MMS sees deepwater gulf as an expanding frontier

June 14, 2004
The future of deepwater Gulf of Mexico exploration and production remains very promising, concludes a report by the US Minerals Management Service.

The future of deepwater Gulf of Mexico exploration and production remains very promising, concludes a report by the US Minerals Management Service.

The deep water is an expanding frontier as evidenced by the large number of active deepwater leases, drilling of important new discoveries, the growing deepwater infrastructure, and increasing production, the report said.

Deepwater drilling added more than 4.5 billion boe of reserves since the start of 2000, a 40% increase in reserves compared with 1974-99 discoveries, said the report by G. Ed Richardson and eight other MMS authors. This article extracts key findings of that report, available on the MMS web site.

The 750 deepwater gulf exploration wells since 1995 turned up at least 100 discoveries, including 11 industry-announced discoveries in more than 7,000 ft of water in the last 3 years, said a preface by MMS Regional Director Chris Oynes.

As 2004 began, 90 deepwater production projects were on line. Deepwater production grew to 959,000 b/d of oil and 3.6 MMcfd of gas by the end of 2002, up 535% and 620%, respectively, since 1995.

Deepwater oil production first exceeded shallow-water gulf production in early 2000 and is rapidly approaching the all-time shallow-water record set in 1971, MMS said.

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The report generally defines deep water as 1,000 ft of water or more.

Key updates

MMS listed notable changes that have occurred since its last deepwater report published in 2002:

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  • The deepwater frontier is now in more than 7,000 ft of water.
  • The first exploratory well has been drilled in more than 10,000 ft of water.
  • The first deepwater well has been drilled below 30,000 ft true vertical depth.
  • Eleven discoveries have been made in more than 7,000 ft of water (Table 1).
  • The production water depth record is 7,216 ft of water at Camden Hills field, compared with 5,300 ft of water at Mensa field.
  • Industry made the first discoveries in the eastern gulf.
  • Industry made significant discoveries in the Walker Ridge and Alaminos Canyon areas in older, lightly tested reservoirs of Paleogene age.
  • Industry made great technological achievements, such as polyester mooring, composite riser, cell spars, and 15,000-psi subsea trees.
  • Loop currents were recognized as posing significant design challenges for deepwater structures, rigs, and pipe- lines.
  • The average number of operating rigs is down 29%, and the number of wells drilled is down 37%.
  • Average bid amounts per block have stabilized or decreased slightly.
  • The number of producing deepwater projects is up 51%.
  • Nonmajor companies have made more deepwater discoveries and hold more deepwater acreage than major companies (Fig. 1).
  • Deepwater production has risen more than 100,000 b/d of oil and 400 MMcfd of gas each year since 1997.
  • Subsea gas production is up 90% since December 2000.

Reserves, production

The deep water started contributing significant reserves in 1975 and production in 1996-97, the MMS report said.

During the last 10 years, additions of proved and unproved reserves averaged 86 MMboe from deepwater gulf fields and 5 MMboe from shallow-water gulf fields.

Nevertheless, because of the lag between exploratory drilling and first production, the true impact of recent, large deepwater exploratory successes is not yet reflected in MMS proved and unproved reserve estimates and resulted in an apparent decline in deepwater proved reserve additions in recent years.

The MMS 2000 assessment by Lore and others, published in 2001, gave the expectation of 71 billion boe of ultimate reserves in the deepwater gulf, of which 56.4 billion boe remains to be discovered. This compared with 65 billion boe of ultimate reserves in the shallow-water gulf, of which 15.2 billion boe remain to be discovered.

A 2003 MMS study found deepwater gulf oil production to be in the midst of a dramatic increase similar to that seen in the shallow-water gulf in the 1960s. Deepwater oil production accounted for 61% of total gulf oil output in 2002.

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Potential hubs are moving into deeper water, expanding the infrastructure, and facilitating additional development in the ultradeepwater frontier (Fig. 2).

