Brazilian giant nears production in deep Gulf Brazilian giant pushes to Gulf's deep waters

Project by Petrobras will use tanker-like ship, not fixed platform

After being delayed by the BP oil spill this summer, Brazil's state-owned oil company is finally closing in on the launch of a major offshore oil and gas project in the deep waters of the Gulf of Mexico, its biggest ever in the U.S.

Petrobras earlier this month moved a giant oil-extracting vessel into place at its Cascade and Chinook fields and is doing final hook-up and testing of equipment, company officials said. First production is scheduled to begin by year-end.

The progress on the massive project is another sign that major oil companies are returning to work in the deep-water Gulf after setbacks caused by the BP spill this year. This week, Chevron Corp. said it is in the process of filing what could be the first deep-water drilling permit application to federal regulators after the lifting on Oct. 12 of an offshore drilling ban.

Exxon Mobil Corp., Royal Dutch Shell and others said they are also preparing deep-water drilling applications.

The Petrobras project is also notable because it is among the first to go forward in an emerging area of the Gulf, known as the Lower Tertiary trend, which is thought to hold vast untapped oil reserves.

And it is the first in the Gulf to use a tanker-like ship rather than a fixed platform to pump oil and natural gas from wells in 8,000 feet of water and thousands more feet below the seafloor.

As such, it could serve as a template for future oil and gas production in the deepest waters of the U.S. offshore region, where there is little existing infrastructure and extreme weather poses constant threats.

"It will be watched very closely, no question about it," said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University.

Technical challenges

As oil companies have pushed into deeper waters in search of oil, they've encountered greater technical challenges and been faced with ever-bigger investment decisions.

Last week, for instance, San Ramon, Calif.-based Chevron approved a $7.5 billion project to build a massive offshore platform to handle production beginning in 2014 from the Jack and St. Malo deep-water fields in the U.S. Gulf.

But Petrobras, with its Cascade and Chinook project, has exported a ship technology commonly used in Brazil, which the company says reduces costs of developing deep-water fields, allows for greater flexibility in project design and offers more safeguards for protecting offshore facilities in bad weather.

It's called a Floating Production, Storage and Offloading vessel, or FPSO.

In the case of Cascade and Chinook, the massive vessel has the capacity to produce 80,000 barrels of oil per day, a mark company officials have said they hope to hit within two years.

Arrived on site

The new FPSO arrived on site in mid-October, said Sophie Gates, a Petrobras spokeswoman in Houston. As of Tuesday, crews were still connecting the subsea system to the vessel and testing topside assemblies on the ship that include crude-processing systems.

In February, Petrobras said the vessel was en route from a Singapore shipyard to the Gulf, with first production slated for midyear. But after the April 20 blowout at BP's Macondo well, which unleashed the worst oil spill in U.S. history, the project was pushed back, along with many others.

During 2009 and 2010, daily domestic crude oil production rose, but it is expected to fall next year to 5.4 million barrels a day, including a 170,000 barrel-per-day decline in the Gulf of Mexico, according to the Energy Information Administration.

Effect of moratorium

Although the Interior Department lifted the six-month deep-water drilling moratorium nearly two months ahead of schedule, industry officials fear approval of new permits will be slow as regulators try to make sense of new rules.

Petrobras officials said in September the moratorium caused the company to delay drilling additional wells at the Cascade and Chinook fields but should not affect its year-end forecast for start of production from wells drilled before the ban.

In January, Petrobras exercised an option to acquire the remaining 50 percent of the Cascade field held by Oklahoma City-based Devon Energy Corp.

Devon said last year it would sell its international and Gulf of Mexico assets to reduce debt and refocus on North American onshore gas fields. In Chinook, Petrobras has a 66.7 percent stake, and France's Total holds the remaining 33.3 percent. Petrobras is the operator of both fields.

brett.clanton@chron.com