GULF LAND, OFFSHORE OPPORTUNITIES STILL SIGNIFICANT IF COMPANIES ADAPT

G. Alan Petzet Exploration Editor Significant exploration opportunities exist along the Gulf Coast and in the Gulf of Mexico, but the industry will have to streamline its operating methods to take advantage of some of them, says Robert L. Howard, vice-president, domestic operations, Shell Oil Co. The Gulf Coast/Gulf of Mexico has been a large contributor to the success of the domestic industry in the past, and a careful examination of discovery volume trends suggests real potential for further

June 7, 1993

5 min read

G. Alan Petzet
Exploration Editor

Significant exploration opportunities exist along the Gulf Coast and in the Gulf of Mexico, but the industry will have to streamline its operating methods to take advantage of some of them, says Robert L. Howard, vice-president, domestic operations, Shell Oil Co.

The Gulf Coast/Gulf of Mexico has been a large contributor to the success of the domestic industry in the past, and a careful examination of discovery volume trends suggests real potential for further growth.

Opportunities exist for independents as well as major companies in the form of new field wildcatting and exploration in existing fields, Howard told the American Association of Petroleum Geologists annual convention in New Orleans in late April.

Potential remains on the shelf for major oil companies, even though they will sell some shelf producing properties, thereby creating opportunities for independents.

The outlook is not as gloomy as it might appear from the downward trend during 1986-91 in U.S. exploration/production activity. Examination of industry financial statistics during 1960-91 shows that industry income from domestic operations is higher now than before the boom, driven by higher real crude prices.

Howard said the deepwater Gulf of Mexico has been established as a major new hydrocarbon province, but development costs are so large that unprecedented levels of synergy and cooperation between operators, contractors, and suppliers will be needed to ensure a reasonable return on investment.

DISCOVERY PROFILES

The land and offshore gulf have the potential to continue the large contribution they have made to the domestic industry, Howard said.

Texas Railroad Commission data that list Tertiary age reservoir discovery volumes by year of discovery for 1900-91 show that Texas Gulf Coast onshore discovery volumes have been maintained at historic rates. This contrasts with the decline that shows up after 1960 when discovered volumes are plotted in the traditional manner according to year of first production.

Louisiana does not keep similar data by reservoir, but Howard suspects a similar trend there.

The Gulf Coast onshore mix of exploratory drilling has clearly trended away from wildcatting for new fields toward exploring for new pools in and adjacent to existing fields. Offshore discovery volumes for 1940-91 show the same relatively steep creaming curve as traditional onshore data.

About 22 billion BOE of the 32 billion BOE discovered in shallow waters of the gulf is in giant fields.

Meanwhile, advances such as bright spot seismic technology in the 1970s and the availability in the 1980s and 1990s of larger semisubmersibles pushed the average water depth of all gulf wildcats from about 60 ft in 1960, 220 ft in 1970, and 430-460 ft of water in the late 1980s-early 1990s.

Shell and others have drilled more than 200 wells since 1985 in 1,500 ft of water or more.

SPENDING PATTERNS

It is surprising that Gulf Coast onshore exploration spending patterns are different than Gulf of Mexico patterns even though both areas are dominated by Tertiary deltaics and salt-withdrawal structures, Howard said.

During 1986-91, industry drilled 3,083 new field wildcats and 2,429 infield wildcats onshore. During the same years it drilled 2,563 new field wildcats but only 329 infield wildcats offshore.

The number of seismic crew months worked during those years was 1,024 onshore and 1,157 offshore. The similar numbers do not accurately portray the dramatic difference between the two areas because 500 line miles of data are gathered in the average offshore crew month, compared with only 50 line miles or less onshore.

Nevertheless, it is surprising that we have not seen any upsurge in seismic activity during the period in spite of the high quality of onshore 3D seismic data, Howard said.

There is even more evidence that infield wildcatting has lagged offshore. Around 1970 a marked shift occurred from about 50-50 new field and infield wildcats to about 85-90% new field wildcats. The shift marked the advent of bright spot technology and widespread availability of larger semisubmersibles.

FUNDAMENTAL CHANGES

Applying new exploration approaches and technology can help, but what's needed is not as simple as more 3D onshore and more infield exploration offshore. Economics and organization inefficiencies need to be considered.

Howard said Shell has integrated its exploration and production departments, formed work alliances with two drilling and two workover contractors, and drilled its first completely turnkey well in the gulf with good results.

Industry has made 31 or more discoveries since 1984 in deep water, but because of staggering costs only six prospects have been or are being developed. Fewer than 5% of the leases have been evaluated.

With few exceptions, Howard said, deepwater discoveries can be grouped on the basis of geology, proximity to each other, and proximity to existing shelf infrastructure within 15 miles of the 1,500 ft bathymetric contour, along six corridors in which synergy between projects seems both possible and desirable (Fig. 1).

Differences in the economics of deep water vs. shelf developments are significant (Figs. 2, 3).

Several approaches are possible.

Operators can join forces in building early infrastructure with the notion of longer lifespan and development of more than one accumulation. This reduces front end risk capital and makes some nearby accumulations commercial.

Seismic contractors could focus on blocks of heavily leased acreage around existing discoveries, where clients are obvious and easier to group. That would reduce or eliminate risk capital associated with speculative shoots and allow contractors to concentrate on quality rather than quantity.

Drilling contractors can plan rig types and rig availability around corridor geology and bathymetry and work to achieve longer term contracts based on corridor development scenarios in a "share the risk" mode.