June 1, 2006
The MMS is still compiling infrastructure damage reports more than nine months after Hurricane Rita blasted through the Gulf of Mexico.

David Paganie,Houston

Damage report

The MMS is still compiling infrastructure damage reports more than nine months after Hurricane Rita blasted through the Gulf of Mexico. While the number of platforms reported destroyed hasn’t changed much; down two to 113, the number of pipelines damaged has risen significantly to 457 from 183. The MMS says this number could increase as additional inspection reports are received.

Of the four deepwater structures that were damaged and shutin by the hurricanes in 2005, only the Total-operated Virgo platform and Shell-operatedMars TLP have resumed production. According to the MMS, Virgo, which produced an average of 634 b/d of oil and 21.4 MMcf/d of gas in May 2005, restarted on May 2, 2006.

The Shell-operatedMars TLP resumed partial production on May 22. The company says production will continue to ramp up to pre-Katrina production levels by the end of June. Shell anticipates production will exceed pre-Katrina production levels of 140,000 boe/d by the end of the year.

The other two damaged deepwater structures -Matterhorn and Cognac - are still offline. The Total-operated Matterhorn TLP is anticipated to restart production in mid-2006 at a rate of 14,500 b/d of oil and 32 MMcf/d of natural gas, according to an industry report.

The final damaged deepwater platform scheduled to restart production is the Shell-operated Cognac platform. The operator says that repairs of the facility will be completed in time for production to resume by the end of this year. The platform averaged a production rate of 4,632 b/d of oil and 41.3 MMcf/d of natural gas in February 2005, according to the MMS.

Meanwhile, Chevron issued plans with the MMS and Louisiana Department of Wildlife and Fisheries to topple the destroyedTyphoon TLP. The MMS received an application from the operator on March 28 to use a non-explosive method to submerge the platform. According to plans, Chevron will tow the structure to its designated reef site in Eugene Island block 367.

Mooring requirements, hurricane preparation

In response to the damage inflicted on drilling units operating in the GoM during hurricanes Ivan, Katrina, and Rita, regulatory authorities have issued interim guidelines for moored and jackup drilling rig fitness requirements to reduce future losses. According to the MMS, a total of 28 rigs experienced a total failure of station-keeping ability during the storms.

The MMS issued a series of Notice to Lessees and Operators (NTL) that contain guidelines that must be followed while preparing an application for permit to drill. For drilling with a jackup, an operator is now required to follow newly developed recommendations issued by the American Petroleum Institute (API) -Recommended Practice 95J, Gulf of Mexico Jackup Operations for Hurricane Season - Interim Recommendations (API RP 95J). This NTL is effective May 1, 2006.

The MMS’ NTL issued for drilling with a MODU, also requires an operator to follow newly developed recommendations drafted by the API -Recommended Practice 95F, Interim Guidance for Gulf of Mexico MODU Mooring Practice - 2006 Hurricane Season (API RP 95F). This NTL is effective May 19, 2006.

Meanwhile, drilling contractors are in the midst of preparing their assets for the upcoming hurricane season. Transocean, Diamond Offshore, and Noble have all said they are upgrading their GoM-based MODUs to mitigate future line failures.

Transocean is upgrading the mooring system for itsDeepwater Nautilus, Transocean Marianas, and Jack Bates from an eight-point to a 12-point system. Diamond is upgrading its entire semisubmersible fleet operating in the GoM to a 12-point mooring system as well.

Noble is upgrading a select number of its MODUs based on a new design criteria, engineered in-house, dubbed - NC5. This design requirement is based on theAPI RP 2SK permanent mooring standard for floating production systems. Noble says that this requirement for permanent mooring systems is designed for higher environmental standards than mobile mooring systems.

Coincidently, there were no reported failures to any of the permanent mooring systems for floating production units installed during hurricanes Ivan, Katrina, or Rita, says Noble. The contractor expects that its rigs upgraded to the NC-5 criteria will be equipped to withstand 1,000-yr return storm conditions.

The contractor is upgrading its EVA-4000 class of semisubmersibles includingNoble Paul Romano, Noble Amos Runner, Noble Max Smith, and Noble Jim Thompson to 12 mooring lines, and the Noble Clyde Boudreaux is being upgraded to a 16-point system.

