When it comes to U.S. energy policy, there arguably is no topic that creates more heated debate than that of the federal OCS (Outer Continental Shelf) leasing program. The program and its future have been hot topics in recent presidential and gubernatorial elections, and the politicizing of this critical issue illustrates the passion that exists around the fate of the OCS.
Regardless of the tactics, the debate surrounding the future of leasing and exploration in federal waters is justified, given past events in the Gulf of Mexico. Well-intentioned, intelligent people can be found on both sides of the argument, lobbying for and against the opening of U.S. East Coast continental shelf and deepwater areas to oil and gas exploration.
The current OCS five-year plan, set to expire in 2017, continues the decades-long moratorium against drilling along the U.S. Atlantic margins, a ban first instituted by President George H.W. Bush in 1990 and extended by Presidents Bill Clinton and Barak Obama.
Many in Congress and within state governments bordering key maritime areas of interest continue to argue for at least allowing seismic surveys to move forward (there are presently six companies with active permits to acquire data). There are even proponents for launching full area-wide exploration licensing in 2014.
As we mark the 30th anniversary of the final well drilled in the U.S. Atlantic OCS, it is appropriate to reflect on the events that led to the beginning and ending of exploration along the U.S. East Coast.
My part in this story began with Amoco in New Orleans in 1980, where I had the good fortune to be in the right place at the right time during some truly historic events.
In this regard the story told here might not reflect what many who were involved in the exploration of the East Coast OCS might recall, but what follows is how I remember it.
In the early 1970s the U.S. Geological Survey undertook a series of studies of the U.S. Atlantic margin in order to estimate the amount of oil and gas resources the U.S. government might expect to be found by exploration.
Ostensibly, the purpose behind the work was to derive an understanding of how and when to schedule leasing activities, primarily centered on finding new sources of domestic oil to prevent the types of severe oil shocks experienced in the 1967 and 1973 oil embargos.
Therefore, in 1974, President Nixon ordered the secretary of the U.S. Department of the Interior to triple the amount of acres offered in OCS sales.
As part of the assessment of this new acreage, USGS scientists and their academic colleagues already had begun the acquisition and interpretation of 2-D seismic from the Georges Bank to the Bahamas, and by the middle 1970s began to publish their findings.
Based on the initial results of the joint government/academic work, Congress approved the Department of the Interior (via the Bureau of Land Management) to establish a schedule of lease sales to be held in three Atlantic OCS “Planning Areas:” the North Atlantic (Maine to Rhode Island), the Mid-Atlantic (Rhode Island to central Virginia) and the South Atlantic (central Virginia south to the Gulf of Mexico).
The locations and sizes of the planning areas have been amended many times over the years such that many of the original sale boundaries, blocks and well locations now fall within planning areas redefined by the BOEM (Bureau of Ocean Energy Management) and its predecessor organization, the MMS (Minerals Management Service).
A fourth East Coast planning area, the Florida Straits (Central Florida to the Florida Keys), was transferred over from the Gulf of Mexico OCS in 1985.
The scheduling and exact geographic areas for the sales eventually were modified after consultations with the Natural Resources Defense Council.
Six months prior to the first Atlantic OCS licensing round, ODECO (now Diamond Offshore Drilling Inc.) completed the first of five COST (Continental Offshore Stratigraphic Test) wells, and the well and previously contracted seismic data were made available to the industry.
Combined with data from a few relevant DSDP wells on both sides of the Atlantic, the industry prepared for the first lease sale, Sale 40, in what was then the Mid-Atlantic planning area.
Sales and a Key Partnership
Sale 40 did not move ahead without controversy, however, as images from the Santa Barbara Channel and ongoing Ixtoc disasters were fresh in the public’s mind.
Numerous objections and protests were raised in an attempt to stop the auction, but to no avail. Even though there was much consternation about the potential environmental impact of exploration on the coastal states, many local and state officials also expected significant economic benefits from future exploration-related activities.
Despite this, the Interior Department still went ahead with Sale 40 on August 17, 1976. The sale was historic for two reasons:
- It was the first sale ever held in the U.S. East Coast OCS.
- It was the only time high bid bonuses for an Atlantic planning area exceeded $1 billion ($4.6 billion in 2014 equivalent dollars).
Most of the majors and several independent companies participated, with Shell, Exxon, Texaco, Gulf, Mobil, Conoco, Tenneco, Murphy Oil and Houston Oil and Minerals being among the most active.
Amoco was notable for its absence.
The first well to be spud on a Sale 40 lease was by Exxon in Hudson Canyon Block 684, on March 29, 1978, followed in rapid succession by wells operated by Conoco, Texaco and Shell.
