BIG DEEPWATER FINDS BUOY GULF OF MEXICO OIL AND GAS PROSPECTS

Dec. 16, 1991
A.D. Koen Gulf Coast News Editor A recent string of major deepwater discoveries has buoyed prospects for finding more giant oil and gas fields in the Gulf of Mexico. At midyear 1991, operators disclosed details of three deepwater gulf strikes with combined reserves potential approaching 1 billion bbl of oil equivalent (BOE). Exxon Corp. last week disclosed a fourth possible giant field discovery in the deepwater Gulf of Mexico (see story, p. 19).
A.D. Koen
Gulf Coast News Editor

A recent string of major deepwater discoveries has buoyed prospects for finding more giant oil and gas fields in the Gulf of Mexico.

At midyear 1991, operators disclosed details of three deepwater gulf strikes with combined reserves potential approaching 1 billion bbl of oil equivalent (BOE). Exxon Corp. last week disclosed a fourth possible giant field discovery in the deepwater Gulf of Mexico (see story, p. 19).

While exciting from an exploration standpoint, however, huge upfront development costs and a dearth of rigs capable of drilling in deep water are crimping a significant expansion of activity in Gulf of Mexico deep waters.

Many in the industry say the Gulf of Mexico Outer Continental Shelf in water depths exceeding 1,500 ft is the most important U.S. exploration province since Alaska's North Slope began yielding giant fields.

However, the slide in oil prices in the mid-1980s has prevented deepwater Gulf of Mexico activity from keeping up with expectations. Minerals Management Service data shows the rate has slowed at which gulf operators have discovered fields with reserves greater than 100 million BOE, from 27 fields in the 1960s to 15 in the 1970s and six in the 1980s.

There is little disagreement that the size of the gulf's potential hydrocarbon resource is substantial. MMS in 1989 estimated undiscovered gulf reserves in Cenozoic pay at 9.27 billion bbl of oil and 100.34 tcf of gas.

Much of that resource is thought to be in the gulf's deep waters.

Lured by thick sands with promising reservoir characteristics, companies since 1983 have spent $1.72 billion to lease more than 9.5 million acres in the Gulf of Mexico in water deeper than 1,500 ft.

Gulf deepwater exploration is focusing on four areas: Mississippi Canyon, where economically producible reserves have been discovered on 19 deepwater blocks, Green Canyon with nine such blocks, and Garden Banks and Viosca Knoll areas with five each.

Shell Oil Co. says adequate technological, design, and marine construction capabilities exist for gulf operators to produce oil and gas in more than 5,000 ft of water. Projects in ultradeepwater could be producing by 2000.

However, recoverable reserves must be very large to justify deepwater development. For example, development costs of Shell's Bullwinkle prospect are expected to reach about $1.3 billion. Development costs of fields on the gulf's ultradeepwater frontier likely will surpass $1 billion each.

Deepwater operators must find ways to cut steep upfront development costs, or only the largest prospects will be economic to develop.

Still, consultant Petrie Parkman & Co., Denver, says the deepwater strikes announced at midyear are creating a sense of excitement among gulf operators not seen since the 1950s.

GIANT DISCOVERIES

The belief that giant oil and gas fields underlie deeper waters of the Gulf of Mexico was affirmed May 1, when Shell reported a well in more than 3,100 ft of water on Mississippi Canyon Block 763-part of its Mars prospect-had cut 440 ft of net pay in multiple sands at 14,500-18,100 ft (OGJ, May 6, p. 42).

Shell's Mars prospect includes Mississippi Canyon Blocks 806 and 807.

Based on the Block 763 well and three others on project acreage, Shell said Mars reserves could surpass its 1989 Auger discovery in 2,860 ft of water on Garden Banks Block 426. The company has estimated Auger's ultimate reserves at more than 220 million bbl.

BP Exploration, with 33.3% interest Shell's partner in the Mars prospect, says the prospect's reserves could top 500 million BOE.

