Don't believe it when some of the
pundits tell you South Louisiana is "all drilled up." Indeed, there's
compelling evidence that the onshore region harbors a vast storehouse
of hydrocarbons yet to be tapped by the drillbit.
But it's going to require some deeper digging --
and some deep pockets.
This was the message delivered by industry veteran
Frank Harrison Jr., president of aptly-named Optimistic Oil Co.,
during a presentation at the Dealmakers' Conference segment of the
recent APPEX show in Houston.
To substantiate his viewpoint, Harrison displayed
a map of the area showing 49 wells either completed or drilling
below 16,000 feet, with most of these greater than 17,000 feet.
It's all because of 3-D seismic, he said.
"Structures in the 17,000- to 19,000-foot range were
either ill-defined or else not-defined by 2-D, but we're finding
very attractive, great big, deep structures based on 3-D, especially
with better processing, interpretation and gathering," Harrison
noted. "And my message is it's going to get even better."
A "snapshot" look at the drilling results on certain
of these deeply buried structures showed some significant finds.
For instance, a well at Kent Bayou field in Terrebonne
Parish encountered 700 feet of hydrocarbon column reaching down
to 18,700 feet where the rock porosity averaged 25 percent, indicating
little deterioration. The wells here test on the order of as much
as 30MMcfg/d and maybe 5,000 barrels of condensate, Harrison said,
with actual gas production generally in the range of 50-60MMcf/d.
At the current price of more than $3/Mcf, revenue
is significant. But so is the price tag on the wells: perhaps as
much as $14 million.
Harrison's "snapshot" also included activity in that
near-legendary set of rocks: the deep Tuscaloosa formation, where
fortunes have been made and lost and then made again and again ...
At Judge Digby Field near Baton Rouge, for instance,
production occurs down to 23,000 feet, where porosities are in the
20 percent range. The field is making 250 MMcfg/d, according to
Harrison, who said there are still more great opportunities in the
Tuscaloosa because of 3-D seismic.
"Y'all need to come back and take another look at
the deep Gulf Coast basin onshore, because there's clearly a lot
of reserves," Harrison said. "Just bring lots of money, because
the real future is in the deeper rocks."
Offshore Success Story
But the rocks don't stop at the shoreline, and some
folks think it's far more prudent to focus their drilling activity
on the seaward side of the coast in federal waters.
In a presentation on the same APPEX program, Ron
Neal, president of Houston Energy, noted he and partner Billy Harrison
learned quickly that a small company can't afford to spend a lot
of money on land costs and seismic data and then not have the prospect
drilled because someone else jumped in and leased the target acreage,
which is not an uncommon occurrence when prospecting onshore.
Houston Energy debuted in 1988, focusing on the Texas
and Louisiana onshore and west Texas. After struggling with the
problems of expensive onshore seismic data, unavailable leases and
such, the partners cast their collective eyes offshore, ultimately
forming partnerships with others in 1994 to work the GOM with 3-D
"We thought it made sense to form offshore partnerships
because of the high cost to make our first entry into the Gulf,"
Neal said. "It was a way to share the cost of 3-D and overhead along
with the reserves and rewards."
Neal reeled off more than a couple of dozen reasons
as to "why offshore," leading off with the contribution of risk
modifiers: AVO and bright spots.
"We wanted a shot at looking at something that lit
up at night," geologist Neal said, "something that even a geologist
could see. And we liked the small, aggressive investor/partner market
and the fact that this is an area of higher success rates and generally
higher flow rates than onshore."
Some of the myriad other reasons for "why offshore"
- Multiple seismic vendors.
- Generally higher quality seismic data.
- Open leases.
- Scheduled lease sales.
- Royalty relief.
- No oyster leases.
- No severance tax.
Neal also noted there are no unit hearings where
the company would risk losing an interest, recalling one such hearing
where Houston Energy lost 90 percent of a well it drilled in Louisiana.
"That's when I became a true believer in the offshore,"
Still, it's not a perfect world out there in the
water, he admitted, even though the negatives comprise a short list:
- Higher drilling costs.
- Expensive platforms and production facilities.
- Higher pipeline costs.
- Higher operational overhead.
- More expensive recompletions.
- Longer time between expenses and first production.
- More governmental agencies and regulations.
To date, Houston Energy has drilled 120 wells in
the GOM federal waters since1995. Of the total reserves found, 58
percent have been found through leases and 42 percent through trades
Neal said economic completions have risen steadily
to 66 percent largely because of increased use of AVO, especially
"Our success rate, if we just use amplitude with
2-D AVO, is 66 percent," he said, "and if we have volume AVO response
to a prospect, the success is 74 percent."
Next on the agenda, Neal noted, is deep gas -- for
a multitude of reasons:
- Royalty relief.
- Large field potential.
- Fewer penetrations: Only 702 wells, or about 1.7 percent of
total drilling in the GOM, have drilled deeper than 15,000 feet.
- Higher quality seismic with better deep resolution.
- Longer cable length data, which allows for more reliable AVO
- Use of AVO as risk modifier.
- 3 Availability of volume AVO over large areas.
Given its track record offshore and the big plans
to go after deep gas, it's noteworthy that this relatively small
company, which now boasts an inventory of 2,300 blocks of 3-D data
offshore, got started with a $10,000 investment by each of the two
founders who made no further financial contributions and never borrowed
funds from any lender or institution, according to Neal.
While many of their peers have succumbed to the lure
of the IPO, with its attendant headaches and problems, don't look
for Neal and Harrison to follow suit.
"We've heard a lot of talk here today about EBITDA,
and I'm not sure what EBITDA is," Neal noted facetiously, "but I
do know we don't have it."