By the end of 1978, 12 wells had either been completed or were in the process of being drilled by seven different operators. Conoco’s well in Hudson Canyon Block 590 reached TD first and was declared a dry hole.
By the second Mid-Atlantic sale (49) in February 1979, 10 dry or non-commercial wells already had been drilled, and the sale garnered little interest from industry (only $41.7 million in high bids in 1979 dollars). Local and state officials in the coastal states began to fear the worst – no “bonanza” from offshore drilling would be forthcoming – and each successive dry well or non-commercial declaration (for example, the Block 642 wells) just added to the disappointment.
Undeterred by the initial drilling results, the BLM launched North Atlantic OCS Sale 42 in December 1979, the only sale ever held in this planning area. Renewed interest by industry was reflected in high bids of over $828 million ($2.7 billion in 2014 equivalent dollars). The (somewhat) logical assumption was that another Hibernia Field (discovered in October 1979 by Mobil) might be found off the Georges Bank, and companies scrambled for what they believed was the best acreage.
A hiatus of more than a year-and-a-half occurred before the first South Atlantic OCS sale (56) was held in August 1981. Again, pent-up industry demand was shown by high bids totaling $364 million (about $1.2 billion in 2014 equivalent dollars).
Sale 56 was truly a landmark for the East Coast OCS because of the aggressive bidding by the three-company partnership of Mobil, Marathon and Hess. Competing for blocks off North Carolina, the companies bid a record bonus of $103.8 million for one block ($266 million in 2014 equivalent dollars)!
This partnership won only five blocks in the sale but spent $234.7 million ($602 million in 2014 equivalent dollars), a record for an East Coast OCS sale.
Shell was a low-key participant and partnered with Chevron (as operator) and several other companies on only one block in the sale, while Amoco again did not participate.
Based on the high level of industry interest shown in Sale 56, Amoco made the decision to enter the East Coast OCS. Although Amoco was an experienced offshore driller, especially in the Gulf of Mexico, water depths over 1,000 meters were beyond what the company felt it could handle on its own. An alliance with Shell made sense, because it was a natural outgrowth of Amoco’s partnership in Shell’s Cognac development, the Gulf’s first deepwater (>1,000 feet) development.
So with the promise of big rewards ahead, Amoco, Shell (as operator) and Sun formed a partnership that bid on 53 blocks and won 42 in Sale 59 in December 1981 – including 15 key deepwater blocks.
The sale was heavily attended, with total high bids of $425 million (about $1.4 billion in 2014 equivalent dollars), despite the fact that many of the leases exceeded 1,000 meters water depth.
The partnership exposed $306.6 million in high bids ($717 million in 2014 equivalent dollars), including the high bid of the sale, $41.5 million ($97 million in 2014 equivalent dollars) for our most important block, Block 587.
Shell, bidding alone and with Murphy Oil, later won 18 key blocks in Sale 76 (April 1983) in Wilmington Canyon and the Baltimore Rise area. Amoco farmed-into 11 of the blocks a few months later in order to consolidate its lease position over the structures originally won in Sale 59. The companies bidding activities came to a close after Amoco, as sole bidder, won three blocks in the final East Coast OCS Sale (78) in the South Atlantic planning area.
Following Sale 59, I was picked by Amoco to lead the exploration effort in the greater Mid-Atlantic OCS.
My geophysical teammate was George Kastritis, a lightning fast and accurate mapper in the days when colored pencils and paper sections served as “work stations.” My principal equivalents on the Shell side were Rudy Lippert, an excellent and very experienced exploration geologist, and AAPG member “Chick” Voorhies, an equally experienced operations geologist.
Between us, we developed and recommended an exploration plan that proposed to drill and test what we all believed was a Jurassic to Lower Cretaceous carbonate shelf margin reef trend. Initially, the plan was to drill up to five wells, but we eventually decided on three very different locations so that we could test three different play types. A fourth well known internally as Eland later would be recommended on the Sale 76 acreage in the Baltimore Rise area to the south.
So what did we know about the geology of the area going into this risky and very expensive program?
♦ We knew that oil and gas in commercial quantities had been discovered years before on the Scotian Shelf (Sable Island/Cohasset) and in the Jeanne d'Arc Basin off the Grand Banks, Newfoundland (Hibernia) in Canada; Shell’s and Amoco’s involvement in offshore Canada plus the companies regional geologic work projected the same source rocks down to the Mid-Atlantic OCS area.