In mid-May, the gulf's deepwater Mississippi Canyon area yielded news of two more apparently giant strikes, both involving Conoco Inc. (OGJ, May 20, p. 38):

  • In 4,350 ft of water on Mississippi Canyon 211, Exxon Co. U.S.A. and Conoco logged five pay sands at 10,000-13,000 ft under a 3,000 ft thick salt formation.

  • In 2,900 ft of water on Mississippi Canyon 243, Conoco and Oryx Energy Co., Dallas, reported finding oil, gas, and condensate in five upper Pliocene sands at 6,000-11,000 ft.

Operator Exxon and Conoco each own 50% interest in Block 211, where reserves are estimated at as much as 200 million BOE. The companies hold as much as 50% interests in 22 other blocks and 100% interests each in five additional blocks, all near Block 211.

Conoco says the Block 211 discovery indicates commercial volumes of hydrocarbons underlie salt intrusions all across the gulf's OCS.

With two-thirds interest, Conoco is operator of Block 243. Conoco and Oryx, owner of the remaining one-third interest, estimate 150 million BOE are trapped in Block 243's depositional system, described as a low relief anticline downthrown to two faults.

Conoco says Block 243's depositional system underlies six adjoining blocks acquired last March at OCS Sale 131 by the Conoco-Oryx combine.

DEVELOPMENT ECONOMICS

With development costs measured in hundred-million dollar increments, economics pose the greatest obstacle to producing hydrocarbons in the deepwater Gulf of Mexico.

Reserve volumes and product pricing are key factors in deepwater development decisions.

Based on Department of Energy price forecasts, Shell says reserves of 120 million BOE would be needed for an economical Gulf of Mexico project in water 3,000 ft deep.

Using Conoco deepwater prospects in the gulf, Petroleum Industry Research Associates, New York, calculated reserves of at least 50 million BOE would be needed for an economic project in water 1,500 ft deep, 1 00 million BOE in water 3,000 ft deep, and 120 million BOE in water 4,500 ft deep. PIRA based its estimates on:

  • Oil prices of $25/bbl and gas prices of $1.60/MMBTU in 1991, $38/bbl and $5/MMBTU in 2000, and $60/bbl and $6/MMBTU in 2010.

  • A reserve mix of 85% oil and 15% gas.

Despite those hefty economic thresholds, Petrie Parkman says the gulf's production economics and fiscal terms compare favorably with other offshore areas.

According to Conoco, development and operating costs would be about $7.50/bbl for a 300 million bbl oil discovery in the Gulf of Mexico at a water depth of 3,500 ft.

Comparative costs would be $11.50/bbl for a similar discovery in 1,500 ft of water in the Norwegian sector of the North Sea. Partly because of differing contract terms, net present value would be $2.50/BOE in the gulf vs. 90/BOE in the Norwegian North Sea.

Deepwater fields with less reserves could be economic to develop if they were located near a pipeline or in a cluster of other small fields that could share production facilities.

DEVELOPMENT OPTIONS

Critical deepwater development variables include reservoir size and productivity and investment needs based on conceptual engineering, say industry officials.

In evaluating deepwater reservoirs, operators must balance the need for good data with the high cost of semisubmersible rigs and drillships used for deepwater well tests. The high cost of gathering complete sets of data in deep water limits understanding of reservoir characteristics.

To compensate, officials say, companies are relying more on speculative and custom 3-D seismic surveys to evaluate deepwater prospects, site wells, and study reservoir properties.

Once the decision has been made to develop a prospect, production system design, fabrication, and installation becomes the most important development path. Deepwater production start-up typically is achieved 8-10 years after discovery, so timely initiation of production is essential to controlling development costs.

The most effective deepwater development strategies are based on interactive site and system analyses, some executives contend.

A development plan based entirely on a specific deepwater production system might miss opportunities for new, better approaches.

Conversely, reevaluating all development options for each deepwater project limits benefits from previous solutions.

DEEPWATER PROGRESS

Shell's Cognac platform installed in 1978 in 1,025 ft of water on Mississippi Canyon Block 194 led to a series of technically successful deepwater gulf developments:

  • Exxon Co. U.S.A. in 1983 installed Lena guyed tower in 1,000 feet of water on Mississippi Canyon Block 280.

