Deepwater interest, mass lease expiry boost GoM sale to record level

The next mass expiration of deepwater leases held under a 10-year primary term will be in 2018/2019. The chart will reflect this once bids from sales 206 and 224 are accepted through the fair market evaluation. Source: MMS.

Record oil prices, deepwater reserve potential, and the mass expiry of deepwater leases, arguably were the main drivers behind Sale 206’s record results. “Once again, deepwater tracts are those that garnered the most interest,” says Randall Luthi, director of MMS. “Also interesting is that some of the larger operators were willing to bid on near-shore tracts on the shelf, which makes us think that, with the advent of new technology, they intend to enhance recovery from those mature fields.”

The MMS has estimated that about 59.8 Bboe is undiscovered and recoverable in greater than 200 m (656 ft) of water, 54.6 Bboe in greater than 800 m (2,625 ft) of water. The undiscovered technically recoverable resources are based on the MMS’ 2006 OCS oil and gas assessment. This assessment also estimates that 66% of the region’s recoverable resources in all water depths can be found in the Central region.

In Sale 206, about 67%, or 411, of the blocks bid on lie in 400 m (1,312 ft) water depth or greater and about 93%, or $3.43 billion, of the total winning bids were for blocks in this water depth range.

The deepest tract to receive a bid was Lloyd Ridge block 286 in 3,076 m (10,092 ft) of water. The highest bid issued on a block was $105,600,789 submitted by a consortium of Anadarko E&P Co. LP, Murphy E&P Co. USA, and Samson Offshore Co. for Green Canyon block 432. The average winning bid per deepwater block was about $8.3 million, up from about $5.2 million in Central Sale 205 in 2007, and up from about $1 million per deepwater block in Central Sale 194 in 2005.

The Lower Miocene and Lower Tertiary Trends stretching through the heart of the Central region proved to be attractive targets for bidding. The protraction areas of Green Canyon, Keathley Canyon, Garden Banks, Mississippi Canyon, and Walker Ridge, pulled in 20.2%, 16.9%, 15.6%, 15.1%, and 14.3% of the high bids, respectively.

Eastern Sale 224 offered 118 blocks covering 546,971 acres in the Eastern Planning Area, about 125 mi (201 km) or more offshore, south of the Florida panhandle and west of the Military Mission Line. All blocks made available for bid are in deepwater, 2,657 ft (810 m) to 10,213 ft (3,113 m). Lease Sale 224 was historic in that it was the first, and only, sale scheduled to offer Eastern GoM acreage under the Five Year Outer Continental Shelf Oil and Gas Leasing Program.

Sale 224 also set in motion the revenue sharing provisions of the Gulf of Mexico Energy Security Act of 2006. The states of Alabama, Mississippi, Louisiana, and Texas will share in 37.5% of the high bids and future revenues generated in the Eastern Planning area.

The remaining acreage to be made available for lease, as mandated by the Act, will be offered during Central Sale 208 scheduled for March 2009. The 5.8 million acres in the 181 South Area were previously off limits held under Congressional moratoria and Presidential withdrawal. Earlier this year, TGS-NOPEC Geophysical Co. launched its Orion multi-client 3D survey, which predominantly covers the 181 South Area. The survey area covers approximately 175 blocks (4,100 sq km [1,583 sq mi]) in the Lloyd Ridge area, close to theIndependence Hub production facility.

Still, about 85% of the US OCS currently is unavailable for exploration and development of oil and gas. “Revenue sharing with states could change this,” says Luthi. “We can use the Gulf to show other states that oil and gas resources can be developed safely and economically. Also, if you allow development off your shore, the US is willing to share the revenue.”

New discoveries

Meanwhile, operators have reported a string of deepwater discoveries this year.

Signature bonuses by block in lease sales 206 and 224. Map courtesy of Wood Mackenzie.