FPSO plans

Several oil companies have approached the MMS and US Coast Guard with plans of deploying an FPSO in the US Gulf of Mexico, Chris Oynes, MMS GoM regional director, said at an OTC press conference.

“I would not be surprised if an application for an FPSO is submitted in 2006.”

Following Oynes’ presentation, Petrobras said that it, the MMS, and US Coast Guard are actively discussing the possibility of deploying an FPSO in the US Gulf of Mexico.

“We are very keen on applying FPSO technology in the GoM,” said Renato Bertani, president of Petrobras America. “We have had discussions with the MMS and the US Coast Guard and it is very encouraging.”

Bertani pointed to the potential benefits of a disconnectable FPSO in hurricane-prone environments, such as the GoM.

One possible location for the FPSO could be the Walker Ridge area, where Petrobras holds an interest in the Cascade, Chinook, and Saint Malo discoveries. One industry report suggests that Petrobras has even offered itsSeillean FPSO for production operations in the area following its initial production commitment on the Golfinho field offshore Brazil.

Petrobras is also touting its MONOBR concept as a feasible FPSO solution in deepwater and ultra-deepwaters. The company says conceptual studies for using this application in the GoM are nearing completion, with the final report due out in the middle of this year.

Bertani also pointed out that the company is working on securing a rig for a five-year deepwater drilling program in the Gulf, which will likely begin in 2008, pending rig availability.

The company is investing $305 million in Gulf E&P this year and $1.5 billion from 2007-2010.

In other floating production news, Helix Energy Solutions says it plans to begin construction on a floating production hub within the next 12 months. An industry source says that the company may be considering construction of an FPSO-type facility. Helix also intends to submit a development plan for its Telemark field located in Atwater Valley block 63 in approximately 4,400 ft of water.

Deepwater discoveries

A number of deepwater discoveries have occurred since we last reported on GoM activity in the May issue ofOffshore.

Kerr-McGee hit pay on its Claymore and Caesar prospects in the Atwater Valley area - the operator’s first two wells drilled in its 2006 subsalt exploration program.

The Claymore No. 1 well was drilled to a total depth of 25,000 ft and encountered more than 150 ft of net pay in multiple zones, according to Kerr-McGee. The rig that drilled the natural gas discovery remained on location to drill a sidetrack to determine the commercial extent of the reservoir.

The Claymore field is located in Atwater Valley block 140 in 3,700 ft of water.

The Caesar No. 1 well was drilled to a total depth of 29,721 ft and encountered oil pay, says Kerr-McGee. The operator indicated it would immediately core the productive interval and then sidetrack the discovery to determine its potential resources. Development options under evaluation include a subsea tieback to the Kerr-McGee-owned and operatedConstitution spar, located 9 mi to the west in Green Canyon block 680.

The Caesar field is located in Green Canyon block 683 in 4,500 ft of water.

Kerr-McGee says following appraisal work on Claymore and Caesar it will spud an exploration well on its Mission Deep prospect in Green Canyon block 955 and Norman prospect in Garden Banks block 434.

Meanwhile, at print, the operator was drilling on its Grand Cayman prospect in Garden Banks blocks 517, 518, 561, and 562.

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Noble Energy hit pay on the Redrock prospect located in Mississippi Canyon block 204 in 3,334 ft of water. The discovery well No. 1 was drilled to a total depth of 23, 365 ft and confirmed high quality pay in at least one of two objectives. Noble and partners are performing reservoir modeling on the discovery and intend to carry out further appraisal drilling this year and in 2007.

At print, Noble was drilling an exploration well on its Raton prospect located in Mississippi Canyon block 248 in 3,379 ft of water. Total targeted drilling depth of 20,000 ft is expected to be reached in 3Q 2006.

• • •

Total drilled a successful well on its Gotcha prospect in Alaminos Canyon block 856, immediately adjacent to the Great White discovery. The discovery well No. 1 was drilled in 7,600 ft of water to a total depth of 14,600 ft. The well encountered 290 ft of pay in two oil-bearing zones, says Total. At print, appraisal drilling was underway to further assess the extent of the accumulation.

