David Paganie • Houston
McMoRan makes shallow-water, deep-well discovery
McMoRan Exploration Co. has made a deep well discovery on the Davy Jones prospect in South Marsh Island block 230. The well was drilled to 28,603 ft (8,718 m) MD in 20 ft (6 m) of water. Wireline logs indicate 200 net ft (61 net m) of hydrocarbon-bearing sands in four zones of the Wilcox section of the Eocene/Paleocene. Flow testing, to be done within one year’s time, is required to confirm production rates. McMoRan says it will deepen the discovery well to 29,000 ft (8,839 m), and it will drill an appraisal well to confirm the field’s commercial extent.
Development drilling could make Davy Jones one of the largest shelf discoveries in the Gulf of Mexico in decades, according to Jim Bob Moffett, co-chair of McMoRan. The field is believed to cover 20,000 acres, extending across four blocks. Plans are to drill up to 10 developments wells to recover from the field up to an estimated 1 tcf/well, Moffett said in a conference call with investors. Drilling and completion could require $150-$170 million/well, he said. A third rig is expected to join the two rigs currently working in the field to expedite the drilling program. Pending the timing and results of the discovery flow test and offset well, first production from Davy Jones is anticipated in 2011.
McMoRan operates Davy Jones and is funding 25.7% of the exploration costs and holds a 32.7% working interest and 25.9% net revenue interest. Partners include Plains Exploration & Production Co. (27.7%), Energy XXI (15.8%), Nippon Oil Exploration USA Ltd. (12%), W.A. “Tex” Moncrief Jr. (8.8%), and a private investor (3%).
Contango Oil & Gas Co. also reports a shallow-water discovery. A well at the Nautilus prospect in Ship Shoal block 263 logged more than 70 ft (21 m) of net pay. The company is investing $14 million to complete and tie in the well to a new platform for first production by the middle of this year. Meanwhile, Contango has allocated $74 million to drill up to six wildcat wells in the Gulf.
Authorities investigate foreign flag vessels
The US Internal Revenue Service, in an attempt to collect unpaid taxes, is investigating the US filing compliance of foreign vessel companies and the US companies that hire them to work on the OCS. The IRS says an increasing number of foreign vessels have applied to enter into and work on the OCS, and it believes a significant number of them do not comply with US tax requirements such as reporting US income and filing tax returns. Additionally, US companies that hired and paid foreign companies may have a withholding tax requirement of 30% of the amount paid to the foreign companies.
“This is something that we have suspected for a long time – that many of the foreign vessels that work off the US coast on mineral leases have not been paying US taxes,” says Ken Wells, president of Offshore Marine Services Association, Wells cites one example in which a company publically reported that it had to pay the IRS $3.2 million because foreign vessels it chartered had not paid US taxes.
“There have been too many instances in which foreign vessels were able to significantly undercut the rates offered by US vessels,” he adds. Wells says an influx of vessels hit the GoM in 2005 to do clean-up and repair in the aftermath of hurricanes Katina and Rita.
The IRS has mobilized a task force to determine the compliance of the companies in question. Currently, about 200 vessel owners and operators, sailing under more than 30 different flags, have been contacted, according to the IRS. Approximately half of those contacted have responded. The letter requests that the vessel owner file US tax returns and pay any tax and interest due, or provide a reason why the vessel owner believes that US tax returns are not required. The IRS says its goal is for the letter recipients to voluntarily respond. Alternatively, the IRS will consider traditional compliance action.
The IRS directive categorizes foreign taxpayers engaged in exploration related activities on the OCS as the following:
1. Contractors that perform services on the OCS, such as seismographic testing, drilling, repair, and salvage work
2. Vessel operators that transport supplies and personnel between US ports and locations on the OCS
3. Owners and/or operators of foreign-registered vessels that bareboat or time charter to persons engaged in activities related to the exploration for, or exploitation of, natural resources on the OCS.
New system for aircraft management
Houston air traffic controllers now are using the Automatic Dependent Surveillance-Broadcast (ADS-B) system to separate and manage aircrafts flying over the GoM. The US Department of Transportation says this new satellite-based technology will help the Federal Aviation Administration (FAA) improve the safety of flights over the Gulf even as air traffic increases.
ADS-B is expected to bring improved satellite-based air traffic control to the GoM, an area that has not previously had radar coverage. Before ADS-B, controllers had to rely on an aircraft’s estimated or reported position, the FAA says. Individual helicopters flying under Instrument Flight Rule conditions at low altitudes to and from platforms were isolated within 20 x 20 mi (32 x 32 km) boxes to remain safely separated. This reduced capacity and efficiency for the 5,000 to 9,000 daily helicopter operations in the region, the FAA says.
Aircraft equipped with ADS-B will now receive flight information including Notice to Airmen and Temporary Flight Restrictions.
Also prior to ADS-B, commercial aircraft flying at high altitudes were kept as much as 120 mi (193 km) apart to ensure safety, according to the FAA. Controllers are now able to reduce the separation between ADS-B equipped aircraft to 5 nautical miles. The new technology also allows the FAA to provide new, more direct routes over the GoM.