♦ Additionally, excellent work had been done by the USGS scientists and their colleagues in academia, and we now had the data from all five COST wells, the DSDP wells and test results from key shelf wells drilled by Texaco, Tenneco and Exxon that flowed gas, condensate and oil at potentially commercial rates.
Rudy had been involved with Shell’s unsuccessful drilling on the Great Stone Dome, an enormous igneous intrusive, and integrated his and Shell’s extensive knowledge of the stratigraphy into our prognosis for the back reef locations. I plunged into the seismic stratigraphy, still an emerging concept in 1982 and in those days more art than science.
Between us, we felt we had the technical support we needed to justify our play concepts.
Management Steps Up
High-level technical and management meetings between the partners took place during the week of Sept. 20, 1982, to confirm the upcoming drilling plans.
The companies collectively decided that:
- The first well would be located on what Shell called the “Civet” prospect in Wilmington Canyon Block 587, a linear structural high of about 130 square kilometers (50 square miles) focused along the Jurassic shelf margin. It was about the same size as our analog, Kirkuk Field in Iraq, and if it worked, we would be fine with everything that happened afterward.
- The second well was to be drilled on the “Rhino” prospect, a large four-way anticline within the back-reef facies tract, just west of Civet in Wilmington Canyon Block 586.
- Next up would be the “Hyena” prospect in Wilmington Canyon Block 372 about 25 kilometers to the northeast, a late growth pinnacle reef on the shelf margin with development in the Jurassic and Lower Cretaceous sections.
- Last up would be the “Eland” prospect in Baltimore Rise Block 93, located about 55 kilometers to the southwest.
Planning for these wells involved a tremendous amount of cooperation and discussion between Shell and Amoco – not just on the G&G side but also on the engineering side. Nearly all of this work was done in the New Orleans offices of the respective companies.
Shell’s engineers very quickly realized that because at least two of these wells would be world water depth records, a new deepwater riser and subsea completion system would be needed in order to maintain control of the large amount of drill string suspended from the drillship. And not just any drillship could handle the anticipated water depths; a state-of-the-art dynamically positioned ship was required.
Shell contracted Sonat’s (now Transocean) Discoverer Seven Seas for the task, and working with Sonat’s engineers and Hughes Offshore the new riser plus an extension to the Seven Seas existing riser system was fabricated and accompanying modifications were made to the Seven Seas. Total cost for the riser and ship modifications exceeded $21.5 million ($50.6 million in 2014 equivalent dollars) and took nearly two years to complete.
During 1982 Amoco’s Mid-Atlantic team was moved from the Amoco building across Poydras Street and down the block to the newly completed Exxon building to get us away from curious colleagues. Management presentations therefore required frequent jaunts by George and me across Poydras to the Amoco building, our arms full of maps, seismic and presentation panels.
This was a somewhat dangerous exercise in those days, and following one high-level presentation a senior manager exclaimed: “Hey, what if Erlich gets hit by a bus while crossing Poydras? What will we do then?”
Although it was flattering to consider myself indispensable, it was also more than a little concerning that management’s first thought was of the project and not the people.
The net result was the assignment of two additional G&G teams, which in retrospect was a prudent decision.
Presentations to Amoco’s Chicago management began in earnest in New Orleans in 1982, and continued into 1983 in advance of the drilling of the Civet well.
Our first big presentation was to be a morning review of the entire East Coast OCS, a presentation of several hours to John Meeker, then executive vice president of E&P. I decided to arrive at the Amoco building early, as I couldn’t afford to be late if we wanted continued support from Chicago for the program.
I caught the first elevator up, and riding up with me was someone I didn’t recognize, whom I assumed was the man himself.
He introduced himself as “John,” and in all our meetings continued to insist I call him by his first name. This was highly unusual for the times, especially considering Amoco’s internal culture, which was frequently formal to the extreme.
John’s other habit, one that often agitated his New Orleans subordinates, was to arrive in town unannounced and walk around the technical team floors, talking with the G&G staff and getting his own sense for how people were doing.
This practice was greatly appreciated by the staff, which saw him as a “normal guy,” but local New Orleans management, more than a little concerned when he did that, would frantically search the Amoco and Exxon buildings until they found him.
On one such occasion I was working on some seismic lines when I saw John walk into my co-worker (and AAPG member) Gary Hummel’s office, which was directly across the hall from me. I think Gary realized the visit was not just from your average senior level geologist, but because he was on the floor working on a map he didn’t immediately get up.
Meeker’s response was to grab a colored pencil and get down on the floor to help Gary, which I found highly entertaining.
They seemed to be enjoying themselves but our local management was not amused, and eventually collected John and ushered him back to the Amoco building.
