Dominion cuts risk to capitalize on discovery

Devils Tower is world's deepest spar

Jaime Kammerzell
Gulf of Mexico Editor

The Devils Tower field in 5,610 ft of water in Mississippi Canyon block 773 began production on May 5 as the world's deepest dry tree spar and the first deepwater facility Dominion E&P operates.

The field, 140 mi southeast of New Orleans, encompasses multiple reservoirs and fault blocks. Dominion chose the dry tree solution based on time and cost factors.

"We looked at the cost of re-completing wells or doing future work, and dry trees are more efficient than wet trees from a capital standpoint," Duane Radtke, president and CEO, Dominion E&P, says.

Dominion E&P and Mariner Energy (the original operator of Devils Tower), first discovered multiple hydrocarbon-bearing zones at the Mississippi Canyon block 773 No. 2 well in January 2000, then appraised the field with the No. 3 well, which the Homer Ferrington rig drilled to 15,000 ft TD. The well encountered hydrocarbons in three zones in separate fault blocks.

Dominion became operator in 2001 and focused on making the discovery commercial through delineation drilling to determine the extent of the reservoirs and facility optimization. As part of its strategy, the company tried to minimize the number of disposable wells, Radtke says. Dominion re-used the wellbores once the structure was tested.

"Our philosophy is to drill no disposable wells, but we do occasionally do that. We used a lot of pressure data and seismic data to position the delineation wells and get comfortable with the reserves," Radtke says.

The biggest challenge Dominion encountered was the economics of developing the field. Devils Tower is a moderately sized field by deepwater standards, which is why Dominion chose to use a spar. Even so, the company had to find enough reserves to justify the cost of developing it.

Dominion also made an effort to reduce the well cost during the drilling phase. "Initially the wells cost from $15-20 million to drill, but toward the end, they were down to $12 million," Radtke says. He attributes the decrease in drilling cost to understanding the technical issues, such as setting the casing, and other problems typical to drilling in an unknown area.

In a unique agreement, the Devils Tower spar is owned by the Williams Companies, which assumed the spar's construction cost and the gas and oil export pipelines. Dominion and partner Pioneer Natural Resources will lease the spar for the duration of Devils Tower's production. Dominion had previously contracted J. Ray McDermott subsidiary SparTec to provide the truss spar, and Williams took over that agreement.

"This was an excellent deal for all of the companies involved," Radtke says. "Williams built the spar and owns it. This lowered the economic threshold of the project and allowed us to use the capital to improve our rate of return."

Field development

Mariner bought Mississippi Canyon block 773 in the March 1998 MMS Lease Sale 169. Dominion paid a disproportionate share of the drilling costs on the exploratory well proposed by Mariner to acquire its initial 30% interest in the block in December 1999. The company then acquired an additional 30% interest from Mariner in March 2000 and 15% in March 2001 to reach its current 75% working interest and operatorship. Dominion acquired Mississippi Canyon blocks 772, 728, and 729, known as Triton, from ChevronTexaco in October 2001. Two of Triton's wells have bottom hole locations on Mississippi Canyon block 772. Dominion plans to develop the Triton reservoirs via a subsea system tied back to the Devils Tower spar.