Deepwater only a part of the story
Success Breeds Success in GOM
Exploration and production activity in America’s hydrocarbon rich Gulf of Mexico continues unabated.
Great geology, vast sums of capital investment and increasingly innovative technology play key roles in keeping this inarguably magnificent petroleum basin producing copious quantities of oil and gas.
The more than 7,000 leases in the GOM account for 25 percent of the country’s domestic oil supply and 15 percent of domestically produced gas, according to the Minerals Management Service.
More than 30,000 jobs are directly related to Gulf energy exploration and production.
The E&P activity spans the gamut from shallow shelf waters out to the ultra-deepwater (greater than 5,000 feet).
About 72 percent of the Gulf’s oil production originates from wells drilled in waters 1,000 feet deep or greater, according to the MMS, and the industry’s expansion into deepwater continues to increase. In fact, a record high of 15 rigs were operating in ultra-deepwater in 2007.
It is noteworthy that non-major companies have made more deepwater discoveries and hold more deepwater acreage than the major companies.
About 34 percent of the tracts that attracted bids in the Central Gulf Sale 206 in March 2008 are in ultra-deepwater. Lloyd Ridge Block 286 in slightly more than 10,000 feet of water was the deepest tract to receive a bid.
The top bid received for a block – Green Canyon Block 432 – was $105,600,789, submitted by Anadarko, Murphy E&P-USA and Samson Offshore.
Sale 206 and the simultaneous Eastern Gulf Sale 224 together garnered a total $3.7 billion in high bids, with the lion’s share of this coming from Sale 206. Sale 224 was notable in the sense it was the first lease sale where the revenue sharing provisions of the Gulf of Mexico Energy Security Act of 2006 became effective.
The MMS noted the factors contributing to the increase in deepwater activity include several key discoveries (including recent discoveries in the Lower Tertiary Trend), the recognition of high production rates, the evolution of development technologies and the rise in oil and gas prices.
“The United States in general has been blessed with a lot of rich petroleum basins, and the offshore Gulf of Mexico is a good example,” said AAPG member Greg Simmons, manager of deepwater Gulf at Devon Energy.
“The Gulf of Mexico has produced over 40 billion barrels of oil to date,” Simmons said, “mainly from the Plio-Pleistocene through the Miocene – but what we’re exploring for today was inconceivable 10 years ago.”
For example, think ultra-deepwater, hi-pressure/hi-temperature, low permeability, sub-salt Lower Tertiary targets.
“The first sub-salt exploration wells in the Walker Ridge area were not Lower Tertiary wells at all,” Simmons noted. “They were drilled as Miocene wells – just because we didn’t conceive there was a deeper reservoir interval below the Miocene target.”
The Cascade discovery was the first Walker Ridge exploration well that drilled deep enough to test the Eocene and Paleocene sandstone reservoirs, according to Simmons. Following that information, Dana Point – originally drilled as a Miocene test – was re-drilled as a Lower Tertiary discovery, now known as St. Malo.
“We think there could be between three and 15 billion barrels recoverable reserves in the Lower Tertiary Trend,” Simmons said. “That’s a lot of potential, and I think it’s sufficient to justify drilling these really expensive, technically challenging wells – our current exploration well costs exceed $100 million per well.
“To my knowledge, there have been 14 announced discoveries out of 23 wells drilled in the Trend to date.”
Devon is currently involved in four of the deepwater discoveries in the Lower Tertiary:
- Cascade, operated by Petrobras.
- St. Malo and Jack, operated by Chevron.
- Kaskida, operated by BP.
Cascade is moving forward on an early production system, scheduled for first production in 2010, according to Simmons. It will be a two-well system that will produce to Petrobras’ Floating Production, Storage and Offloading (FPSO) facility, which is the first FPSO in the GOM.
The facility also will take on hydrocarbons from the Petrobras-operated Chinook Field.
The FPSO will be located in close to 8,000 feet of water, making it the world’s deepest FPSO to date.
Close to the Edge
But the deepwater is only a part of the GOM story today.
For instance, a lot of operators are closely watching veteran shallow water deep gas player McMoRan Exploration’s ongoing effort to deepen the former Blackbeard well at South Timbalier Block 168 in 70 feet of water.
The well was temporarily abandoned in 2006 by then-operator ExxonMobil after reaching a measured depth of 30,067 feet.
McMoRan re-entered the well this year and reportedly has deepened the hole to about 32,000 feet. The company is said to be headed to 35,000 feet with the drill bit, targeting ultra-deep gas on the shallow water shelf.
Shallow water player PetroQuest Energy is among the many companies paying attention to the progress of the McMoRan well.
“On our seismic, we can see things that are interesting – deep seated features and things,” said Charles Goodson, chairman, CEO and president of PetroQuest. “But to say we’re going to step up and drill a well like anytime soon, we’re not going to.”
PetroQuest operates a number of offshore fields spanning the Louisiana coast from West Cameron to Main Pass off the Mississippi River Delta. Goodson said their deepest well bottomed out at 20,000 feet and noted that all current activity is in 300 feet of water or less.
“This is by design,” he said. “We made the decision to stay active and somewhat aggressive in shallow water but didn’t want to get in that next echelon of 300 to 1,500 feet of water.”
Goodson said his company faced a choice in 2002: Either go for deepwater or resource plays.
“We thought there would be a greater impact on the company with resource plays,” he said. “We had such a vibrant undeveloped set of assets in the Gulf Coast and Gulf of Mexico, we decided to keep those and grow them at reasonable rates.
“We took half of our cash flow and got into resource plays, or shales,” he added, “and it was a good bet.”
The company’s goal is to be 75 percent unconventional and 25 percent Gulf Coast/Gulf of Mexico, according to Goodson.
“As we double and triple the size of the company, it will take more of a full time effort to maintain that balance,” he said. “We have at least a three-year inventory of projects we’ll drill in South Louisiana and offshore, and we’re now looking at replenishing that and telling our guys to generate something today we can drill three years out.”
There’s little doubt among many industry players that the GOM has a continuing bright future.
“The Gulf of Mexico has proven to be a very prolific petroleum basin,” Simmons said, “and it continues to keep on going.
“The exploration trends that we’re pursuing today were difficult to envision even 10 years ago,” he noted. “Who knows what will come along in the next 10 years? What’s left that we haven’t discovered?
“After all, we’ve already gotten 40 billion barrels of oil from the Gulf.”