Bouncing back

The Gulf of Mexico is one of the world’s most bountiful and prolific basins, with 11.5 trillion ft³ of proven gas reserves and 4.1 billion bbls of proven crude reserves. In 2011, production amounted to 4.6 billon ft³/d and 1.4 million bpd. New fields are coming into production, and new discoveries are being made. Land sales have resumed, and more are planned.

But the industry also faces strong currents, including a far stricter regulatory environment, extreme weather events and uncertainty over the very significant risks involved in exploring and producing in one of the most challenging environments. How it prospers in the coming years depends very much on a number of emerging factors

Deepwater production and discoveries

Deepwater development is gaining pace. As part of its US$ 34 billion exploration and development budget for 2013, Chevron says it will continue developing the Jack/St. Malo, Big Foot and Tubular Bells fields in the Gulf of Mexico. Production from the deepwater fields is expected to start in 2014 from Lower Tertiary reservoirs at over 26 000 ft depth. The three fields may contain more than 500 million bbls of potentially recoverable oil.

New discoveries continue to emerge in deepwater plays. There are two major targets for deepwater drilling; structures in the Miocene and structures in the Lower Tertiary. Miocene targets are essentially extensions of fields found in shallower waters near the shores of Texas and Louisiana. The Lower Tertiary play is a series of large, anticlinal structures with four-way closure. The trend, which sits beneath a thick wedge of salt, runs from the middle to the western side of the Gulf of Mexico and is approximately 50 - 70 miles wide and 200 miles long. Estimates issued by the Bureau of Ocean Energy Management (BOEM) indicate that the trend may contain approximately 31 billion bbls of oil and 134 trillion ft³ of gas that are currently undiscovered and technically recoverable.

Total recently made a significant new oil discovery at the North Platte prospect in the deepwater Garden Banks Block. The well was in 4400 ft of water, and penetrated to a total depth of 34 500 ft. Several hundred feet of net oil pay were penetrated in Lower Tertiary sands. Although further appraisal is needed, the company estimates that the find could hold several hundred million barrels of oil.

In November, Noble Energy and partners discovered 150 ft of net pay in two Miocene reservoirs. The Big Bend prospect is located in 7200 ft of water in the Mississippi Canyon Block area. The reservoirs were penetrated above the 16 000 ft depth. Noble expects the discovery to make a significant contribution to cash flow.

A third major Gulf play, ultra deep shelf gas, exists in shallow waters but at great depth. Various structures holding as much as 100 billion ft³ of gas have been identified at depths exceeding 25 000 ft. BOEM calculates that there may be 20 trillion ft³ in the gas-prone play, and wells penetrating the structures have tested as high as 100 million ft³/d.

McMoRan Exploration Co. and other companies are exploring ultra deep prospects onshore and in the shallow waters of the gulf. They have identified targets that have structural similarities both in shape and size to the major subsalt structures being explored in the deepwater gulf. So far, McMoRan, has invested almost US$ 1 billion in the Davy Jones prospect, and has submitted development plans for its Blackbeard East field. The company recently set production liner at the Blackbeard West-2 ultra deep exploratory well on Ship Shoal Block 188. Total depth is 25 584 ft. They note there are three hydrocarbon-bearing sands in Miocene formation; first attempts at completion will be in a 50 ft section at 24 000 ft.

Problems

The repercussions from the BP Transocean Macondo tragedy are still reverberating through the region. In April 2010, the Transocean Deepwater Horizon semi-submersible rig, situated approximately 40 miles off the Louisiana coast, was engulfed by an immense explosion and fire. Eleven crewmembers were killed, and over a dozen injured. The stricken rig eventually sank, crashing to the ocean floor 5000 ft below. The blowout preventer (BOP), a massive, 25 t, five-story device designed to prevent runaway wells, failed to close. Around 50 000 bpd of thick crude began to spill out onto the seafloor and make its way to surface, threatening wildlife, beaches and protected habitats. After several failures, the well was finally sealed on 15^th July, 87 days after it first began to spew. US government agencies estimate that over 4 million bbls of oil escaped. 

President Obama declared a drilling moratorium in the gulf, and the federal government re-organised the MMS. Offshore oil and gas development duties were assigned to the BOEM. Regulatory enforcement was assigned to the Bureau of Safety and Environmental Enforcement (BSEE). New rules called for the next generation of blowout preventers, remotely operated vehicles, and other subsea containment equipment and enhanced safety and environmental protection. Offshore operators, including Chevron, Shell and BP, established the Marine Well Containment Company (MWCC), to create and maintain a containment response system capable of operating at 10 000 ft depths and processing up to 100 000 bpd of fluid.

On 12^th October 2010, the moratorium affecting deepwater drilling was lifted, but the extended stop-work order forced several deepwater rigs to be redeployed to other basins, which in turn impacted exploration and delayed development of several promising projects. The Energy Information Administration (EIA) calculated that gulf production dropped from 1.6 million bpd to under 1.4 million bpd. A study commissioned by the American Petroleum Institute (API) concluded that operating expenditures dropped by US$ 18.3 billion in 2010 and 2011 after the disaster and subsequent moratorium. It estimated that 90 000 jobs were foregone in the US as a result. Although significant progress was made in 2012, it will be several years before the region reaches pre-accident levels.

The incident, which has added to the uncertainties and risk surrounding the region, may have long-term implications. When the DOI held Lease Sale 218 in December 2011, it was the first offering after the event. The sale, which covered 21 million acres of tracts in the western gulf, received high bids covering 1 million acres and netted US$ 325 million. Lease Sale 216/222, held in June 2012, and covering 39 million acres in the central gulf, attracted more than US$ 1.7 billion in high bids for more than 2.4 million acres.

In November 2012, however, when the DOI offered over 20 million acres in the western gulf, it received a total of US$ 233 million in bids on 3% of the land offered. The National Ocean Industries Association (NOIA) said the offering was disappointing. “By restricting activity to the same 15% of the Outer Continental Shelf that the industry has been picking over for decades, the administration is ensuring that our offshore energy resources are being underdeveloped,” said Randall Luthi, NOIA President, “We are all losing as a result.” Land sales are generally seen as an indicator of exploration and development activity 5 - 10 years later; if the moratorium and subsequent lack of land sales accumulates over the next few years, it could have serious ramifications later in the decade. The DOI is offering 38 million acres offshore Louisiana, Mississippi and Alabama in March 2013; industry participants will be observing the outcome with keen interest.

The future

In the longer term, Wood Mackenzie sees a bright picture for the region. The consultancy predicts more than US$ 70 billion will be spent on exploration by 2030, more than all other key deepwater provinces worldwide combined. “Opportunities in this region range from small, low-risk prospects to giant targets in extreme conditions,” they noted. “Abundant infrastructure and an open, competitive environment allow smaller companies to create value from the more mature plays.”

Written by Gordon Cope

This is an abridged version of an article published in the April 2013 issue of World Pipelines, available for subscribers to download now

Read the article online at: https://www.worldpipelines.com/business-news/11042013/the_energy_industry_in_the_us_is_bouncing_back/