  • Placid Oil Co. in 1988 began production with a floating drilling and production system from subsea wells in more than 2,200 ft of water on Green Canyon blocks 29 and 31. Despite poor reservoir performance, many in the industry consider Placid's development a technical success.

  • Shell in 1988 set Bullwinkle platform in 1,350 ft of water on Green Canyon Block 65. At 1,615 ft, Bullwinkle is the world's tallest fixed platform.

  • Conoco Inc. in 1989 installed Joliet tension leg well platform (TLWP) in 1,760 ft of water on Green Canyon Block 184.

Shell says comparative costs of Cognac and Bullwinkle platforms shows long term gains have accrued in construction and installation of fixed deepwater platforms. In real terms, Cognac cost about 20% more to fabricate than Bullwinkle and about 6 times as much to install.

More than 20 deepwater projects are under study gulfwide, several based on innovative production schemes:

  • Exxon is nearing start-up of production from Zinc field in 1,500 ft of water on Mississippi Canyon Block 354. Exxon plans to produce Zinc gas through the gulf's largest multiwell satellite subsea template system to Platform Alabaster in 468 ft of water on Mississippi Canyon Block 397,

  • Enserch Exploration Inc., Dallas, expects to start production in late 1992 or early 1993 from three stacked subsea drilling and production templates in 1,410-1,520 ft of water on Mississippi Canyon Block 441. Production will flow to a fixed platform in 380 ft of water on Ewing Bank Block 482.

When Shell in 1993 installs and begins producing from Auger tension leg platform (TLP) in 2,860 ft of water on Garden Banks Block 426, it will set a deepwater production record.

HOLDING DOWN COSTS

Shell classifies deepwater develop concepts into three categories, each with many options:

  • Compliant towers, including piled, flexible, and buoyant structures.

  • Tethered vessels such as TLPs and TLWPs.

  • Moored systems such as floating production systems (FPSs) and floating production, storage, and offloading systems (FPSOs).

In most cases, Shell says costs of the three major development options differ so little that the ultimate selection likely will depend more on factors such as risk assessment, flexibility in scheduling, construction options, operability, present worth of capital, and the revenue stream.

Upfront costs and time constraints can be reduced with development schemes that allow reuse of equipment. A TLP based production system might be moved and placed in service at a new location more quickly and easily than a fixed steel platform.

For example, when Joliet field on Green Canyon 184 is depleted, Conoco plans to move Joliet's TLWP to Green Canyon 228. The transfer could be completed in 30 days at a projected cost of $44 million.

FPS based production systems suggest similar development plans.

Petrie Parkman allocates field development costs in water 4,000-6,000 ft deep at 30% for development drilling, 30% for platform structure, 30% for pipeline, and 10% for processing or production equipment. Reusing the platform in this example allows costs to be allocated among several fields and lowers the threshold for economic development.

DEEPWATER DRILLING

A significant impediment to deepwater development in the Gulf of Mexico is the lack of rigs capable of drilling in water more than 3,000 ft deep, Petrie Parkman says.

According to MMS data, gulf operators have leased more than 1,700 blocks in water deeper than 1,500 ft. But only about a dozen mobile rigs rated to work in water deeper than 2,000 ft are available in the gulf.

Oceandril Data Services Inc., Houston, on Dec. 3 counted seven rigs drilling in gulf waters deeper than 1,500 ft, five in the Garden Banks area.

The Discoverer 7 Seas drillship, rated to a water depth of 7,500 ft, is working on the gulf's deepest active drilling location in 3,890 ft of water on Green Canyon Block 473.

Other deepwater mobile rigs are on locations in waters that are less than 1,500 ft deep.

Petrie Parkman says about 5,600 Gulf of Mexico wells in water 600-2,500 ft deep have discovered 182 producing fields.

About 700 wells in water 2,500-5,000 ft deep have logged 21 discoveries.

No economically producible wells have been reported as a result of 42 wells drilled in water deeper than 5,000 ft.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.