Gulf of Mexico

Processing delays will not affect August lease sale

Although the US Minerals Management Service (MMS) has extended its deadline 90-120 days for approving leases awarded in last March's Central Gulf Lease Sale No. 166, there are no plans to push back the upcoming Western Gulf Sale scheduled for August 27.

Currently, only 339 of the 1,032 leases awarded have been approved, leaving a lot of companies in a financial lurch. Before a lease is final, the MMS must review the bid to be sure it represents a fair value for the land based on oil prices and the known geography. If the bid is rejected the money will revert back to the company.

Without knowing if bids will be accepted or rejected, independent companies cannot assess how much investment capital they have to spend at the upcoming sale. A company does not want to over-commit itself financially, but at the same time, if a past bid is rejected at a later date, then there is the potential for a company to find itself holding millions of dollars after the deadline for the August sale. MMS officials say they are confident all the leases will be approved in time for the August sale and the extension is a formality to give the office a little more time.

US Gulf rig economics best since 1982

With an increase of 3.3% over April, the May Survey of Current Offshore Rig Economics for the US Gulf of Mexico reached its highest level in more than 15 years. The region came out at the top of this worldwide survey, published last month. Jackups drilling in less than 350 ft of water showed the strongest gains in the region.

Worldwide, the May 1997 SCORE rose 1.4% over April, a 17% increase over the same time last year. The SCORE report, published by Global Marine, measures current dayrates as a percentage of the cost of building a new rig. Currently, in the Gulf of Mexico these rates are at 58.8%.

Upward pressure on rising market

High-flying plans to unionize pilots may put E&P's growth into a tailspin. [23,042 bytes] In case anyone is wondering if the offshore E&P market is in the midst on a boom, check out the latest Gulf of Mexico dayrates for jackup drilling units - $18,000 and rising - or better yet, ask a helicopter pilot.

According to Carroll Suggs, Chairman, President, and CEO of Petroleum Helicopters, the pilots are once again threatening to unionize. She said this phenomenon, virtually unheard of in the individualistic iconoclasty of the oil and gas industry, develops every time there is a boom. She saw it back in the early 1970s and the early 1980s, and here it is again.

PHI and its major competitors, Offshore Logistics, and the aviation arm of Rowan Drilling Cos., are all facing the same threats from a far-flung union of service professionals. Suggs said she was advised in mid-May that the unionization effort was on and believes a vote will be held before this column reaches the presses.

Money is always at the bottom of these efforts, according to Suggs. The pilots, like everyone else connected to this once-again blossoming business want a piece of the action, now that conditions are improving. It was this same race for cash that forced many of the layoffs during the slowdown of the mid-1980s. Normally, salary increases are a one-way trip, and eventually when the market contracts, those caught with high paychecks could be cut free to conserve operating costs.

So how should hard workers be rewarded, specifically pilots with as much as 20 years experience who endured the hard times? Bonuses and profit-sharing seem to be a popular encouragement. Suggs agrees.

She said her company pays performance bonuses each year in addition to modest raises across the board. Still, no one is getting rich flying people back and forth from rigs. Salaries range from $20,000 to $50,000.

Drilling crews apparently are earning more now, thanks to higher dayrates and competition for drilling personnel. Of course, these same crews were learning a new trade by mail three years ago when there was little difference between the price of a mediocre jackup and a Havana cigar.

The helicopter workforce is fully utilized now in the US Gulf. This means higher pay to draw in new workers willing to be trained and start a new career. By the same token, there are plenty of pilots. In fact, for decades there have been too many, a product of the Vietnam conflict.

Only in the last few months has the industry brought in any new pilots without Vietnam experience. As older pilots near retirement age, few can blame them for wanting a higher salary to bolster savings. The industry, however, is taking the long view, recognizing that the boom may not last.

If the pilots unionize, it will almost surely mean higher wages. This will send a modest shock through the entire system, raising transportation day rates.

E&P Update:

Pool Rig 10 was installed on the Oryx-CNG Neptune Spar Platform last month. The field is located on Viosca Knoll 826 block. [15,360 bytes]

Elf reports that the Viosca Knoll 823-2 well, the first to be drilled in its new Gulf of Mexico deepwater strategy, was an oil/gas discovery. It was drilled in 1,132 ft of water offshore Louisiana to a TD of 12,312 ft and encountered a total 376 ft of hydrocarbon bearing sands. An extended drill stem test showed maximum flow rates of 22.7 MMcf/d of gas and 1,816 b/d of oil, using a 36/46-in. choke. Elf plans a second well in July to confirm commerciality for a possible development decision later this year.
Statoil is planning to increase its involvement in the US sector of the Gulf of Mexico with the acquisition of 35% of the Fuji exploration acreage earlier this year. The first well in this property was spudded in Green Canyon Block 505 by operator Texaco. Statoil also was awarded 40 blocks in a recent GOM lease sale, 16 of which the company will operate. Statoil plans 3D seismic for these blocks, located in more than 2,000 meters water depth.
Four people were killed after the Mallard Bay Drilling Rig 52 barge rig experienced a blowout during completions on well SL 411-19 in the Lake Chicot Field in the Atchafalaya Basin in mid-June. Two other blowouts have occurred in the previous two months near coastal Louisiana. The well was producing 20 MMcf/d of dry gas.