Flowing to the rescue

New GOM Production Coming Online

Here comes oil production from some big-name field developments in the Gulf of Mexico.

Just in time.

Thunder Horse, the giant BP-operated field 150 miles southwest of New Orleans, reportedly recorded 40,000 barrels-per-day production in July and was expected to reach its capacity of 250,000 b/d in late 2009.

The field also is projected to produce 200 million cubic feet of gas per day and will be the biggest producer in the GOM when it hits full stride.

Atlantis, which began production in the fourth quarter of 2007, has an ultimate producing capacity of 200,000 b/d and 180 million cf/d. The field is owned 56 percent by BP and 44 percent by BHP Billiton.

Tahiti, Chevron’s huge Green Canyon find 190 miles offshore, should come onstream in the second half of 2009. The field’s production facilities are expected to have a daily capacity of 125,000 barrels of oil and 70 million cubic feet of gas.

And that’s not all. Production platforms are going up or are in preparation all over the deepwater Gulf.

It’s just about impossible to overestimate the importance of this new production to the world oil supply picture, and especially to North America.

Field declines in Mexico and the United States – read Cantarell and Alaska – put North America in a terrible position for oil production and consumption.

But the latest production outlook from the Energy Information Administration (EIA), released in July, projects U.S. production rising from 8.40 million b/d in the second quarter of 2007 to 9.03 million b/d in the fourth quarter of 2009.

This deepwater-fed production jump is part of a worldwide trend.

Brazil’s success offshore might let it blow away the EIA’s projected increase from 2.34 million b/d at the end of last year to 2.96 million b/d at the end of 2009.

Africa and the Asia and Oceania region could add at least another 500,000 b/d by 2010, again boosted by offshore discoveries and production.

One Hot Area

In a world of hot offshore exploration, the Gulf of Mexico remains one of the very hottest areas.

“The number of rigs capable of drilling in deepwater in the Gulf is increasing and the number of wells we’re able to drill in deeper waters is also increasing,” said AAPG member Dave Marin, supervisor of resource evaluation for the U.S. Minerals Management Service Gulf of Mexico region in New Orleans.

“The Lower Tertiary is still the focus in the ultradeep water. Second to that is gas in the shallower waters in connection to the Independence Hub,” he added.

Independence Hub started gas production in mid-2007 and has a capacity of one billion cf/d. The project, which covers about 1,800 square miles will account for 10 percent of the gas produced from the Gulf.

The build-up of U.S. natural gas production is another compelling story, one driven by the growth of unconventional gas supply and better recognized than the growth in offshore oil production.

But for U.S. oil, the ongoing story is the deepwater and ultradeep-water Gulf of Mexico, where Paleogene-earliest Miocene prospects continue to generate big news.

“In the last couple of lease sales, in our analysis we believe a lot of those companies are targeting the Lower Tertiary and Lower Miocene plays,” said another AAPG member, Dave Cooke, who is deputy supervisor of resource evaluation for the MMS Gulf region.

The Numbers Game

Credit where credit is due: The first-rank heroes of U.S. production growth have been the geophysicists and drilling engineers, with an amazing 10-year record of advances.

“One of the challenges in the Lower Tertiary trend is imaging the prospects below salt,” Marin said. “It’s only been in the past 10 years we’ve had depth migration for these subsalt prospects.”

And don’t overlook the contribution from production engineers, despite some stumbles.

The MMS defines deepwater as water depths over 1,000 feet and ultradeep water as depths beyond 5,000 feet. Today, production engineers are looking at new projects in 4,000-9,000 feet of water, well into the ultradeep.

“In the more recent Lower Tertiary discoveries, they’re still trying to work out how they’re going to produce from those fields, whether they will have host facilities for three or four fields or any stand-alone platforms,” Cooke noted.

“They design those facilities for a certain amount of production. If it’s good enough it will be stand-alone,” he said.

In general, the MMS sticks closely to proved or proved-probable reserve numbers for the Gulf, although it has acknowledged a much larger number for possible reserves, based on company estimates.

“Our reserves numbers are somewhat conservative, but ‘reserves’ is a somewhat conservative concept,” Marin agreed.

