When the Obama administration announced a moratorium on deepwater drilling in the Gulf of Mexico in 2010, politicians and industry spokespeople howled. The explosion on the Deepwater Horizon rig at the Macondo well was tragic, some said, but there was no reason to shut down an entire industry sector that otherwise was following the rules and operating safely.
Conspiracy theories that President Barack Obama would try to kill the industry with onerous new regulations proliferated in some circles. Even if the moratorium eventually was lifted, the naysayers said, companies might take their rigs, jobs and tax money to new locales and not come back for many years.
But at LLOG Exploration, it was no time to panic. The Louisiana company was on the cusp of launching its biggest project to date at what would come to be known as the Who Dat offshore oil field.
“I think there were a number of people that were surprised we went forward at that time, not knowing what all the regulations would be,” says Rick Fowler, the company’s vice president for deepwater projects. “We felt there had to be a way for us to operate in the Gulf of Mexico, so we went forward with the project.” And they were right.
Operating somewhat under the radar from its Covington headquarters, LLOG according to one ranking is the top privately owned liquids producer in the United States. As an independent company that competes toe-to-toe with the big boys, it follows its own judgment, not that of stockholders or Wall Street.
THE RIGHT PLAY
LLOG was founded in 1977, primarily to develop prospects in south Louisiana. As the company grew, its focus expanded to include the depths of the Gulf of Mexico.
In 2004, LLOG purchased seismic data covering a portion of the Gulf known to the offshore industry as the Mississippi Canyon. It bid $6.77 million for a lease in the canyon the next year, a fairly high number for previously owned acreage. But the new data convinced LLOG—and several other companies whose bids had fallen short—that the area still had serious commercial potential.
Inspired by its own results and those of competitors drilling nearby, LLOG successfully bid almost $23.7 million for an adjacent lease and traded with another company for a third section. LLOG now had all the components of what it later dubbed the Who Dat field, named, as you may have guessed, during the New Orleans Saints’ 2009-2010 Super Bowl run.
The Who Dat development is a big part of LLOG’s shift from “who’s that?” to the “who’s who” list of the Gulf’s independent players.
“It is certainly the largest thing that we’ve done in our history,” Fowler says.
Who Dat is LLOG’s biggest deepwater field in terms of the number of wells, he says, noting that eight wells there are producing and two more will be soon. For the first time in deepwater, the company developed a floating production system rather than tying back to infrastructure owned by another company. The Who Dat FPS began producing in 2011.
“As far as we know, it is the only privately owned floating production system in the world,” Fowler says.
Not only was it the first FPS installed in the Gulf after the Macondo blowout, Fowler says, but LLOG was working through the contracting process even as the Macondo event was unfolding.
About $2 billion in total capital was required for the project, although the financial arrangement with EXMAR, which delivered the FPS, allowed LLOG to share the risk that it wouldn’t be approved by regulators in the stricter post-Macondo environment. But it was approved, and Who Dat is now producing.
“I think that was a big step for the company to put Macondo behind us and move forward,” Fowler says. While LLOG of course had no direct involvement with Macondo, Fowler says he hopes the industry learns as much as possible from that rather serious incident and continues to improve safety and vigilance.
A CREDIT TO LEADERSHIP
Chris John, president of the Louisiana Mid-Continent Oil and Gas Association, says LLOG’s success as an independent operating in deepwater is a credit to the company’s leadership and business plan.
“It’s been very difficult for the independents since Macondo,” John says.
Permitting, planning, securing insurance and meeting regulations have become more expensive and time-consuming, he says. Meanwhile, companies are venturing deeper and deeper into the Gulf, which also makes drilling more expensive and challenging.
“These are multibillion-dollar projects,” John says.
Fowler says the tougher regulations haven’t been a major burden for LLOG because the new rules largely required things the company already was doing. The permitting process takes longer, in part because of the staffing limitations of federal regulators, though he says the government was able to expedite a permit for LLOG when a rig finished its work and the company wanted to move it to the next well.
At the same time, independence allows for more flexibility than a public company that has to answer to stockholders and outside analysts every quarter. As an example, Fowler mentions the fact that LLOG has an inventory of subsea trees, which are used to monitor and control the production of an underwater well and cost several million dollars each. It might be hard for a public company to justify having an expensive asset like that sitting around, but LLOG is free to hang on to them and put them to use quickly when needed.
Which is not to say there are no drawbacks to being a smaller company. When LLOG first met with South Korea’s Hyundai Heavy Industries about a contract, Fowler is sure the larger company had never heard of his. But it helps that LLOG is building a successful track record in the Gulf.
“We’re not quite the stealth company that we once were,” he says.
Independent companies always have played an important role in the economic ecosystem of the Gulf of Mexico, says Don Briggs, president of the Louisiana Oil & Gas Association, noting that independents have access to the same science and technology and sometimes are more nimble than their larger competitors.
“It is always interesting when you see a [Louisiana] homeboy out there playing in the deepwater where the big guys are,” Briggs says, “and being extremely successful doing so.”
LLOG Exploration at a glance
- Founded: 1977 in Metairie
- President and CEO: Scott Gutterman, who joined the company in 1993 and became CEO in 2007
- Headquartered in Covington, with offices in Scott and Houston
- 170 employees
- Ranked in 2014 as the top privately owned liquid producer in the United States
- One of the top 20 exploration and production companies in the Gulf of Mexico, public or private
- Has drilled more than 350 wells in the Gulf of Mexico and the Texas/Louisiana Gulf Coast since 2001
- 2014 net production: 26,000 BOE (barrels of oil equivalent) per day
This article was originally published in the Spring 2015 issue of 10/12 Industry Report.