Gulf of Mexico

Destiny coming to Destin Dome

Chevron USA Production Co. has drawn a line in the sands of Pensacola, Florida by filing a development and production plan for the Destin Dome 56 Unit. This unit is composed of 11 federal OCS lease blocks located about 25 miles south of Pensacola. The property was leased before 1988, when a federal moratorium was imposed on leasing, but not drilling, in the area. Chevron has drilled four exploratory wells and had three discoveries.

The US Minerals Management Service responded by opening a pilot office in Pensacola to give the public better access to information on this development. Judging by the response this new office received, there was a definite need. Regional Director Chris Oynes said there were picketers outside the office when it opened in early December. The pilot office has a staff of three. It is designed to be an informational node in this area where many residents are actively opposed to any sort of drilling.

Chevron's discovery appears to be a large, dry gas find which means there is little chance of an oil spill. "There is really no oil there to spill - it's an environmentally friendly resource," said Herman Colligan, manager of special projects for Chevron.

Colligan said his company has done some grassroots work in the Florida panhandle to spread the word that a dry gas find is not a hazard to the environment. He said that concerns about pollutants other than oil the environmentalists have raised, and as part of the D&P plan Chevron has looked into the affect of muds on the sea floor. "We've proved time and again that these muds are pretty benign," he said.

Currently, there is a moratorium on drilling and leasing in Florida state waters. US Congressmen Porter Goss of Ft. Myers and Harry Johnson, also of Florida, have introduced a bill that may represent a first step in opening these waters to exploration. Goss' bill (H.R. 72) calls for the formation of a task force to review scientific information about the OCS off Florida. While this bill does not propose dropping the moratoria, it does suggest that a moratorium should be a temporary solution while further investigation is done. This may be an important first step when one considers the annual moratorium has been renewed each year since 1983.

"The problem is the moratorium itself has become some people's answer," said Bob Geist, press secretary for Goss.

A perpetual moratorium on leasing and drilling would suit the Florida Audubon Society just fine, according to President Clay Henderson. He said the group actively resists any efforts to develop offshore resources in Florida regardless of environmental impact. He said the Audubon has not yet become involved in Destin Dome, but will oppose its development during the permitting process. He said his organization is not interested in how safe the development might be and sees no possibility for a middle ground. "We are not in the position of carving out exceptions - I cannot imagine a situation that would be win-win," he said.

In the face of such opposition the key to developing properties on Florida's OCS, and nearby federal waters may not be technical know-how, but public relations savvy.

Operators hold up for royalty relief simplification

The National Oceans Industries Association, the American Petroleum Institute, and the Independent Petroleum Association of America are working with the US Minerals Management Service to simplify the rules covering deepwater royalty relief. About a year ago, MMS published its first proposal for deepwater royalty relief on existing leases. The program was designed to promote the development of fields that would otherwise not be economically viable. Royalty relief is designed to create a more efficient system of exploration by allowing developers to continue production on a well, or reenter wells that were not producing at a high enough volume to be profitable under the traditional royalty framework.

While the effort by MMS was well received, the actual application process was considered daunting to the point of distraction. "One of our concerns is that the process is too complex," said Bob Stewart, president of NOIA. At this time only one application for relief has been made. In mid-November, Tatham Offshore applied for deepwater royalty relief on the Sunday Silence Field.

By filing comments on the act, NOIA, API, and IPAA became involved in restructuring the application process, suggesting ways to make it more user friendly and practical. Stewart said the MMS was very receptive to input from the industry groups. Although MMS has not made any official decision on revising the application and review process, Stewart said he expects an announcement in mid-1997. In the meantime, companies interested in relief will most likely hold off, waiting for the simpler process to by published, he said.

Among the recommendations made by Stewart and others are a preliminary screening mechanism based on field size and water depth, a two-stage application process that indicates the likelihood of relief, and a form for economic analysis that closely parallels that used by industry in arriving at development decisions.

Deep, shallow water rig availability will push limits

Also onboard for this trend is Aviva Petroleum, which will have sold all of its US onshore oil and gas properties for $3 million by Dec. 23. The properties sold comprise approximately 350 wells in Pennsylvania, Oklahoma, and Wyoming. The company's remaining US oil and gas properties are offshore Louisiana at Breton Sound and Main Pass.

To keep pace with demand and be positioned to take advantage of this market many drilling and service companies are divesting their onshore assets and focusing all their economic attention offshore. As part of an ongoing program to focus on offshore development, Noble Drilling Corp. recently sold its land drilling assets, comprised principally of 19 currently marketed land drilling rigs and 28 mothballed land drilling rigs. The sale was made to Nabors Industries for $60 million cash. After completing the sale, Noble was left with a fleet of 55 offshore rigs including 43 jackups, three drillships, one semisubmersible, and eight submersibles.

Noble plans to convert all these submersible rigs to deepwater floating units, at a total cost of $560 to $720 million. Noble hopes these converted deepwater rigs will command day rates of $105,000-$120,000. The submersibles now operate in only 100 ft of water and collect only $25,000 a day. The new floating rigs will cost $75-95 million each to upgrade, and will be designed for exploration or production in depths of 3,000-10,000 feet.

Diamond Offshore Drilling is following suit by sell all of its land rigs and associated equipment to a subsidiary of DI Industries for about $26 million. The deal should go through by year's end. Laura Herzog, manager investor relations for Diamond, said the cash generated by these sales will be used to upgrade three of the company's Victory-class semisubmersibles and one drillship to operate in deeper water.

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