ExxonMobil struck oil on the Julia prospect in Walker Ridge block 627. The discovery well was drilled in 2,000 m (6,562 ft) of water to 9,500 m (31,168 ft) TD. Appraisal drilling is planned for this year. W&T Offshore made a discovery with well No. 4 on the Healey prospect in Green Canyon block 82 in 2,420 ft (738 m) of water. The company is evaluating development options including a floating production system, and a subsea tieback to the Lobster platform,MorpethTLP, or Prince TLP. Estimated reserves (3P) are 270 bcfe.

Shell discovered oil on the Vicksburg prospect in 7,500 ft (2,286 m) of water. The field crosses sections of DeSoto Canyon blocks 353 and 397 and Mississippi Canyon block 393. Appraisal drilling is planned for this year.

LLOG Exploration has reported three deepwater discoveries, in Green Canyon block 448, Mississippi Canyon block 503, and Mississippi Canyon block 72. The GC 448 well penetrated over 85 ft (26 m) of oil-bearing sand, the MC 72 well intersected over 100 ft (30 m) of gross gas-filled sand, and MC 503 penetrated over 380 ft (116 m) of oil and gas pay zones in four separate reservoirs. MC 72 will be tied back to Pompano in Viosca Knoll block 989, with first production expected by year-end 2008. GC 448 is scheduled to be side tracked this year, with first production anticipated by end-2008 via subsea tieback. Appraisal drilling on MC 503 is planned for this year, with first production anticipated by late 2009/early 2010.

BP made a discovery with exploration well Kodiak-1 on Mississippi Canyon block 771 in 1,500 m (4,921 ft) of water. The well was drilled to 9,500 m (31,150 ft) TD and encountered over 150 m (500 ft) of hydrocarbon-bearing sands in Middle and Lower Miocene reservoirs. The well was deviated with a horizontal step-out of 7,400 ft (2,250 m). Further appraisal drilling is planned to determine the size and commercial extent of the discovery.

Operators have reported deepwater appraisal success as well. Chevron confirmed the results of its Big Foot discovery in 5,000 ft (1,524 m) of water on Walker Ridge block 29. The appraisal well, Big Foot No. 3, sidetrack No. 2, was drilled to 25,113 ft (7,654 m) MD. It confirmed the pay intervals of the discovery and sidetrack wells.

Hess Corp.’s Pony appraisal well, Pony No. 2, encountered the objective target sands. The well reached 32,900 ft (10,028 m) MD in Green Canyon block 468. The company plans to sidetrack the well to confirm reserve potential. Estimated resources are 100 to 500 MMbbl of oil. Development planning is under way.

Select operators in sales 206 and 224. Map courtesy of Wood Mackenzie.

In 2007, two major deepwater hubs were installed, connected, and brought online: Anadarko-operatedIndependence Hub and BP-operated Atlantis. This year, pending delays, five deepwater platforms are scheduled to be operational by the end of the year: Blind Faith, Neptune, Thunder Horse, Telemark, and Helix Producer I on the Phoenix field.

On the shelf, W&T Offshore has increased its 2008 exploration and development budget by 77% to $800 million (41% exploration, 56% development, 3% seismic). The budget includes capital to drill 50 wells; 44 exploration and six development. Of those, 40 are on the conventional shelf and 10 are in the deep shelf or deepwater.

Meanwhile, McMoRan and Rowan have teamed to re-enter the Blackbeard West deep gas prospect in South Timbalier block 168 in 70 ft (21 m) of water. At print, Rowan’s jackupRowan Gorilla IV was drilling through Blackbeard No. 1 to 31,267 ft (9,530 m) proposed total depth to evaluate deeper Miocene targets. Rowan’s jackup Scooter Yeargain drilled the original Blackbeard well to a depth of just over 30,000 ft (9,144 m) during 2005-2006. The hole was temporarily abandoned prior to reaching the primary targets.

McMoRan also continues to define its Flatrock discovery in OCS 310 on South Marsh Island block 312 in 10 ft (3 m) water. At print, the company had drilled two delineation wells, and had planned to spud a third in the second quarter.

