Well plugging effort delays assessment of damaged Gulf rig

Hercules Offshore says it does not know yet how badly one of its Gulf of Mexico rigs was damaged in a blowout and fire last week, and cannot take a close look until a relief well permanently kills the one that blew out.

Officials of the Houston-based services company provided the update during a conference call to discuss second-quarter earnings.

They said they don’t know the  condition of the Hercules 265  jack-up rig except that last week’s fire damaged the cantilever, a movable platform that holds  drilling equipment. The rig stands on  legs extended 154 feet from the Gulf surface to the seafloor.

“We cannot confirm or provide much detail on the current condition of the rig other than to say that pictures and videos of the rig show that it sustained significant damage,” said Hercules Offshore CEO John Rynd.

He said the company will not put anyone onboard the rig until a relief well intercepts the one that blew out and plugs it with cement.

Forty-four workers evacuated the rig after the blowout, which occurred the morning of July  23  as the Hercules equipment was working  at a wellsite  owned by Walter Oil & Gas of Houston. No one was injured and no oil spilled, although natural gas leaked into the air.

The  gas caught fire on the rig several hours after the loss of well control, and  burned until the well’s own sand and sediment blocked the gas flow in a phenomenon called bridging.

The Bureau of Safety and Environmental Enforcement is investigating.

The agency said Tuesday  that drilling of a relief well could begin Thursday and would take about 35 days.

Rynd said the company won’t  provide further information on the accident until the investigation  is complete.

Hercules Vice President Jim Noe, who also heads an industry group called the  Shallow Water Energy Security Coalition, said the company welcomes the investigation by the safety bureau and U.S. Coast Guard.

“We all want to get to the bottom of what happened and why,” Noe said in a statement after the conference call.

Hercules reported second-quarter earnings of  $16.6 million from continuing operations on revenue of $211.5 million, compared with a net loss of $52.5 million on revenue of $154.5 million in the April-June period last year.

Including discontinued operations it lost $27.4 million in the quarter, compared with a $55.1 million loss a year earlier.

Hercules has focused on upgrading its fleet quality, and moved to expand its expertise in harsh environment operations with the $57.7 million acquisition of Discovery Offshore, a Luxembourg-based company that owns two  jack-up drilling rigs specified for such work.

The company reported a $44 million loss on its Domestic Liftboats and Inland division, comprising older and lower performing assets the company sold in early July and listed as discontinued operations in its second-quarter accounting.

The company benefited in the quarter from a booming market in the Gulf of Mexico for jack-up rigs, which drill in shallow water.

Hercules said its 18 rigs in the region are all under contract.

“This is the strongest I have seen the Gulf of Mexico in my career,” Rynd said.

Revenue from its domestic offshore division grew 41 percent, driven by daily rig rates that averaged $85,000 in the second quarter, up from $61,000 for the same time last year.

That revenue helped offset  losses related to higher costs in Hercules’ international division.

Last week’s accident so far has not deterred operations in the Gulf,  Rynd said in response to an analyst’s question during the conference call Wednesday.

“It appears right now to be business as usual,” Rynd said.