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A steady increase in deepwater gas production the past few years has not been as dramatic as the deepwater oil increase. Nevertheless, the most prolific blocks on a boe basis are in the deepwater gulf (Table 2).

Deepwater subsea completions account for 300,000 b/d of oil and 2 bcfd of gas. Nonmajor companies own about 25% of deepwater gulf oil production and 30% of gas production, although their share of deepwater production has leveled off since 2000. Nonmajors also produce more shallow-water oil than the majors.

Reservoirs, plays

Several recently announced deepwater gulf discoveries encountered large potential reservoirs in sands of Paleogene age (Oligocene, Eocene, and Paleocene), the MMS noted.

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These discoveries may open wide areas to further exploration because this older portion of the geologic section is lightly tested in the gulf, a province where 99% of total production comes from Neogene age (Pleistocene, Pliocene, and Miocene) reservoirs (Fig. 3).

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Many important questions remain regarding the extent and producibility of the older reservoirs, but discoveries such as Trident and Great White in the Perdido fold belt (Alaminos Canyon) and St. Malo, Cascade, and Chinook in the Mississippi Fan fold belt (Walker Ridge) provide evidence of productive Paleogene age reservoirs in a wide area of the deepwater gulf (Fig. 4).

The ultradeepwater gulf cannot be considered a geologic play, but industry has announced 11 discoveries there in more than 7,000 ft of water the past 3 years with total recoverable volumes of 1.75 billion boe.

Another factor driving deepwater gulf E&D has been individual well rates.

Horn Mountain field came on line in 5,400 ft of water in early 2002 with a single well maximum rate of more than 30,000 b/d. Record producing rates are 41,532 b/d of oil from a well in Troika field and 145 MMcfd of gas from a well in Mica field, MMS said.

Leasing patterns

The availability of previously leased deepwater blocks is expected to increase dramatically in 2006 as a result of the leasing boom in 1996 through 1998. Nonmajors, which began acquiring significant deepwater lease holdings in 1996, are poised to play a leading role in the future of the deepwater gulf, MMS said.

The OCS Deep Water Royalty Relief Act, which expired in late 2000, and succeeding royalty relief measures markedly affected deepwater activity, the agency said.

The average bid price for deepwater leases increased steadily from 1992 through 2001 before turning down in 2002. The high 2001 averages reflect large bids for leases in the previously unavailable eastern gulf.

Since a 1999 lull, deepwater leasing has risen steadily in the 1,500-4,999 ft and 5,000-7,499 ft intervals.

Whether leases issued under the DWRRA during Nov. 28, 1995, through Nov. 28, 2000, are entitled to incentives on a field or a lease basis is under litigation, MMS noted.

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The deepwater arena is heavily leased, and most companies can only drill a small percentage of their active leases (Fig. 5). The vast majority of today's deepwater leases, including many of high quality, will remain untested when their terms expire, MMS said.

In 1999-2003, shelf leasing outpaced leasing in 2,625 ft of water or more, no doubt influenced by MMS royalty suspensions for new deep gas development in less than 650 ft of water.

Drilling and development

The lag time from lease acquisition to first production in deep water has declined to less than 7 years from 10 years.

Also, the latest complete data indicate a 3-year average lag between leasing and initial drilling and a further 2-year lag between drilling of the first well and qualifying the lease as productive with MMS (being granted field status).

For any given lease-sale year, almost 50% of tested leases were first drilled within 3 years of lease acquisition and 23% were drilled in year 8 or later. Twenty-nine percent of the hydrocarbon volumes were discovered during the first 3 years of their lease terms, but 44% of the hydrocarbon volumes were discovered in year 8 or later. The data for this analysis include only deepwater leases acquired through 1994.

Discovery of Thunder Horse, North Thunder Horse, and Mad Dog late in their lease terms demonstrates the difficulty in recognizing the best prospects at the beginning of a lease's term, MMS concluded.

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Twelve deepwater projects began production in 2003 and another 13 are expected to begin in 2004. Many more are expected in succeeding years (Fig. 6).