P.2 ~ Drilling in Gulf of Mexico remains robust

Gulf of Mexico drilling activity remains robust and has continued to show a remarkable comeback from the events of 2010, but the market has seen a decline in activity in recent months as operators scale back their commitments due to rising costs, and with past spending commitments coming due.

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Regulators are also forcing companies to take a more systemic approach to drilling safety. Instead of following a set of rules, companies are being required to develop drilling plans that prove they have taken appropriate steps to avoid blowouts. And those plans must be signed off on by a third-party consultant.

At least partly as a result, drilling costs in the GoM have increased dramatically over the last five years. The regulations set in place since Macondo require more expensive equipment, and have extended drilling periods on some deepwater wells to nine months, roughly 30% longer than before. Despite all this, increased demand in the Gulf and other offshore areas has driven up the rates on the advanced drilling rigs needed for deepwater jobs to more than $500,000 a day.

In recent weeks, a number of operators and contractors have updated their exploration and development efforts in the Gulf, or announced the start of new drilling campaigns.

In April, Stone Energy Corp. reported success on the deepwater Cardona South well in Mississippi Canyon block 29. The company said that the Cardona South well (MC 29 #5) encountered more than 275 ft (84 m) of net oil pay in three separate sections of the well.

The Cardona South well extends the productive zone of the Mississippi Canyon 29 TB-9 well to the adjacent fault block to the south and sets up a potential second and third well in the fault block. Plans are to flow the Cardona South well (and the previously announced Cardona discovery) to the Stone owned and operated Pompano platform, with first production expected in early 2015.

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Production casing has been set and cemented in the Cardona South well and the subsea tree equipment will soon be put in place. The rig will then move back to the original Cardona well (MC 29 #4 well) to begin completion operations before returning to complete the Cardona South well. Separately, the original Cardona well was previously estimated to have approximately 84 ft (26 m) of net oil pay. After further evaluation, the estimated net oil pay for this well is now approximately 96 ft (29 m).

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Maersk Drilling says that theMaersk Valiant has begun its voyage to the Gulf of Mexico, where it will commence a two-year contract with ConocoPhillips and Marathon Oil Corp. (Courtesy Maersk Drilling)

Also in April, Maersk Drilling reported that itsMaersk Valiant drillship had begun its voyage from Singapore to the Gulf, where it will commence a two-year contract with ConocoPhillips and Marathon Oil Corp. The estimated contract value with ConocoPhillips and Marathon for Maersk Valiant is $694 million including mobilization, but excluding cost escalation.

In May, Statoil announced that it had started drilling Martin, a high-impact prospect in the Gulf, on April 20. The company says that it considers Martin one of the top prospects in its global portfolio; and that, since acquiring the prospect in 2012, it has been able to advance it in 20 months, considerably faster than the normal maturation time.

Exxon Mobil is pursuing what is believed to be one of the largest deposits in the deepwater area, the Julia field. At a depth of more than 30,000 ft (9,144 m), Exxon is spending $4 billion, with production set to begin in 2016.

BP continues to focus on its deepwater fields in the Gulf, with a company-record 10 rigs operating there now. Officials say that the company will spend $10 billion over the next five years in thedeepwater Gulf, which amounts to about 10% of its worldwide exploration and production budget.

Likewise, Chevron has its Jack/St. Malo and Big Foot fields coming online this year and next. They are projected to eventually produce almost 170,000 b/d of oil — on par with daily oil production in Wyoming last year.

Analysts are projecting oil prices will drop close to $80 by the end of 2015 as large quantities of crude come online. That could put a dent in the domestic hydraulic fracturing boom, in which operators must constantly drill new wells to keep up with rapid declines in productivity.

But the same impact is not expected in the Gulf of Mexico. With billions of dollars invested and steadier productivity from deep Gulf wells, the oil companies have committed themselves for the long term.

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