Chesapeake Energy curtails natural gas production even further in current low price environment

Instead of selling into a historically depressed market, Chesapeake Energy Corp. has elected to curtail roughly 400 million cubic feet (MMcf) per day of its gross natural gas production. The reduction includes the 200 MMcf per day curtailment of natural gas production previously announced on March 2, 2009. Chesapeake has resumed 7,000 barrels per day of oil production from previously curtailed oil wells.

The company’s 400 MMcf per day curtailment represents nearly 13% of Chesapeake’s current gross operated natural gas production capacity. The wells that have been curtailed are primarily located in the Mid-Continent and Barnett Shale regions. Until natural gas prices strengthen, the company plans to limit production from most newly completed wells in the Barnett and Fayetteville shales to 2 MMcf per day and in the Marcellus and Haynesville shales to 5 and 10 MMcf per day, respectively, in addition to the approximate 400 MMcf per day curtailment.

The company believes the natural gas markets are due for a rebound and that the company’s current financial position and natural gas hedging positions enable the company to hold off selling in the current market.

Aubrey K. McClendon, Chesapeake’s CEO, sees the markets beginning to balance by late 2009 or in early 2010. “This recovery is already partially reflected in the NYMEX natural gas forward strip, but we believe it will become much more pronounced in the months to come as US natural gas production declines begin to accelerate and the economy begins to recover,” he said. — Mikaila Adams

Energy XXI’s Louisiana Cote de Mer prospect shows increased resource potential

Energy XXI has identified incremental natural gas pay sands at its Cote de Mer prospect in Vermilion Parish, La., lifting the discovery’s resource potential to between 89 billion and 108 billion cubic feet equivalent (bcfe), compared with the previous estimate of between 20 and 40 bcfe.

The E.A. McIlhenny #1 well on the Cote de Mer prospect was drilled to its target depth of 22,300 feet. Logs indicate that the well encountered at least 80 net feet of natural gas pay in two zones, and possibly another 70 net feet of pay in two additional sands, all within the targeted Cris-A section. Energy XXI holds a 33% working interest and a 24% net revenue interest in the discovery.

“We are pleased to have successfully drilled the Cote de Mer prospect to target depth, resulting in a sizable natural gas discovery,” Energy XXI chairman and CEO John Schiller said. “We have set casing on the well and expect to test the potential pay zones and bring the well on production within six months.”

A third-party independent reservoir engineering firm employed by Energy XXI has estimated the discovery holds gross proved reserves of 88.8 bcfe, as well as probable and possible resources of 8.9 bcfe and 10.3 bcfe, respectively, implying total recoverable resource potential of 108 bcfe.

With help from Enterprise’s deepwater oil pipeline, BHP begins Shenzi Field production in GoM

BHP Billiton is now producing first oil and natural gas from the Shenzi development in the deepwater Gulf of Mexico. The tension leg platform (TLP) has a nominal capacity of 100,000 barrels of oil per day and 50 million cubic feet per day of natural gas, on a 100% basis.

The facility is located roughly 120 miles off the Louisiana coastline and is installed in roughly 4,300 feet of water on Green Canyon Block 653, making it the second deepest TLP in the world.

The Shenzi field comprises four blocks: Green Canyon 609, 610, 653, and 654.

Crude oil is transported via a 20-inch diameter pipeline connecting to Ship Shoal 332 B, while natural gas will be exported via the Cleopatra pipeline (where BHP Billiton has a 22% equity share). The crude oil pipeline has a capacity of 230,000 barrels per day gives Shenzi producers access to the Enterprise Products Partners-operated Cameron Highway Oil Pipeline and Poseidon Oil Pipeline systems.

Enterprise owns a 50% interest in Cameron Highway and a 36% interest in Poseidon.

“We are very pleased with the relationship we have developed with BHP Billiton and the rest of the Shenzi producers, as well as the performance of our personnel, whose expertise and efficiency allowed us to complete the project ahead of schedule and under budget,” said Michael A. Creel, Enterprise president and CEO.

BHP Billiton is the operator with 44% equity. Joint interest participants are Hess Corp. and Repsol, each with a 28% equity. — Mikaila Adams

Marathon completes sale of Irish subsidiary

Houston-based integrated international energy company Marathon Oil Corp. has completed the sale of its wholly-owned subsidiary, Marathon Oil Ireland Ltd. (MOIL) to PSE Ireland Ltd., a subsidiary of Petroliam Nasional Berhad (Petronas) for $180 million. The sale does not include Marathon’s 18.5% interest in the Corrib natural gas development.

