David Paganie, Managing Editor
The most definitive indicator of the E&P outlook for a region is lease sale results. With over $3 billion in high bids on more than 1,000 blocks in 2007, the level of interest in the Gulf of Mexico is solid. Meanwhile, oil hit a record $100/bbl in early 2008, and almost 80 Bboe are undiscovered and technically recoverable (95% chance of recovery) in the GoM outer continental shelf, according to a 2006 MMS survey.
Lease sale results near all-time high
Results of the two GoM lease sales held in 2007 support confidence in the Gulf’s resource potential, especially in deepwater. Combined, they drew over $3 billion in high bids. Western GoM Lease Sale 204 recorded about $290 million in high bids on 282 blocks. The highest number of blocks bid on (108) and largest sum of high bids ($95.5 million) fell in the water depth range of 800 to 1,600 m (2,625 to 5,249 ft). A majority (52%) of the blocks bid on are in greater than 400 m (1,312 ft) of water. The highest bid on a block was from StatoilHydro for Alaminos Canyon block 810. The company bid $37.6 million. BP submitted the highest number of high bids (91), but StatoilHydro was the biggest spender. The company dropped $138.9 million in high bids.
The second lease sale of the year, Central GoM Lease Sale 205, recorded the second highest sum of high bids ever, $2.9 billion on 723 blocks. The highest number of blocks bid on (187) and the largest sum of high bids ($1.1 billion) fell in the water depth range of 800 to 1,600 m (2,625 to 5,249 ft). About 41% of all blocks bids on are in great than 400 m (1,312 ft) of water. The highest bid on a block was from Shell for Walker Ridge block 7. The company bid $90.5 million. BP, again, submitted the highest number of high bids (83), but Shell was the biggest spender. The company offered $554.6 million in high bids. According to the MMS, 52.3 Bboe or 66% of the Gulf’s undiscovered reserves exist in this planning area.
Rig trends deep
The Gulf of Mexico deepwater segment continues to be the region’s hot spot, with drilling reaching record levels. Meanwhile, the shallow water market continues to weaken.
At year-end 2007, the US GoM fleet consisted of 128 rigs (97 under contract), down 12 from year-end 2006. Utilization of the fleet stood at 75.5%, down from 85% the previous year. Utilization of the three primary rig categories – drillships, semisubmersibles, and jackups, had been trending down since early 2007, with a sizable drop noted in the second half of the year for semi’s. Jackup utilization had been decreasing since early 2005.
The soft shallow water market in the Gulf is being driven largely by volatile natural gas prices and strong international demand. As a result, premium jackups continue to move out of the region for longer term contracts with higher day rates. Average fixtures for the incumbent domestic fleet fell by about 16% since average levels of about $100,000 were recorded early in 2007. Also, contractors reported 16 jackups were warm-stacked or stacked-ready at the end of the year.
Analyst Raymond James believes that shallow water weakness will continue this year, given its bearish outlook on natural gas prices, unless further rig migration occurs. But this still might be enough to keep day rates from softening further, according to the analyst.
Meanwhile, tight economics in deepwater are driving up day rates. Average fixtures for drillships increased about 45% from around $245,000 early in 2007. Semisubmersible day rates are up as well. Average fixtures increased by about 17% from around $270,000 early in 2007. As a result, drilling contractors with deepwater availability are being rewarded. Transocean recorded the first day rate of $600,000 for a deepwater asset. Its drillshipDeepwater Pathfinder has been contracted at that rate for a four to six month commitment beginning in mid-2009. Diamond Offshore is another noteworthy recipient of this trend. Its semi Ocean America is scheduled to begin a 476-day term with Mariner in early 2008 at a day rate in the $480,000s, and its semi Ocean Victory has a commitment with Callon beginning in 3Q 2008 in the low $500,000s.
On Aug. 14, 2007, the MMS reported a record number of rigs (15) working in 5,000 ft (1,524 m) of water or greater, further supporting strong deepwater fundamentals. “The continued increase in drilling activity is a show of confidence in the resource potential of the Gulf’s ultra deepwater frontier,” says Randall Luthi, MMS director.
Drilling, discoveries down
The total number of wells drilled in 2007 was down significantly from wells drilled in 2006. As a result, the number of discoveries reported decreased. Operators announced six commercial discoveries in 2007, down from 11 in 2006.
Noonan. Helix Energy Solutions completed drilling an exploration well and two appraisals on its 100%-owned and operated Noonan prospect, confirming reserve potential of at least 100 bcfe, according to the company. Noonan is in Garden Banks block 506 in 2,700 ft (823 m) of water.
Development plans being considered include a fast-track subsea tieback to existing infrastructure. First production is expected in the second half of 2008.
