The Jack-2 perspective

Sept. 11, 2006
The oil and gas industry received a strong demonstration of what passes for energy perspective in the US last week.

The oil and gas industry received a strong demonstration of what passes for energy perspective in the US last week. A group of companies disclosed promising test results from a 2-year-old oil discovery in the deepwater Gulf of Mexico, and reporters in the general media mostly wanted to know how the news would affect that day’s price of gasoline. At least one Houston television station covered the story by-how else?-interviewing drivers buying fuel at service stations.

Production from any of the dozen discoveries made so far in the 100-million acre deepwater Lower Tertiary play remains several years in the future. By then, gasoline prices will have swung through many cycles, and those pumpside commentators will have forgotten reports in early September 2006 of the Chevron Corp. Jack-2 on Walker Ridge Block 758, 270 miles southwest of New Orleans.

Future supply

The Jack-2 well’s importance relates to future oil supply, not the immediate price of gasoline. Drilled to 28,175 ft TD in 7,000 ft of water, it penetrated more than 350 ft of net pay, 40% of which tested more than 6,000 b/d of light, sweet crude. Among other things, the test proved that the Lower Tertiary can produce oil at pressures encountered at great depth. In conjunction with the wide area that has yielded discoveries so far, the confirmation raises hope that a major new source of oil is at hand.

Estimates of recoverable volumes for the deepwater Lower Tertiary play reach as high as 15 billion bbl of crude and other liquids. It’s too soon for such numbers to be anything but speculation. If supply foretold by the Jack-2 results remains uncertain, however, the well clearly has engaged the imagination of the news media and therefore the public. It thus offers the industry a chance to help move energy politics beyond its fixation on the price of gasoline and its orientation to futile goals.

The industry, for example, can use the Jack-2 to point out that a supply contribution doesn’t have to make the US energy-independent to be important. In fact, there are no supply contributions that large in prospect. By the time production from discoveries related to Jack-2 might be hitting stride 5 years from now, rising US demand and depletion of fields now on production will have increased the US need for foreign oil by perhaps 1.5 million b/d. That number represents extension of the past 5 years’ average net effect on the crude oil balance of demand gains and production declines. It’s what the new area would have to produce just to get import dependency back to its level of 2005, still far shy of self-sufficiency.

Yet any domestically produced oil is preferable to the imported kind. It keeps wealth generated from resource development at home. And it’s more secure. The US should welcome potential new oil supply for these reasons.

The Jack-2 test results boost confidence in that potential and highlight the central role technology plays in future supply. Ten years ago, the challenge of drilling through salt to 20,000 ft below the sea floor in 7,000 ft of water would have discouraged exploration. In fact, the drilling challenges would have been moot because seismic images of deep subsalt drilling targets under so much water would not have been available. Technology, by making exploration possible and development conceivable, brought the deepwater Lower Tertiary into play.

Other potential

The success raises a question for US policy-makers: If the deepwater Gulf of Mexico can yield this large a surprise, what other new supply might the industry be able to discover and develop on federal acreage off the East and West Coasts that the government now refuses to lease?

With its unwise aversion to leasing, the US forswears not only secure oil and gas supply but also economic activity. Development of and production from discoveries in the deepwater Lower Tertiary trend will create incomes for individuals, company shareholders, and governments. The potential for new energy supply and new wealth exists elsewhere off US shores. A thorough test of that potential is long overdue.