Including this transaction, Marathon has completed approximately $1.3 billion of the anticipated $2 to $4 billion in asset sales announced in March 2008. The company expects more activity associated with the asset review and disposal program by mid-year 2009.

Under the terms of the sale, PSE Ireland Ltd. acquired Marathon’s 100% operated interest in the Kinsale Head Area comprising Kinsale Head, South West Kinsale, and the Ballycotton gas fields, as well as an 86.5% interest in the gas producing Seven Heads field which is tied back to Kinsale, and a 100% interest in the company’s gas storage business with current capacity of 7 billion cubic feet. PSE Ireland Ltd. retains the 61 MOIL employees in Ireland.

Net production from these operations averaged roughly 30 million cubic feet of natural gas per day for the first quarter of 2009. Marathon’s total net risked resource associated with these assets as of year-end 2007 was 62 billion cubic feet (bcf) of which 46.2 bcf (7.7 million barrels of oil equivalent) were net proved reserves.

Noble Energy makes discovery at Santa Cruz in Gulf of Mexico

Noble Energy has made a discovery at the Santa Cruz prospect in Mississippi Canyon Blocks 519/563. The well, located in 6,515 feet of water, was drilled to a total depth of roughly 18,900 feet. Open-hole logging indicated over 140 feet of net gas condensate pay and more than 110 feet of net oil pay in multiple high-quality reservoirs.

David Stover, Noble Energy’s executive vice president and COO, said, “Our discoveries at Santa Cruz and Isabela will be an important development program for our company. Current plans consist of subsea tiebacks to nearby infrastructure, and we anticipate first production from this area in 2011.

“Our deepwater Gulf of Mexico program is positioned very well, with a combination of existing production, several ongoing developments of recent discoveries, and a growing exploration portfolio. Our next exploration test will likely be late in the year at Deep Blue in the Green Canyon region, which will be testing our largest deepwater Gulf of Mexico prospect to date,” Stover added.

Noble Energy operates the Santa Cruz discovery with a 23.25% working interest. Other interest owners in the discovery are Houston Energy LP with 10%, Red Willow Offshore LLC with 20.25%, and BP Exploration & Production Inc., a wholly-owned subsidiary of BP America Inc. with the remaining 46.5%.

Southern Star Energy shines with third Haynesville discovery

Southern Star Energy Inc. has successfully drilled and logged the targeted Haynesville interval in its Boyce-Pate 16-1 Well, with positive results. The well is located in the east-central section of the company’s Sentell Field in Bossier Parish, La.

The well logged 66 feet of net gas pay in the Davis Sand intervals before the company drilled ahead to further evaluate the well’s Haynesville potential. The Boyce-Pate 16-1 Well reached a total depth of 11,200 feet on March 21. This is the third well in the company’s Haynesville development program, and the last of three Haynesville Shale vertical test wells in the Sentell Field planned this year.

Wireline logging and mud log shows indicate the Boyce-Pate 16-1 Well encountered 177 feet of net porous Haynesville Shale over a gross interval of 395 feet. The pay interval calculated average porosity of 10% with water saturation averaging 12%. Mud logs indicated gas shows throughout the interval, ranging from 1100 - 5900 units.

The company is a member of the Core Laboratories Integrated Reservoir Solution’s regional Haynesville Shale Study, and data from the company’s three Haynesville test wells will be incorporated into Core Lab’s regional database.

David Gibbs, the company’s president and CEO, said, “The petrophysical results from the Boyce-Pate 16-1 Well correlate to earlier evidence that our acreage is prospective in the Haynesville play.”

Dril-Quip awarded $80M contract for subsea wellhead systems

Dril-Quip Inc., a manufacturer of offshore drilling and production equipment, has been awarded a two year contract valued up to roughly $80 million to supply Dril-Quip’s 15,000 psi and 20,000 psi proprietary Big Bore Subsea Wellhead Systems for BP America’s Gulf of Mexico operations.

At the option of BP America, this contract may be extended for three additional years. The initial orders under the contract are valued at roughly $26 million and will be included in Dril-Quip’s backlog at the end of the first quarter of 2009.