on seismic evidence rather than “human experts.” In wild frontier areas, Rainey believed in geology. He could cure the salt problem, but the cost would be $100 million. BP could not commission any trials unless a rival corporation agreed to share the expenditure.
At the time, BP was a junior partner with Exxon in unsuccessfully exploring a block in the Gulf called Mickey. Faced with poor seismic images, Rainey tried to persuade BP’s richer associate to finance more expensive tests. The latest computers producing three-dimensional images of the rocks were being fed seismic data recorded by ships traveling half a mile apart. BP had financed the development of software using seismic echoes recorded from cables just 12 meters apart, considerably improving the 3D image. But gathering raw data across a 300-square-mile block would be hugely expensive. “We need to go back from geophysics to geology,” Rainey explained to Exxon’s geologists. “We need to put everything back in its proper place.” Renowned for their technical excellence, Exxon’s executives are also infamous for believing that anything not invented by Exxon is certainly wrong. Ideas offered by an enfeebled, recently denationalized British operator were thus automatically suspect. Unlike BP, Exxon had focused on finding oil in West Africa, especially Angola, and with its enormous spread of interests the corporation lacked the financial imperative to find oil in the Gulf of Mexico. However, Exxon’s technicians were eventually convinced to finance the experiment, and Rainey’s idea was proven to be correct. Other oil companies were spurred to adopt the enhanced seismic measurements, reducing the cost for BP.
By itself, the intense mapping of rocks was worthless. Identifying the location of oil depended upon producing accurate geological maps. The oil companies raced to recruit mathematicians and geophysicists to compose computer programs based on algorithms to rectify the seismic data. Rainey’s challenge was to recruit better mathematicians than his rivals, especially Amoco, the master in this field. The breakthrough coincided with BP leasing a nine-square-mile block called Mississippi Canyon 778 off Louisiana, recently abandoned by Conoco after a succession of dry wells.
The opportunity to buy the block arose after Conoco had failed to find oil at Milne Point in Alaska. As oil prices slid, the company needed to cut its losses, and BP agreed to trade Milne Point for acreage in the Gulf of Mexico. Nonchalantly, the BP negotiator said, “There’s a value gap in the deal. We’ll agree if you throw in Block 778.” Conoco’s negotiator was happy to oblige. Conoco, the BP team believed, had committed a cardinal error by misreading the geology at an unexplored depth. Concealing BP’s calculations from its rivals across town, Rainey was confident of success, even though the whole Mississippi Canyon area covered 5,000 square miles.
“Everyone in the Gulf is making the same mistake,” Rainey said in 1996. “The model’s wrong. We’re focusing on the geophysics.” Rainey was convinced that his unique understanding of the Gulf would enable him to pinpoint a reservoir: “Shell and Chevron are fixated by seismic tests. They’re too rigid. They’re forgetting about the geology.” While Alaska’s rocks had taken three years to master, the complications in the Gulf took 40 years to understand. “Everyone in the Gulf is focused on ‘top down,’ relying only on the seismic and forgetting the rocks! It should be ‘bottom up.’” Rainey insisted that BP’s rivals were looking at seismic images corrected by computers, and not at the rocks themselves. In their quest to find the rocks that 10 to 20 million years ago had heated up and generated oil, they had ignored the key factor: less dense than rock, oil attempts to escape. “The deeper I go, I can see the traps, but I can’t see the hydrocarbons,” said Rainey. “We need to find the plumbing” — shorthand for the “migration pathway” where the oil had flowed and become trapped.
