Beacon Offshore Energy has let a contract to Transocean Ltd. for use of its newbuild ultra-deepwater drillship, the Deepwater Atlas, for the US Gulf of Mexico Shenandoah project. The award results from the final investment decision (FID) by Beacon and Navitas Petroleum to sanction the project, the service provider said in an Aug. 26 press release.
The agreed program comprises two phases. Once delivered from the shipyard, the Deepwater Atlas is expected to begin operations in third-quarter 2022, initially using dual blowout preventers (BOP) rated to 15,000 psi. The initial drilling program is expected to last about 255 days and result in some $80 million of contract drilling revenue.
Upon completion of the initial drilling program, a 20,000 psi BOP will be installed on the rig. BOP installation and commissioning is expected to last 45-60 days. Following the installation, the rig will begin phase two of the project—the well completion program. The phase is expected to last about 275 days.
Shenandoah lies 160 miles off the coast of Louisiana in Walker Ridge Blocks 51, 52, and 53. It is expected to come online as early as late 2024. Multiple wells are expected to develop an estimated 100-400 million bbl, targeting previously discovered oil-bearing Upper and Lower Wilcox reservoirs.
The $252-million contract with Transocean includes a mobilization fee of $30 million as well as a performance bonus opportunity based upon agreed operating metrics.
Last year, Beacon signed a deal with LLOG Exploration Co. LLC to acquire an additional 31% interest and operatorship of the Shenandoah project.
HEQ Deepwater, Houston, closed a deal Aug. 25 to acquire a 20% working interest in the ultra-high-pressure Shenandoah development from a Beacon Offshore affiliate. The company was formed this year by Quantum Energy Partners and Houston Energy—a privately held independent oil and gas company operating in the deepwater Gulf of Mexico—with more than $400 million of equity capital commitments from Quantum and management, the company said in an Aug. 30 release.
The buy-in was not surprising, said Mfon Usoro, senior research analyst at Wood Mackenzie, a Verisk company, in an Aug. 26 statement after project sanction. “We suspected a dilution of ownership before or at FID to help reduce Beacon and Navitas Petroleum’s cost burden,” she said.
US Gulf of Mexico growth
“After years of research and development, 20-kpsi technology is taking huge leaps in the US Gulf of Mexico,” said Mfon Usoro, senior research analyst at Wood Mackenzie, a Verisk company, following the announcement.
“The FID of Shenandoah represents another milestone in the 20-kpsi journey, following Chevron sanctioning Anchor, the GoM’s first ultra-high-pressure field, in 2019.”
Usoro said that Shenandoah will be transformational for Beacon Offshore Energy’s portfolio in the US Gulf of Mexico, and that once onstream, and that once onstream, “production from Shenandoah is expected to catapult Beacon from its current position as the 20th-largest producer in the US GoM to [the] 10th spot.”
“The Shenandoah joint venture secured funds to the tune of US$900 million for the first phase of development, highlighting our view that even with net-zero goals, both oil and gas companies and the global capital market still see value in high-return, low-emission oil and gas projects,” Usoro said.
Developing Shenandoah will be challenging, Usoro said, as deploying a new technology carries a higher risk. “Although the company has safely and successfully drilled sub-salt Miocene-aged wells, it has not drilled any Paleogene-aged wells,” she continued.
“Project sanction for Shenandoah unlocks growth opportunities in the US [Gulf of Mexico]. The arrival of the Shenandoah semi-submersible facility will breathe life to the Western Walker Ridge area. Three discoveries with combined reserves in excess of 300 MMboe—Yucatan, Coronado, and Monument—now have a higher chance of commerciality,” she said.
The US Gulf of Mexico remains an attractive basin for investment, Usoro continued, noting more FID announcements are expected for the region, and two greenfield projects—North Platte and Leon-Moccasin—could also achieve FID this year,” she concluded.