GULF OF MEXICO

Record well test

Chevron and partners completed a record-setting production test on the Jack No. 2 well on Walker Ridge block 758 in the Gulf of Mexico.

The well was completed and tested in 7,000 ft of water, after drilling below 20,000 ft, breaking Chevron’s 2004 Tahiti well test record as the deepest successful test in the GoM. The Jack well was drilled to a total depth of 28,175 ft. The test was conducted during the second quarter with Transocean’s semisubmersibleCajun Express.

During the test, the well sustained a flow rate of more that 6,000 b/d of oil with the test representing approximately 40% of the total net pay measured in the well, according to the operator. Chevron and its co-owners plan to drill an additional appraisal well in 2007.

The Jack discovery was drilled in September 2004, encountering more than 350 ft of net pay. Chevron is the operator with a 50% working interest; Devon and Statoil each hold a 25% working interest.

Deepwater drilling

BP and partners drilled an oil discovery at the Kaskida prospect on Keathley Canyon block 292.

The well, drilled in 5,800 ft of water to a TD of 32,500 ft, encountered 800 net ft of hydrocarbon bearing sands, according to partner, Anadarko. Appraisal work is planned in late 2006 to help determine the commercial extent of the discovery.

Anadarko has a 25% working interest in Kaskida; BP is operator and 55% owner, and Devon holds a 20% stake.

Meanwhile, Anadarko has increased its access to rigs for subsequent deepwater exploration. The company extended the terms of three deepwater rigs previously contracted by Kerr-McGee, and added one more rig. Contracts were extended for Diamond Offshore’sOcean Valiant and Ocean Star, and Noble’s Amos Runner. In addition, the company will use Diamond’s Ocean Monarch following completion of its upgrade in 2008.

Nexen also hit pay with a deepwater well. The company drilled a successful development well on its 100% owned and operated Aspen field in Green Canyon block 243. The well was drilled in 3,150 ft of water to 20,691 ft TD, and encountered 160 ft of net pay.

According to the operator, log analysis indicated a level of pay consistent with production from the existing wells on Aspen. First production is expected in the fourth quarter at an anticipated initial rate of 12,000-15,000 boe/d.

Deepwater fields

Petrobras plans to deploy the first FPSO in the US Gulf of Mexico to develop the Cascade and Chinook fields in the Walker Ridge area in water depths ranging from 7,000-9,000 ft.

Petrobras America will operate both fields with 50% and up to 71.67% working interest, respectively. Other participants in the fields include Devon Energy and Total.

Petrobras recently acquired an additional 25% working interest in Cascade and 26.67% interest in Chinook from BHP Billiton, and an additional 15% in Chinook from Hess.

The operator says it is fast-tracking development of the fields through a phased approach to achieve first oil by late 2009. Initial production will flow to a moored FPSO through two subsea wells on Cascade and one subsea well on Chinook.

The company has secured two rigs to conduct development drilling in the area. It signed a 5-year contract with Larsen Oil Co. for the semisubmersiblePetroRig 1 and a 6-year deal with Sevan Marine for its SSP Sevan Driller, designed to drill to 40,000 ft deep in water depths up to 12,500 ft. Both rigs are under construction and are expected to begin drilling in 1Q09.

Meanwhile, Petrobras is developing its Cottonwood gas field in Garden Banks block 244 in approximately 2,297 ft of water, as a subsea tieback to an existing facility. First production is expected in early 2007.

Helix subsidiary, Energy Resource Technology (ERT), has acquired a 100% working interest in the Typhoon oil field (Green Canyon blocks 236 and 237), the Boris oil field (Green Canyon block 282), and the Little Burn oil field (Green Canyon block 238) from Chevron, BHP Billiton, and Noble Energy.

Prior to the acquisition, the owners of Typhoon were Chevron (50%) and BHP (50%). The owners of Boris were BHP (50%), Chevron (25%), and Noble (25%); and the owners of Little Burn were BHP (60%) and Noble (40%). The agreement is subject to MMS approval of a new development plan, which is expected in the fourth quarter.

Production from the Typhoon and Boris fields has been shut-in since theTyphoon TLP was damaged by Hurricane Rita in September 2005. Prior to the storm, combined flow rate from the two Typhoon wells and two Boris wells averaged approximately 13,000 b/d of oil and 21 MMcf/d of gas in the last month of production.

A new well, Typhoon No. 4, was drilled and flow tested at a rate of 7,700 b/d of oil in last September. Additionally, the Little Burn development well was drilled by BHP in 2005 and oil and gas pay was logged. Flow rates from this well are expected to be similar to Typhoon No. 4. ERT plans to tieback both wells to a new production facility.

The company also has farm-in rights on five nearby blocks where three, moderate to low risk prospects have been identified in the Typhoon “mini basin”. Following the acquisition of Typhoon and MMS approval, the company will rename the field as “Phoenix”.

“There is immediate upside in the Typhoon GC 237 No. 4 well and the Little Burn GC 238 No. 1 ST-3 well, and we expect to bring production from these fields on line in mid-2008,” says Owen Kratz, Helix chairman and CEO.

The company plans to re-develop the fields using a re-usable, mobile floating production unit. “There is further upside in the form of several exploration prospects that exhibit the same geophysical attributes as those seen in the proven productive areas in the existing field,” says Krartz.