The agency would carry projected reserves only as unproved or some other contingent number, he said.

“We’ve seen over the years where additional drilling has reduced the size of projected reserves, but in other cases they’ve increased it,” Marin noted.

Going Deeper

Whatever the reserve number, there’s no doubt that drilling and production has moved farther and farther offshore.

“In our last report, it was the first time that the top 20 producing fields in the Gulf of Mexico are all deepwater fields,” Cooke said.

Industry success in the Gulf has come despite a challenging operating environment that includes sky-high prices for great-depth drilling. In particular, a tight rig market has pushed day rates for offshore rigs through the clouds.

“They’re building these things, but it’s tough to get them built, it’s taking a while, and they aren’t all going to the Gulf,” Cooke observed.

With exploration interest and oil and gas prices high, the MMS expects good success with its future lease sales in the Gulf. The most recent leasing round for the Western Gulf ended in August and the next Central Gulf lease sale is scheduled for spring 2009.

Companies want to acquire lease blocks in areas they consider highly prospective and add them to the exploration portfolio for analysis and ranking, Marin noted.

“Although these blocks may be leased and in the company’s inventory, their ranking will move up and down” as analysis continues and new information becomes available, he said.

That makes it difficult to predict future hot spots for drilling. For instance, improved seismic acquisition, processing and interpretation have actually pushed some exploration back toward shore, as companies are able to identify new prospects in shallower waters.

“It all goes back to, ‘Will this block be drilled under its current lease or a future lease?’ The prospectivity changes over time,” Cooke said.

The Last Five Years

AAPG member Erik Mason worked the Gulf of Mexico for Shell International Exploration and Production (SIEP) for more than 20 years, serving as everything from senior production geologist to exploration manager to new ventures manager for the western Gulf of Mexico.

He’s now Shell regional exploration consultant-Africa, stationed at SIEP’s global headquarters in Rijswijk, in the Hague, the Netherlands.

Interviewed by phone in Lagos, Nigeria, Mason said he still considers the Gulf a premier exploration area.

“I think the Gulf of Mexico has been a consistently exciting place to explore, and success rates have been pretty good,” he said. “There are still very large discoveries being made.”

Advances in seismic processing, interpretation and imaging that provide a look at prospects below salt have been especially beneficial for GOM work, Mason noted.

“That’s opened up new exploration plays, and it’s just continued to happen,” he said.

“Seismic capabilities have changed dramatically in the past five years, especially in wide-azimuth seismic across the Gulf of Mexico, that’s brought a step-change to exploration offshore,” he added.

Now operators can examine a range of new subsalt, seismic-amplitude and other seismic-generated prospects across the Gulf. Recent Paleogene discoveries make the future even brighter.

“There will be several of these coming on over the next several years and a number of operators have made these discoveries,” Mason said. “I think that’s real encouraging.”

Will Potential Be Realized?

Partnering, interest sharing and acquisitions have allowed relative newcomers like Statoil Hydro and BHP Billiton to stake major GOM positions. This joint cooperation could be one explanation for the industry’s success in the Gulf.

Take the Shenzi-Genghis Khan area initially drilled by Anadarko and now operated by BHP Billiton with Hess Corp. and Repsol YPF as interest holders.

Shenzi is projected to come onstream in 2009 and could reach 100,000 b/d production.

“It’s almost like a sharing of information out there,” Cooke said. “No one is going to go out there for the first time and try to do it alone.”

If there is a learning curve in the deepwater Gulf for both exploration and production, operators can only benefit from their recent experiences in bringing fields onstream.

“It’s a production challenge. There’s just lots and lots of oil in place in these Paleogene discoveries, for instance,” Mason observed.

Overall, “we’re looking at lower porosities and permeabilities than we’ve seen in the past,” he added. “It’s a challenge to get oil and gas, especially oil of lower quality, out of poorer rocks in commercial quantities.”

In the Gulf of Mexico, the oil and gas is definitely there – the real problem is getting it here.

“They’re making some big oil discoveries,” Cooke said. “It just remains to be seen if they can get that out of the ground and bring it to market.”

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