My first presentation to John was plenty eventful but not nearly as enjoyable. On that fateful day when we shared an elevator up to the management floor, I had no idea that the future of the program was in our hands. Concerns had been raised in Chicago (and rightly so) about the probability of success of our efforts, so John had come down to New Orleans to see the technical story for himself.
Sharing the elevator that morning, it occurred to me that he must have had a difficult flight, because he looked tired and said he needed a coffee.
We parted ways and he went off to meet New Orleans region vice president Bill Grisham while I waited with my presentation materials outside the conference room.
Not long after eight o’clock we were asked to enter and set up as the management team was settling in, and I was told to start with the North Atlantic and work my way south. I started with the regional geologic overview and was about five minutes into the presentation when John began rubbing his eyes and face.
He stopped me and said, “I’m just not getting this. Maybe I need another cup of coffee to wake up. I just need to wake up.”
At this point I blurted out a potentially fatal, career-ending statement that has followed me to this day. I replied:
“Well, maybe you better wake up then.”
Not only was there dead silence in the room, it was so quiet you couldn’t even hear anyone breathing. Bill Grisham, New Orleans region vice president of exploration Tony Benson and my direct managers all stared at me like I’d gone completely mad and committed career suicide. As soon as I blurted out those words I figured that my career in the oil business would be short indeed.
Meeker looked at me hard and then said, “Well, you’re right. I do need to wake up. Let me get another cup of coffee and let’s get going.”
There was an audible sigh in the room from the local management, and when John sat down he was focused, engaged and attentive. I promised myself I would never do that again, and we continued the presentation.
In the end, Meeker agreed with our recommendation that Amoco should continue in the play with our partners.
Into the Record Books
In early 1983 we began direct well planning with Shell on Civet. Our gross AFE for the well was $28.5 million ($67 million in 2014 equivalent dollars). We proposed to take a series of cores at the top of the Jurassic so we could have the data we needed to evaluate what we hoped would be our reservoir.
This plan was scratched immediately by the engineers with questions like, “What if we take a gas kick at the top of the reservoir?” and “What if there is cavernous porosity and we drop the drill string?”
The geologists acquiesced to safety considerations and to waiting until we’d drilled into the main carbonate section.
The discussion then turned to who would sit the well for Amoco. With the thought that we might indeed take a kick at the top of the Jurassic the engineers also told us that they could not suppress more than 16 lb/gallon of pressure because it would be too heavy for the riser system. This was an unsettling prospect, and I decided not to volunteer for operations duty.
My recollection is that Gary Hummel was chosen to represent Amoco on the rig with Shell’s operations staff, but I could be wrong about that.
Shell finally spud the Civet well on Aug. 2, 1983, in Block 587 at a water depth of 1,965 meters (6,448 feet), then a world record for an exploration well. The drilling proceeded cautiously but efficiently and tagged the top of the Jurassic reef complex very close to the predicted depth. I received daily reports from Shell and was told to communicate only to Tony Benson on the well status.
As we crossed into the carbonates our worst fears were realized; there were no shows in the proposed reservoir section. Indeed, Civet was completed on Dec. 21, 1983, as a dry hole with no shows. We cut conventional cores and later work showed that we had the geology right, but that was little consolation.
After breaking the news to our local management we then began to field some strange questions from Chicago.
Tony Benson paid me a visit to ask me to check into the rumor that we had found oil but were keeping it quiet.
Supposedly, a fisherman had spotted an oil slick that he said came from the rig, so internet-less I did some digging with my old NOAA friends and found out that there was a shipwreck near the location of the slick, and it was the likely source of the oil.
On another occasion management told me how Chicago had been informed by a “concerned citizen” that we had discovered a “flying saucer” submerged in the muddy Tertiary section and that the government had told us to keep it quiet.
What might be difficult to understand now is that in 1983, this area was so far out on the frontier of what had been done in the United States that crazy rumors and ideas were as common as facts.
The Discoverer Seven Seas was then moved to Block 586 to drill Rhino. The well was spud on Dec. 30, 1983, in 1,779 meters (5,838 feet) of water. We now were really concerned that hydrocarbon charge was also a critical risk, but with a large down-to-the-basin (east) fault that cut the Lower Jurassic, we hoped to have at least some shows.
Meanwhile, the team also was working on the location for the Eland well, so Rob Hoar, Gary and I developed what we thought was a good concept for the structure. We knew we were out of the carbonate platform trend and that a major river system had breached the area in the Jurassic-Early Cretaceous.
Eland also was characterized by a large down-to-the-basin (east) listric normal fault; the top of the structure was marked by a very bright seismic amplitude we felt indicated hydrocarbon-bearing sand.
