The Gulf’s new chapter

For decades, the Gulf of Mexico has been a mainstay of the US petroleum sector. Even when faced with rapid declines in conventional production, Gulf producers rose to the challenge by tapping exciting new plays in ultra deepwater and ultra deep sediments. Now, as it emerges from the shadow of disaster, the sector must contend with a whole new playbook.

On the evening of 20^th 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 crew members 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, 5-storey device designed to prevent runaway wells – failed to close. Around 50 000 bpd of thick crude began to spill out onto the sea floor 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.

The extent of the catastrophe led President Obama to declare a moratorium on drilling in the Gulf until the causes could be determined. On 12^th October 2010, the moratorium affecting deepwater drilling was lifted. In January, regulators notified the dozen companies whose deepwater drilling was originally suspended that they could resume previously approved activities, as long as they complied with new policies and regulations.

The hiatus, however, had a tremendous impact on the region. Prior to the disaster, crude production in the Gulf had risen to 1.6 million bpd and 7.5 billion ft³/d. During the moratorium, however, 11 deepwater rigs departed for offshore plays in Brazil and Africa. Without new wells being drilled, production began to decline. The Energy Information Administration (EIA) calculates that production has dropped to under 1.4 million bpd. BP’s output alone in the Gulf dropped to about 250 000 bpd (from about 390 000 bpd before the spill). 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 by the moratorium.

Picking up the pieces

Fortunately, the Gulf of Mexico still represents one of the prime exploration targets in North America. 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, anti-clinal structures with four-way closure sitting in sediments 23 - 64 million years in age. 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 about 50 - 70 miles wide and 200 miles long. Estimates issued by 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.

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.

Fields that had been developed before the moratorium are back in production expansion mode. BP drilled an appraisal well that extended estimated hydrocarbons in place at its Mad Dog to up to 4 billion boe. Shell set a producing well water depth record of 9627 ft when it completed a new well at its Tobago field.

Work on bringing new fields onstream has also resumed. Anadarko and partners have approved development of the Lucius deepwater discovery in the Gulf of Mexico, using a truss spar. Field reserves exceed 300 million boe. The truss spar, which will have a capacity of 80 000 bpd of oil and 450 million ft³/d of gas, will come onstream in 2014. The partners have also contracted with EPP and Genesis Energy to build SEKCO, a crude oil gathering pipeline system for the Southeast Keathley Canyon. SEKCO will consist of a 149 mile, 18 in. line with a capacity of 115 000 bpd that will connect the Lucius platform to South Marsh Island. In addition, Hess and partners will spend US$ 2.3 billion to develop the Tubular Bells field, which lies approximately 135 miles southeast of New Orleans. Reserves are estimated at 120 million boe. Development drilling is expected to be finished by 2014. The company expects up to 50 000 boe/d, to be tied back to a third-party spar production facility.

New prospects are also emerging. Petrobras announced the Logan discovery in 7750 ft of water at the most southwestern part of the Walker Ridge concession area. Statoil and Ecopetrol also struck hydrocarbons in the region. Chevron reported an oil discovery on its Moccasin lease in Keathley Canyon. The well intersected 380 ft of net pay in the Lower Tertiary. Exxon also drilled through over 475 ft of oil play in Keathley Canyon. The company now estimates that their leases in the region contain more than 700 million boe of recoverable reserves.

Future outlook

Long-term prospects for the Gulf look good. Because of the long lead time between exploration and production in the Gulf, lease sales generally indicate activity levels 5 - 10 years down the line. The previous auction for offshore leases was held in March 2010, just prior to the TransOcean disaster. At that time, the sale attracted US$ 949 million in high bids. In December 2011, BOEM once again held an auction for leases in the western Gulf of Mexico, raking in US$ 337 million for high bids, and a total of US$ 712 million for all 3913 blocks offered. “We are quite pleased with the results,” says John Filostrat, Public Affairs Office for BOEM’s Gulf of Mexico region. “The focus is on deepwater plays.”

In January, the Obama administration announced that BOEM will conduct a lease sale for the central Gulf region in June. Over 7200 blocks covering 38 million acres will be up for auction, ranging from near shore to 3400 m in depth.

While the scale of renewed activity is heartening, most participants acknowledge that the focus in the Gulf of Mexico has been changed forever. “At the front end, the environment and doing things safely are priorities,” says Filostrat. Recently, the National Academy of Engineering and National Research Council released their final report on the Macondo accident, highlighting a “system safety” approach. “Industry and regulators need to include a factual assessment of all the risks in deepwater drilling operations in their decisions and make the overall safety of the many complex systems involved a top priority,” said Donald C. Winter, Chair for the committee.

Ultimately, in order to continue development of the Gulf, the petroleum companies, which oversee all aspects of planning, drilling and production in the Gulf, understand that they will be held responsible for their actions. “Through API’s standards process and the Center for Offshore Safety, the industry is leading the way in applying the best elements of the most successful existing safety programs, including the use of independent auditing and certification by third parties,” said Erik Milito, the American Petroleum Institute’s Upstream and Industry Operations Director.

Government is also ready to work hard to maintain co-operation and see the full potential of the Gulf unfold. “The seas are calmer, and we are looking forward to getting back to business at hand,” says Filostrat.

This is an abridged version of the full article from Gordon Cope, which was published in the April 2012 issue of World Pipelines, available for subscribers to download now.

Written by Gordon Cope

Read the article online at: https://www.worldpipelines.com/business-news/29032012/oil_and_gas_future_in_the_gulf_of_mexico/