• • •

Hess announced preliminary drilling results on its Pony prospect in Green Canyon block 468. The Pony well encountered 300 ft of net pay based on logging-while-drilling data, says Hess. At print, the well was drilling ahead at 29,658 ft with a targeted total depth of 32,500 ft. According to the operator, there are additional objectives still to be tested beneath the well’s current depth.

M&A boom

The Gulf of Mexico has emerged as the epicenter of M&A activity in the E&P sector over the past six months, accounting for five of the top 10 deals involving US E&P companies year-to-date, according to Raymond James.

The Gulf of Mexico continues to garner interest from a variety of players attracted to the region’s fundamental cash flow generation.

The Houston Exploration Co. entered into an agreement with an unnamed investor to sell substantially all of the Louisiana portion of its GoM assets with an estimated 186.1 bcfe for $590 million in cash. The deal is expected to close in 2Q06. The company previously offloaded its Texas portion of Gulf assets to Merit Energy for $220 million.

• • •

Apache finalized an agreement with BP to acquire its remaining producing properties on the outer continental shelf. Under the agreement, Apache will pay $1.3 billion in cash to acquire 18 producing fields (11 are operated) covering 92 blocks with estimated proved reserves of 27 MMbbl of oil and 185 bcf of natural gas. Apache has also identified 50 drilling locations on the properties. The transaction is expected to close by the end of 2Q06.

• • •

Tokyo-based Mitsui Oil Exploration Co., Ltd. closed an agreement with Pogo Producing Co. on May 31,2006, to acquire an undivided 50% share of the company’s interest in the GoM. The $500 million acquisition covers 85 blocks estimated to hold proven oil and gas reserves of approximately 24 MMboe.

• • •

Plains Exploration & Production Co. entered into a definitive agreement to acquire Stone Energy in a stock-for-stock transaction valued at approximately $1.943 billion (includes $483 million of net debt). Following the acquisition, PXP will have a proved reserve base of 500 MMboe. The transaction is expected to close in 3Q06.

• • •

One month removed from this announcement, Energy Partners, Ltd. countered with an offer to acquire Stone for $52/share in cash and stock, with an equity value of approximately $1.963 billion (includes $563 of net debt). According to EPL, its offer “provides premium of approximately 26% to current value of the Plains/Stone agreement.

• • •

Noble Energy has entered into an agreement with Coldren Resources LP to sell its GoM shelf assets for $625 million. The assets being sold have proved reserves of approximately 27 MMboe, and include 54 fields, 520 wellbores (132 operated), and 158 platforms (27 operated), covering 725,000 gross acres. The transaction is scheduled to close by June 30. Concurrently, Superior Energy Services announced its acquisition of a 40% interest in Coldren in order to give it first call to provide production related and decommissioning services for all Coldren-operated properties.

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The hull of the Independence Hub semisubmersible is in transit onboard Dockwise�s Mighty Servant 3. The bottom half of the semi departed Jurong Shipyard in Singapore on May 9, and is scheduled to arrive at Kiewit�s fabrication yard near Corpus Christi, Texas in June for onshore integration with its topsides. Once the facility is deployed in Mississippi Canyon block 920, it will be the deepest fl oating production installation in the world, in 8,000 ft of water. First production is expected in March 2007. The Independence Hub is owned by Enterprise Products Partners, LP (80%) and Helix Energy Solutions (20%) and will be operated by Anadarko.

DateBuyerSellerTransaction Value($MM)Approx Valuation($/Mcfe)
Jan.2006W&TOffshoreKerr-McGee Corp. (assets)$1,339$3.70
Feb. 2006Marubeni Corp.Pioneer Nat. Res. (assets)$1,300$6.50 (est.)
April 2006Apache Corp.BP plc (assets)$1,300$3.75
April 2006Plains E&PStone Energy (corporate)$1,943$3.34
May 2006*Energy PartnersStone Energy (corporate)$1,963
In 2006, year-to-date, there have been five Gulf of Mexico transactions, including two corporate and three asset deals, above the $1 billion mark. Source: Raymond James. *EPL submitted its counter offer to acquire Stone Energy one month after Plains E&P announced its acquisition agreement with Stone.