GULF OF MEXICO

Jennifer E. Smith
Houston

• Federal OCS - Central* & Western US Gulf [93,960 bytes]

Low prices affect E&P spending

The current atmosphere of low oil prices is having an effect on the Gulf of Mexico. Early this year, in a price climate of $18/bbl of oil, a major determining factor of whether an oil company would drill a well was the availability of a rig. With rig rates soaring because demand was high, day rate was also a consideration.

Now things are swinging back the other way. The lower price of oil is a matter of concern to companies that in the short-term are seriously hurt by low prices. As day rates are now falling because of lower demand, there are of course, a noticeable number of companies that are thriving on the current lower day rate. Some will drill more wells because of it.

However, there are enough price-sensitive companies in the Gulf that the expectation of lower returns point to fewer wells drilled, at least in the short term. An E&P spending survey by Salomon Smith Barney performed in June indicated that US independents decreased their spending by 5.2% in the six-month period immediately previous. And this was when WTI was hovering around $15/bbl. At the time of this writing, WTI is at $13.68/bbl.

Deepwater hot at lease sale

Despite dismal oil prices, it was no surprise to many that in August's Western OCS Lease Sale 171, leases in more than 800 meters of water garnered the most bids, with 278 of the 486 bids in that category. "This is a continuation of companies being aggressive in deepwater," said Regional MMS Director Chris Oynes.

"People see some good geological prospects to bid on in this area," said Oynes. "A large number of smaller companies are joining together to have the financial muscle to do it."

The 800 meter plus water depth category received 278 bids. The 400-800 meter category received 31 bids; the 200-400 meter category got 14; and the less than 200 meter category received 79 bids.

Industry analyst Jim Dodson pointed out that the pro forma results of Lease Sale 171 will increase even more the number of leases in the 800 meter plus category, since so many blocks in this category were bid - there are 278 Sale 171 bid tracts in 800+ water depths. The undrilled leases in the US Gulf of Mexico are now 5,408, of which 2,850 are in the 800 meter plus category. (see accompanying table)

Vastar: Capex to stay the same in 1999

Vastar Resources President and CEO Chuck Davidson said that barring any major changes to the market or "wacky" prices, Vastar's 1999 capital expenditure budget will remain at about the 1998 level. The 1998 budgeted capital expenditure is $700 million. Despite the current volatile gas market and depressed oil prices, Davidson said, Vastar plans no major changes in its strategy, which he described as a stable, consistent plan. Vastar's low-cost operation is key, he indicated.

Davidson also came out strongly in favor of a formalized system to release rigs to deal with blowouts. He called this "an industry issue that could jeopardize all our progress."

"We need to show we as an industry can cope with these issues," Davidson said.

E&P Briefs:

• West Cameron 204 No. 1 well, located in 50 ft of water, logged 60 net ft of pay in the Cib Carst sand at around 10,000 ft, and tested at 30 MMcf/d of gas and 86 b/d of condensate on a 40/64-in. choke with flowing tubing pressure of 3,415 psi. EEX said in a statement that the well was drilled and tested all within the month of August, and that the well should come onstream within 90 days of spud date. Also, the company said that an existing platform on Brazos Block 455 will be salvaged and reinstalled for use on West Cameron 204. EEX operates with 60%, and Petrobras holds the remainder.
• A well on the Sea Serpent Prospect (Ship Shoal 43 and 67) was a dry hole in the target D-2 sand, although it found 12 ft of net pay in the Terra Sand. This well was plugged and abandoned, but a well will soon be drilled on the Whiskey Pass prospect, for which Terra Sand is the primary target. The new well should spud in the first half of this month.Fortune Natural Resources owns an interest in both prospects.
• A well at Main Pass 26 was drilled to total depth of 10,450 ft and encountered 45 ft of net natural gas pay between 10,084 ft and 10,218 ft. The well is 2.6 miles north of Callon's existing flowline tie-in at Main Pass Block 31. Callon operates the well with 97%.
• Ship Shoal 276 No. 2 gas well is now onstream at 15 MMcf/d. The well is tied back to the platform on Ship Shoal 277. Forest Oil operates the well with 100% working interest.
• A well drilled on the Garfield Prospect offshore Louisiana flowed 14 MMcf/d of gas and 900 b/d of condensate during a 36-hour test through an 18/64-in. choke with flowing tubing pressure of 10,400 psi. Garfield is on Main Pass Block 36 offshore Louisiana. Production will be piped to an existing production facility. The operator said construction of a pipeline will postpone first production to late 1998 or early 1999. Devon Energy operates the well with 50%, and Callon Petroleum holds 50%.
• Main Pass 31 No. 12 well was drilled to TD of 12,663 ft and found natural gas shows between 12,486 ft and 12,593 ft. The well was perforated between 12,498 ft and 12,522 ft and tested at 2.4 MMcf/d of natural gas with 210 b/d of condensate on a 12/64-in. choke at flowing tubing pressure of 3,425 psi. The well lies 900 ft southeast of the existing flowline tie-in on the block. Callon Petroleum owns 95% working interest in the Romeo Y Julieta prospect.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.