“All of these prospects, if successful, are well within tieback distance to the planned floating production unit and some can be drilled with the company’sQ4000 semisubmersible,” he says. Installation of the new subsea infrastructure will be carried out by multiple vessels from the company’s deepwater fleet.

Deep shelf pressures

The highly anticipated results from the Blackbeard exploration well turned out to be disappointing, yet informative, according to one partner. The Blackbeard West No. 1 well, drilled in South Timbalier block 168 in 70 ft of water, reached a total depth of 30,067 ft, short of its targeted depth of 32,000 ft. The well encountered a thin gas-bearing sand below 30,000 ft, according to Newfield.

The company says the well failed to reach its primary targets because of higher than expected pressure.

“Although disappointed that we were unable to test our primary objectives, we have learned a great deal about drilling ultra-deep wells,” says David Trice, Newfield chairman, president and CEO. “We intend to use the information gathered from this well to investigate if a well can be designed which will allow us to safely test this prospect in the future.”

The company anticipates that it will be at least two years before drilling of a redesigned well could begin.

Blackbeard West No. 1 is operated by ExxonMobil, with a 25% working interest. Partners include Newfield (23%), BP (20%), Petrobras America (20%), Dominion (7%), and BHP (5%).

Rowans’ jackupScooter Yeargain spudded the well in February 2005.

M&A

Mergers and acquisitions in the Gulf of Mexico are likely to reach record levels by the end of the year, according to Raymond James’ mid-2006 E&P capital expenditure survey. Key findings from its report indicate total cash flow for the first six months of 2006 was $25.1 billion, up 27% year-over-year; and total spending was $32 billion, an increase of 39% from this period last year. In addition, total exploration and development (E&D) spending for the survey period was up 35% from last year.

The report forecasts a total cash flow of $51.2 billion by the end of the year, with $43.1 billion in total E&D spending, implying growth of 26% over 2005 spending and 10% over initial 2006 budgets. It also estimates E&D spending of $22.5 billion in the second half of the year, which would be 9% higher than the amount spent in the first half.

Recent announced acquisition plans from Woodside, Phoenix Exploration Co., and Meridian Resource Corp. are representative of the growing M&A trend in the GoM.

Woodside’s subsidiary, ATS Inc., tendered an offer to takeover Energy Partners Ltd. (EPL) at $23 per share in cash, subject to an increase to $24. The offer is good through Sept. 28.

The offer is conditional on EPL’s shareholders voting to reject the company’s merger agreement with Lafayette-based Stone Energy. EPL has reported interests in 120 blocks, almost all of which are in the Gulf of Mexico.

As at Dec. 31, 2005, the company reported proved reserves of 59.3 MMboe, comprising 53.1% oil and 46.9% gas. In the second quarter, EPL recorded average daily production of 28,117 boe.

Houston-based Phoenix Exploration entered into a definitive agreement with Cabot Oil & Gas Corp. to acquire its offshore portfolio and south Louisiana properties for $340 million in cash. The sale is expected to close on Sept. 29. At year-end 2005, the assets identified for sale totaled 73 bcfe in Cabot’s proved reserves report.

Houston-based Meridian Resource completed the purchase of all of Vintage Petroleum’s offshore Texas assets, including both producing and exploration properties, for $21 million in cash and common stock.

The acquisition, which also includes approximately 75 sq mi of proprietary 3D seismic and other related assets and facilities, closed on Aug. 31, with an effective date of June 1.

The company expects to begin operations on the projects during late 2006 or early 2007 depending on rig availability.

Total proved reserves associated with the acquisition is approximately 2.5 bcf of natural gas, with probable, possible, and risked exploration reserves making up approximately 34.9 bcf of the total 37.4 bcf.

Western Gulf Lease Sale 200

The total of all bids received from the Western Gulf of Mexico Lease Sale 200 was $462,760,912, a 38% increase over last year’s Western Gulf Sale.

The sale attracted $340,935,514 (up almost 20% from last year’s sum of $285 million) in high bids from 62 companies. Around 86% of the total in high bids was for deepwater tracts.

The MMS received 541 bids on 381 tracts (up 10% from 346 last year). More than 50% of the tracts receiving bids are in the Garden Banks and Keathley Canyon areas, with 67% of the total in greater than 400 m of water.

The results of the bidding also indicate a continued interest in shallow water, with 107 tracts in such water depths (<200 m) receiving bids. Several companies were first time bidders as well.

The lease sale offered a total of 3,865 blocks comprising approximately 20.87 million acres offshore Texas and Louisiana.

The highest bid was submitted by BP of $21,011,812 for Keathley Canyon block 58. Petrobras America submitted the second highest bid of $12,800,111 for Keathley Canyon block 59.

David Paganie, Houston

Noble’s semisubmersible drilling rigNoble Amos Runner has established a new world record for the deepest conventionally moored rig in 7,650 ft of water in Green Canyon block 955. The rig’s mooring system includes 9,500 ft of 3 1/4-in. anchor wire and 4,250 ft of 2 3/4-in. anchor chain on each of the rig’s nine anchor points. With a total length of over 23 mi, the complete system weighs more than 2,270 tons.