Danny. Helix subsidiary Energy Resource Technology GoM also logged oil sands with its Danny exploration well in GB 506 in 2,700 ft (823 m) of water. The company estimates reserves potential of about 50 bcfe.
The well is being tied back subsea with its Noonan discovery to a Helix-owned and operated platform in East Cameron block 381 in 370 ft (113 m) of water. First production is expected in the second half of 2008.
Droshky. Marathon Oil Corp. hit pay with Droshky No. 1 in Green Canyon block 244 in 2,900 ft (884 m) of water. The discovery well logged 250 ft (76 m) of net oil pay, according to Marathon.
The company is considering development through the Troika Unit infrastructure, which is 2 mi (3 km) from the Droshky well. Troika is a subsea field in Green Canyon block 244 in 2,700 ft (823 m) of water. The field produces through the Shell-operated Bullwinkle platform.
Marathon followed up with two sidetracks on Droshky to determine the field’s commercial extent. The company holds a 100% working interest in Droshky No. 1 and a 50% interest in the Troika Unit.
Isabela. BP and partner Noble Energy hit pay on the Isabela prospect in Mississippi Canyon block 562 in 6,500 ft (1,981 m) of water. The discovery, drilled to 19,100 ft (5,822 m) TD, encountered hydrocarbons in two high-quality reservoirs, according to Noble.
Noble says the most likely development scenario is a subsea tieback to BP-operatedNa Kika in Mississippi Canyon block 474. First production is expected in late 2009/early 2010.
Transocean’sDeepwater Horizon, which is working for BP under an exclusive five-year contract in the GoM, drilled Isabela.
BP operates the discovery well with a 66.67% working interest. Noble Energy holds the remaining 33.33%.
Magellan. Mariner Energy encountered hydrocarbons with its first of two planned wells on the Magellan prospect in East Breaks block 424 in 2,800 ft (853 m) of water. The EB 424 well No.1, drilled to 12,232 ft (3,728 m) TMD, encountered 42 ft (13 m) of net gas pay and two non-commercial zones with marginal gas pays, according to Mariner. Based on well results, the company has lowered its estimate of unrisked reserve potential for the prospect from 100-200 bcfe of gas to 50-100 bcfe.
Mariner followed up with an appraisal well; results were expected by end-2007. The company operates Magellan with an 85% working interest.
West Tonga. Anadarko drilled an oil discovery on its West Tonga field in Green Canyon block 726 in 4,700 ft (1,433 m) of water. The discovery well, drilled to 25,680 ft (7,827 m) TD, encountered over 350 ft (107 m) of net oil pay in three high-quality subsalt Miocene sands, according to Anadarko.
Anadarko says its prospect inventory in the Miocene and Lower Tertiary plays has estimated recoverable resources of more than 100 MMboe. The company and its partners are considering development as a subsea tieback with the Caesar discovery (Anadarko 20%, Shell 62.5%, and StatoilHydro 17.5%), to theConstitution spar.
Anadarko operates West Tonga with a 37.5% working interest. Partners include StatoilHydro with a 25% working interest, Chevron with a 20.5% working interest, and Shell with a 17% working interest.
Deepwater play
Deepwater as the percentage of overall Gulf production continues to increase. At the end of 2006, 72% of oil and 38% of GoM gas was drawn from deepwater leases. These percentages will increase with the two major projects brought online in 2007 and a handful of others scheduled for first production in 2008. At the end of 2007, Anadarko-operatedIndependence Hub was reported processing at capacity of 1 bcf/d of natural gas, and BP-operated Atlantis was brought online, scheduled to reach capacity of 200,000 b/d of oil and 180 MMcf/d of natural gas by the end of 2008.
Major deepwater projects scheduled for first production in 2008 include BP-operatedThunder Horse and Chevron-operated Blind Faith semisubmersibles, BHP-operated Neptune TLP, ATP-operated MinDOC Telemark Hub, and the GoM’s first disconnectable ship-shaped floating production unit, Helix-operated Phoenix.
Meanwhile, there remain plenty of resources in deepwater left to found and produced. According to the MMS Outer Continental Shelf Oil and Gas Assessment 2006, of the five designated water depth categories, 31% of the undiscovered technically recoverable (95% chance of recovery) resources (boe) in the Western Planning Area are in 1,600 to 2,400 m (2,625 to 7,874 ft) of water, 30% in the Central Planning Area are in 1,600 to 2,400 m (2,625 to 7,874 ft) of water, and 61% in the Eastern Planning Area are in greater than 2,400 m (7,874 ft) of water. Overall, about 61 Bboe or 77% of the undiscovered technically recoverable resources are in greater than 656 ft (200 m) of water.