Alaska

Alaska also is having a banner year in terms of lease sale results. The MMS held its first Chukchi Sea sale since 1991, recording the highest number of bids and tracts bid on in Alaska leasing history. Chukchi Sea Sale 193 participants issued 667 bids on 488 blocks – both record-setting numbers – in the Alaska federal OCS.

Total bids tallied $3.4 billion, with high bids coming in at more than $2.6 billion. The highest bid on a block was $105,304,581, from Shell.

The Chukchi Sea Sale 193 area contains more than 29 million acres from about 50 mi to 200 mi (80 to 322 km) offshore. To date, five exploration wells have been drilled in the area. All previously held leases have either relinquished or expired.

On the North Slope, Pioneer Natural Resources has signed a gas sales agreement with the Kuparuk River Unit owners to handle flow from the Oooguruk field. First gas from the Pioneer-operated field is expected mid-year. Peak production of 15,000 to 20,000 gross b/d of oil from 40 development wells (half production; half injection) is anticipated in 2010. Pioneer plans to drill 13-15 of the development wells this year.

Pioneer operates Oooguruk with a 70% working interest; ENI holds the remaining 30%.

Also on the North Slope, Eni (100% owner) has started development of the Nikaitchuq oil field in about 3 m (10 ft) of water. The field will be developed through 70 wells (half production; half injection), about one-third will be drilled from onshore and the remainder will be drilled from an artificial island built 4.5 km (2.8 mi) offshore. Production will be processed at a new facility designed with capacity for 40,000 b/d oil. Flow will then move to the Trans-Alaska Pipeline System via the Kuparuk network facilities.

Nikaitchuq is estimated to hold 180 MMbbl of recoverable oil reserves. First oil is expected by end-2009.

Canada

EnCana secured development approval last year for the Deep Panuke project offshore Nova Scotia. Following a nine-month bid competition, Single Buoy Moorings won the contract for provision and operation of the field’s production facility. SBM will own and operate the platform and will lease it back to EnCana for the life of the project.

Shaw and Shaw Ltd. secured the contract to provide weight coating, sacrificial anode installation, and logistics for the project’s 175-km (109-mi) 22-in. (56-cm) pipeline. Acery picked up the contract for installation, burial, and tie-in of 17 km (11 mi) of 8-in. (20-cm) infield flowlines and umbilicals to connect four production wells. Installation is scheduled for 2Q 2010.

First gas from Deep Panuke is expected in 2010. The project’s design capacity is 300 MMcf/d of gas.

Offshore Newfoundland and Labrador, Husky Energy has contracted Transocean’s semisubmersibleGrand Banks for continued exploration and delineation drilling in the White Rose area. The three-year agreement has provisions for two additional one-year contract extensions.

Husky and StatoilHydro reached a rig sharing agreement to bring Transocean’s semisubmersibleHenry Goodrich to the area. Husky will use the rig, alongside Grand Banks, to drill infill producers and injectors to enhance production at the existing White Rose oil field, and to progress the White Rose satellite developments including North Amethyst and West White Rose. North Amethyst is the first of three satellite oil pools to be developed via tieback to the SeaRose FPSO, with first production expected by late 2009/ealy 2010. Estimated recoverable reserves are 70 MMbbl of oil.

TheGrand Banks also is scheduled to drill the StatoilHydro-operated Mizzen prospect, followed by a production and water injection well in the Terra Nova oil field.

Existing and probable fields in the Gulf of Mexico. Map courtesy of Infield Systems Ltd.

Rowan also plans to send a rig to eastern Canada. The company signed a contract to useRowan Gorilla II or Rowan Gorilla III for a six-month assignment beginning in mid-2009.

Meanwhile, Husky continues to survey the area through the acquisition of 2,500 sq km (965 sq mi) of 3D seismic over the White Rose field, the satellite development areas, and portions of five exploration licenses in the Jeanne D’Arc basin.

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