Peering at the 3D images generated by the computers in the HIVE, Rainey reminded his team: “The Gulf is the most complex area on the planet. You’ve got to stay humble because you can never crack the Gulf. Just as you think you have mastered it, some rocks come up and kick you in the backside. Science is helpful but in the end success depends on human understanding.” The team debated whether the white columns spiraling out of the rocks on the screen were salt or sand. If they were sand, the oil would have leaked away and a $100- million test drill would be wasted. “Follow the salt,” Rainey urged. The salt was an obstacle, but also an asset. The secret was to find a lump or hill rising within the rock: that would be the trap where the oil would gather, unable to leak out, sealed by the impenetrable salt. “I need people who think like a molecule of oil — where will it go into the rock?” said Rainey. In his efforts to resolve the problem he had abolished the demarcation between geologists and geophysicists. Working together, they could determine whether the rocks had ever contained oil and whether the oil was still trapped. Like the pioneers in the space race, Rainey sought innovations, but the best he could hope for was an informed guess.
Risk is the oxygen of oil companies. Success and survival depend on tilting the risk in the company’s favor. In January 1996, Jack Golden told John Browne that BP’s explorers had understood the lessons of Sycamore and the salt. The corporation, he urged, should make the leap. His team calculated that, rather than their rivals’ estimates of 10 billion barrels of oil within the rocks below the Gulf, there were probably 40 billion barrels. In the second round of bidding for 10-year leases in the Gulf, BP should outbid Shell and Chevron. Browne agreed: the company would buy more acreage in ultra-deep water than any of its rivals.
The investment coincided with the industry’s slide toward disaster. 1998 was a dog year in the oil trade. The price of oil slumped below $10 a barrel, the lowest in 50 years. There was surplus of production, and cut-price gasoline was being sold across America and western Europe. The protection enjoyed by vested interests was crumbling. Thousands of experienced engineers were fired, rigs lay unused or could be hired for 25 percent of the old rates, and bankruptcies ravaged the industry. “I can’t tell you absolutely this is the bottom, but we haven’t seen anything like this,” admitted Wayne Allen, the chairman of Phillips Petroleum. Potentially, the only profitable activity was deep-water drilling in the Gulf of Mexico, but hiring rigs to drill to a new-record 7,625 feet below the seabed and bore down to 12,000 feet cost $200,000 a day. New rigs were being designed to moor in over 10,000 feet of water and drill nearly 30,000 feet into the rock. The 3D image of Block 778 suggested there was oil somewhere four miles below the sea bed. A test bore in Block 778 would cost $100 million. The unanswered question was, where precisely to drill a 12-inch hole four miles through the rock?
At first, the debate among the 13 explorers was sterile. Red dots from lasers darted around the screen, identifying strengths and weaknesses for the drill’s path. At last the discussion became animated, and a route was chosen. The privilege of naming Block 778 was given to Cindy Yeilding, an attractive blonde geologist — an unusual sight in a male-dominated world. Havin
g a passion for Neil Young’s music, she chose “Crazy Horse,” the name of his band. Protests soon arrived from the Sioux Indians, defending the memory of their chief, so the plot was renamed “Thunder Horse.”
On January 1, 1999, Rainey and Yeilding sat in a bland, windowless second-floor office, dramatically named the “Operations Room,” following the progress of a computer-guided drill gouging 29,000 feet through silt and salt toward the porous sandstone and shale where they believed oil had been trapped for eight million years. Only two rigs in the world were able to drill to such depths. Fortunately one of them, Discoverer 534, had already been hired by Amoco, which had just been bought by BP. The cost was $291,000 per day. Reservoir engineers had produced a computer program to steer the bit around perilous flaws, after which it was hoped that oil would gush through the metal casing to the surface. Several drill bits were broken and replaced, but the geologist on the rig reported that the rocks brought up from the depths were the right age. “We’re at 13.6 million years,” he told Houston, hoping that fossils 14.7 million years old, indicating the possible presence of oil reserves, would soon appear. In real time, Rainey and Yeilding scrutinized the constantly changing numbers flashing on a bank of screens for evidence of oil. One sensor attached to the drill reported whether gamma rays detected clay — a negative reading indicated oil. Another sensor measured resistance to electricity — a positive reading indicated oil and gas, because neither conducts electricity. For the next 186 days other members of the team followed the drill’s progress on their laptops, at Starbucks or in their beds at night.