A chess game in the Gulf

Players Focus on Deepwater Alaminos Canyon

Perdido Spar lying horizontal in the Gulf of Mexico. The Spar had to be moved from a horizontal to a vertical position. Photo courtesy of Shell
Perdido Spar lying horizontal in the Gulf of Mexico. The Spar had to be moved from a horizontal to a vertical position. Photo courtesy of Shell

Pale moon shining on the fields below,
Folks are crooning songs soft and low.
Needn’t tell me so because I know
It’s sleepy time down south.

– “When It’s Sleepy Time Down South”

It’s possible to look at the Gulf of Mexico as the most expensive board game on Earth.

An oil company can spend more than $100 million to control a single lease block, and bidding interest often runs high.

So when the latest leasing round in the Gulf drew bids on only about 300,000 acres out of the 20.7 million acres offered, the industry considered it one of the slowest lease sales in recent memory.

Not so fast.

The tame bidding masked another flurry of interest in the ultra-deepwater Alaminos Canyon area, following the previous western Gulf lease sale in November 2012.

In those last two lease sales, more than 70 percent of all bids were for Alaminos Canyon blocks.

Western Gulf of Mexico Lease Sale 233 in late August attracted $102.4 million in high bids for 53 tracts offshore Texas, with 12 companies submitting 61 bids, the U.S. Bureau of Ocean Energy Management (BOEM) announced.

The sale offered all unleased and non-protected areas in BOEM’s Western Gulf planning area, including 3,864 tracts from nine miles to more than 250 miles off the coast, in water depths ranging from 16 feet to more than 10,975 feet.

ConocoPhillips submitted the highest bid on a single tract, just under $30.6 million for Alaminos Canyon block 475 (AC475). It also set the highest total amount in bonus bids, $50.3 million on 29 tracts.

Last November, Western Gulf Lease Sale 229 attracted $133.77 million in high bids for 116 tracts covering 652,522 acres, with 13 companies submitting 131 bids.

An Unexpected Boost

This part of the Gulf is known for its Lower Tertiary, Eocene-Oligocene, Wilcox to Frio targets. The Great White field (AC857, 2002), Silvertip field (AC815, 2004) and Tobago field (AC589, 2004) extend over adjacent blocks and produce from Paleogene.

“The Lower Tertiary/ Paleogene was the original target, due to the Perdido Fold Belt discoveries beginning in the early 2000s,” said AAPG member John Snedden, director of the Institute for Geophysics at the Jackson School of Geosciences, University of Texas at Austin.

“The play was extended to Walker Ridge,” he noted, “and is moving inboard into Garden Banks and Green Canyon with the North Platte discovery (Garden Banks 959) and drilling of Ardennes-1.”

Perdido Fold Belt geology heavily influences the western part of the southern Alaminos Canyon play area. The limits of the fold belt can be found just northeast of the Shell-operated Great White field, Snedden said.

“The subsalt geology changes considerably, with the high-amplitude folds of the Perdido transitioning eastward to low relief structures typified by the Tiber well location (Keathley Canyon 102), and northward to very deep primary basins with complex interaction with salt and secondary suprasalt basins,” he noted.

Exploration in the Perdido Fold Belt area got a further, unexpected boost last year when Mexican state oil company Pemex announced a deepwater discovery with its Trion well.

Trion was a true ultra-deepwater find, drilled to 16,115 feet in 8,200 feet of water in the fold belt area, about 110 miles off the Tamaulipas coast. Pemex later announced additional discoveries with its Supremus and Maximino deepwater wells.

The Lower Tertiary play “now extends into Mexican waters with the discoveries at Supremus-1 and Trion-1,” Snedden said. “However, it is not the only play in Alaminos Canyon – the Miocene can be trapped below the salt canopy, either as salt cutoff traps or other trap types.”

Shell and its partners solved the production infrastructure problem in their Alaminos Canyon complex with the Perdido Spar, the world’s deepest drilling and production platform, floating in more than 8,000 feet of water.