I presented the early version of this story to John Meeker to get his authorization to join Shell and Murphy in the well. In mid-sentence John suddenly stopped me and said, “Ok, ok, I get it. What you guys are really telling me is that this is just a big damn thing and you want to drill it.”
I said, “Yes, sir, that’s what we are telling you.”
“Ok, then let’s cut the crap. Approved.”
As strange as this may sound, it’s how the last deepwater well in the U.S. East Coast OCS was authorized by Amoco.
Following the successful recommendation of Eland, George Kastritis was transferred and was replaced by Kevin Maher. Kevin and I received the sad news from Shell that Rhino had drilled the anticipated reservoir section and found only minor gas shows in some small Jurassic sandstone beds. The well was completed on May 22, 1984, as a dry hole with non-commercial shows, so that meant the next well, Hyena, would be the last well drilled on a carbonate prospect.
The Discoverer Seven Seas spud the Hyena well in Block 372 at another world water depth record of 2,119 meters (6,952 feet) on May 26, 1984. Again, the well was conventionally cored and showed that we correctly interpreted the feature as a late growth pinnacle reef on the shelf margin, but it, too, was dry and was quickly plugged and abandoned on July 9, 1984.
Eland was spud on July 14, 1984, in block 93 in a water depth of 1,528 meters (5,013 feet), with Murphy now present as the third partner. To the partnership’s disappointment, the well drilled through tight sandstones and siltstones at the top of the feature (our “amplitudes”) and then penetrated mostly shales and siltstones to TD.
The well was completed and abandoned as a dry hole on my 30th birthday, Nov. 4, 1984.
The presentation to management was somber at best, with Rob taking the lead. I only observed on this one, as I had already been reassigned to another project.
Lessons Learned the Hard Way
Little was said within Amoco about the wells after the program concluded, and the same happened within Shell. Both companies wished to move on to other things as quickly as possible and did so.
I, however, continued to work on the area’s geology, first with a post-mortem report for Amoco on the results and the future of exploration of the East Coast OCS, and later by publishing a few papers on what I thought had been drilled and why things didn’t work.
Franz Meyer and future AAPG award-winning geologist Brad Prather of Shell also published nice summaries of the results and geology of the area, as did a number of USGS and academic workers, so I suppose there were some valuable geological insights passed on to the greater G&G community.
From an engineering point of view, riser and subsea completion designs also advanced as a result of the drilling program, and the original design and fabrication work contributed to the advancement of technology such that wells can now be drilled and completed in more than 3,000 meters of water.
Regrettably, in the end the companies were not rewarded for their bold decision to open a new frontier in exploration and technology. Shell and Amoco lost a lot of money in the East Coast venture, and the hubris with which we jointly pursued that program continued into the later leasing and eventual drilling of the unfortunate Jupiter prospect in the eastern Gulf of Mexico (a story for another time).
The Eland well was the last well drilled in the U.S. East Coast OCS, and no further deep water area-wide sales were held for any of the planning areas after 1983.
So what did Shell, Amoco, Sun, Murphy and the rest of industry learn from all this?
♦ A total of 51 wells were drilled along the U.S. East Coast OCS (excluding the Straits of Florida) from 1978-84 – five COST wells and 46 industry exploration wells – and none of them were commercially successful.
However, the wells were also drilled without incident and with no negative environmental consequences in an area regarded as extremely sensitive, and at a time of heightened public awareness.
♦ Any new exploration that might be conducted in the area would now be done with the utmost attention to environmental regulations and safety concerns, utilizing a solid exploration process, proper risking, analytical tools and technical peer reviews.
The aforementioned are tools and practices we did not have in place or have access to in the early 1980s. The geologic interpretations weren’t bad, but the outcome was not good.
- The overly optimistic approach taken by the industry in those days was certainly tempered by lessons learned the hard way, which is likely the best thing we as an industry and I personally learned from this huge expense of resources.
- While we discussed the cost and economics of these projects as they advanced we never really seriously considered that the expected “prize” might not be worth the expense. The industry utilizes a much more quantitative approach now, and for the most part balances risk, cost and reward in a more appropriate manner.
The most recent (2012) BOEM mean resource estimates for the U.S. Atlantic OCS region are 3.3 billion barrels of recoverable oil and 31.3 TCF of gas, not inconsequential amounts but possibly overly optimistic once again.
But even if this is the case, it doesn’t mean the area has no remaining potential. On the contrary, if you ask me where I think we as an industry should go next in the East Coast OCS, if we are ever given another chance, I have some definite ideas.
Maybe more importantly, I know what not to do this time.