Gulf of Mexico 3D data licensing takes new twist

The cost to license Gulf of Mexico seismic data is taking on a new dimension. The development falls under the heading of cost reduction evidenced by companies' efforts to manage prospect kill costs in exchange for equity interests in oil and gas prospects. Two long time explorationists have formed a Houston company designed to purchase and contribute the license to existing Gulf of Mexico 3D seismic data in return for equity interests in exploration and development projects.

May 11, 1998

3 min read

The cost to license Gulf of Mexico seismic data is taking on a new dimension.

The development falls under the heading of cost reduction evidenced by companies' efforts to manage prospect kill costs in exchange for equity interests in oil and gas prospects.

Two long time explorationists have formed a Houston company designed to purchase and contribute the license to existing Gulf of Mexico 3D seismic data in return for equity interests in exploration and development projects.

The concept

Ocean Exploration LLC, (OEX), formed this year, executed a multiyear agreement with Western Geophysical in which OEX may access Western's speculative 3D data on the Outer Continental Shelf consisting of about 5,000 blocks of data acquired with Western's proprietary Ocean Bottom Cable or conventional or solid streamers.

By virtue of OEX's volume obligation to Western, it can deliver a discounted primary seismic exploration license of the Western data to the joint venture partner in exchange for equity participation.

OEX seeks partial reimbursement for data up front, and the cost is perhaps as much as 40-60% of the price an E&P company would pay-absent a large monetary commitment-to license the data directly from Western.

Through the joint venture partner's interpretation of the data, OEX retains a working or overriding royalty interest in any leads that mature into prospects.

Such agreements could reduce an operator's seismic cost by $800,000 to $1.2 million in a 25 block agreement, said Randall D. Jones, who formed OEX with David W. Reinkemeyer.

Jones, with a land and business background, was most recently with a drilling contractor that offered a full range of engineering services, including leveraging rigs for equity interests. Before that he was with Mobil, ARCO, and Norcen. Reinkemeyer, with 20 years in the industry, is an explorationist who was with Southwestern Energy Production Co., most recently as exploration manager.

OEX is not related to Ocean Energy Inc., a large Houston independent recently merged with United Meridian Corp.

Spreading risks, costs

Pursuant to strictly enforced master license agreements, prohibitions against the sharing of licensed seismic data by licensees takes on significant cost implications as operators and partners combine into large groups and take smaller interests in exploration projects.

Jones views the OEX-Western deal as being similar to larger service/supply companies trading a portion of their anticipated profit margins in large E&D projects for minority equity interests in the development of oil and gas fields. This has been occurring in the North Sea, off West Africa, and elsewhere.

The OEX approach may be attractive to companies that have either avoided making the large financial commitment needed to secure a volume discount or wish to preserve their funds/ commitment for strategic data selection.

Jones said OEX's working interest costs in such projects could start before or after its partner controls a lease or obtains a farmout. The joint venture partner's risk is limited to income, if any, attributable to OEX's working interest in the event of a significant discovery.

History has shown exploratory drilling success rates of ±30%, and success rates have improved with the use of 3D seismic, Reinkemeyer pointed out.

For Western the agreement with OEX represents a way to broaden sales of its data, although the large geophysical company doesn't participate in taking equity interests.