In 2012, Petrobras introduced a floating production, storage and offloading (FPSO) vessel, the BW Pioneer, to begin production from its deepwater Chinook and Cascade fields in the Walker Ridge area of the Gulf. This year, Shell announced it will contract an FPSO for the Stones field development project in Walker Ridge.

Serious Challenges

In addition to complex geology and ultra-deepwater targets, western Gulf of Mexico prospects present serious challenges in subsalt seismic imaging.

“The geology is challenging and the seismic imaging in this subsalt domain is even more challenging,” Snedden said. “Wide-azimuth (WAZ) and even full-azimuth (FAZ) seismic data is becoming a requirement for exploration there, although lease blocks are picked up on narrow azimuth data and later shot with WAZ and FAZ.

“It can take two years from seismic acquisition to fully complete processed data. Costs are in the tens of millions of dollars for seismic data, depending on size and complexity of the data,” he added.

Well control in the area is generally very limited, and seismic data can require subtle interpretation. It’s not a simple pick-out-the-bright-spot approach.

“The subsalt Paleogene and Miocene is not bright-spot or amplitude-supported territory. It is too deep and imaging too difficult for that. Trap definition remains the challenge, given illumination and imaging below thick and complex salt,” Snedden noted.

“The salt canopy thickness and complexity remains the biggest challenge in the Alaminos Canyon and across most of the Keathley Canyon and Walker Ridge protraction blocks,” he said.

Challange Accepted

Overall bidding patterns in the last three western Gulf sales seem to correspond to the extent of newly acquired and proposed seismic surveys, according to BOEM.

“Lease blocks may be picked up on seismic alone and it takes as long as five years to mature prospects to drillable status. These are 10-year leases, in most cases,” Snedden observed. “The average well testing Paleogene costs $120 million to $150 million – you better believe that most companies will take their time and work the data hard.”

One block in the August lease sale, AC475, drew bids from four companies, and adjacent block AC474 drew two bids. The $30.5 million bid from ConocoPhillips was for AC475. This area is covered by salt canopy and has been difficult to map.

New 3-D seismic surveys have been available to the industry for the past year, in particular the WesternGeco E-Octopus program, according to BOEM. Some companies bidding on AC474 and AC475 may have reprocessed new data with proprietary models.

Most wells drilled in this part of Alaminos Canyon have targeted the Lower Tertiary. Among the nearest are those at Baha (AC557 and AC600/601) and Diamondback (AC739), both within 20 miles of AC475.

In a game of chess, companies continue to pick up blocks in the Perdido complex area. Shell was apparent high bidder on AC772, seen by the media as a strategic acquisition. Shell’s bid of more than $4.2 million easily topped a bid of about $2.1 million from Chevron, a partner in the Perdido development.

ConocoPhillips and Chevron have been putting together positions on what appear to be two different trends in an area roughly from AC577 through AC584 down to AC753 through AC760.

WesternGeco has advertised plans to acquire new 3-D seismic in the area, specifically the Revolution IV survey, according to BOEM. Companies may be following a strategy of acquiring a position prior to the release of new survey data.

The southwestern quarter of Alaminos Canyon has had no production and very few wells. Older, shallow wells tested amplitudes analogous to those in the Diana field area and further north in East Breaks. This area is covered by a salt canopy where older, speculative seismic data is very difficult to interpret below salt within the lower Tertiary.

Over the last 12 months, no exploratory drilling permits have been approved in Alaminos Canyon, according to BOEM. The only drilling permits approved in Alaminos Canyon during that period have been development wells in and around the Perdido Spar area.

Someday evaluations will be completed, and at some point, someone will drill an exploration well on one of the recently leased Alaminos Canyon tracts. Will that challenge make a promising prospect look like a frightening prospect?

“Oil companies make large investment decisions all the time. It is not about being scared. It is about reducing uncertainty and mitigating risk,” Snedden noted.

“One thing I learned after 25 years in the industry,” he said. “Never underestimate the power of technology and the persistence of engineers and geologists to develop large discovered volumes of oil and gas.”

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Emphasis: Gulf Coast