Offshore Technology Conference: Varco Shows Off Time-Saving Innovation

Also, the National Ocean Industries Association critiques the federal offshore drilling moratorium in protected areas.
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Each May since 1969, Houston's famed Astrodome becomes an oil-patch playground. If a company's business is even remotely connected to the offshore oil industry, chances are it has set up camp at the stadium this week for the 1999 Offshore Technology Conference, which runs through Thursday. Some 1,867 exhibitors, slightly more than the 1,846 in 1998, are showing off their wares. It's a time for new product introductions, demonstrations, press briefings and displays of sheer muscle for industry players. The Street.com will report the show's highlights this week.

HOUSTON --

Varco

(VRC)

has incorporated two technological innovations in its latest blow-out prevention designs -- one of a rig's most important safety systems -- that will significantly decrease the time spent tooling around with these systems.

Over the course of a year, these new designs could save an oil company up to $1.4 million in service costs.

Orange, Calif.-based Varco wasn't spared by the downturn in the drilling industry. Orders for the first quarter slowed dramatically compared with the year-ago period, to $72.3 million from $299.6 million. And despite today's higher oil prices, it will take some time for orders to pick up again.

But an industry slowdown is no reason to stop spending on technology, says David Reid, director of marketing for Varco unit

Shaffer

. Reid says that, with its new generation of equipment, Varco is preparing for the upturn. Varco spends about 5% of its revenues on its research and development efforts, Reid says, a percentage that amounted to over $37 million in 1998.

It can take up to five days (at as much as $200,000 per day) to pull a blow-out prevention stack up from the sea bed, Reid says. Instead of that labor- and time-intensive procedure, any work that needs to be done to the stack can now be done using remotely-operated vehicles, Reid says, demonstrating the nifty innovation on one of several computer screens in Varco's large exhibit space.

So which companies are taking advantage of the new equipment?

Statoil

, the Norweigan state oil company, is considering using the application in its deep-sea operations and is testing it in shallower waters. As far as the drillers go,

Santa Fe International

(SDC) - Get Report

and the drilling unit of

Mearsk

are using the new blow-out preventers. Others, like

Noble Drilling

(NE) - Get Report

, are still a tad nervous at using the new technology. The new designs may have kinks that need to be worked out; Noble may opt for a later-generation design, Reid says.

In recent weeks, oil prices have jumped, renewing optimism that a turnaround in oil company spending may be in the works. Shares of Varco are up 60% since early March; VRC closed up 7/8, or 7.7%, at 12 3/16 Monday.

Donald Bollinger, chairman of the

National Ocean Industries Association

, wants an end to the moratorium on offshore drilling and development in protected areas.

Access to offshore areas protected under a federal ban on drilling and leasing is necessary to meet domestic demand for natural gas, as well as to maintain the competitiveness of the U.S. oil and gas industry, said Bollinger, speaking on a panel addressing the current state of the industry. Only 18% of the federal land on the outer continental shelf is available for leasing, added Bollinger, who is also chairman and chief executive of the Louisiana-based

Bollinger Shipyards

.

Bollinger vouched his support for a controversial lease sale coming up in the eastern Gulf of Mexico, 15 miles off the coast of Alabama and about 100 miles off the Florida panhandle. Environmentalists want drilling in this area banned. The

Minerals Management Service

, which oversees all offshore leasing activity, began planning for the sale in January. It's tentatively set for late 2001 or early 2002.

Drilling access to certain offshore areas is a contentious issue. In June 1998, President Clinton issued a moratorium on leasing until 2012 in many areas of the continental shelf, including all of the eastern Gulf, except the area in the eastern Gulf that's under consideration.

The facts Bollinger presented to support his argument included the following: Domestic natural gas consumption is expected to rise to 30 trillion cubic feet per day in 2010, from 22 trillion cubic feet per day in 1997, according to estimates from the federal

Energy Information Agency

and the

Gas Research Institute

. At the same time, domestic production -- almost a third of which comes from the Gulf -- has been relatively flat. That means more drilling is needed to make up the shortfall.

The lease sale in the eastern Gulf, the first in that area since 1988, is "the first step in expanding access to domestic offshore reserves," Bollinger said.

"NOIA members strongly believe there is no legitimate or logical reason to continue restrictions on offshore leasing and subsequent exploration and development drilling, and we will continue to push for sensible legislative and regulatory policies that ensure access to the nation's offshore hydrocarbons."