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April 2006

Vol. 11, No. 14 Week of April 02, 2006

Knotty Head key driver

Green Canyon discoveries big drawing card in Central Gulf Lease Sale 198

Ray Tyson

For Petroleum News

Knotty Head and other significant oil discoveries in the Gulf of Mexico’s southeast Green Canyon evidently were key drivers in Central Gulf Lease Sale 198, judging from the umpteen millions doled out by bidders to secure what few promising exploration tracts remained in the vicinity.

If nothing else, the most recent of these southeastern Green Canyon discoveries — Knotty Head — appears to have reinforced in bidders’ minds the fertile nature of several deepwater plays that have produced such darlings as Tahiti, Mad Dog, Atlantis and Holstein.

A lease map furnished by the U.S. Minerals Management Service clearly shows that going into Sale 198 only a handful of exploration blocks located on the fringe of Green Canyon’s prolific Atwater Foldbelt were available to bidders.

In fact, six of the ten highest single bids in the Sale 198 were placed on blocks in Green Canyon, including Amerada Hess’ sale-high $42.8 million. Knotty Head is situated in the heart of the foldbelt.

Therefore, because of the Knotty Head’s prime location, operator Nexen and partner Anadarko Petroleum kept fellow explorers, industry analysts and the press in suspense over the magnitude of the Knotty Head discovery, right up to sale day on March 15.

Months prior to Sale 198, Nexen and Anadarko began hyping Knotty Head as a potentially “world-class” prospect, with pre-drill reserve estimates ranging from 350 million to 1 billion barrels of oil equivalent, truly an elephant by Gulf standards. In comparison, BP’s Thunder Horse field in Mississippi Canyon is the largest ever discovery in the Gulf with roughly 1 billion barrels of recoverable resource.

Drilling began in March 2005

The Knotty Head well commenced drilling on March 14, 2005, and was drilled by Transocean drillship Discoverer Spirit. The well is located in about 3,500 feet of water and about 170 miles southeast of New Orleans, La.

In June 2006, Nexen unveiled partial drilling results from the Knotty Head exploration well on Green Canyon Block 512, noting in a statement that the well had encountered more than 300 feet of apparent hydrocarbon pay in a secondary objective. At the time, the well was at 29,670 feet and headed to 32,500 feet and its primary target.

Nexen, while careful not to speculate on Knotty Head’s size following the initial discovery, believed the reservoir to be much larger than initially thought, in part due to the fact the well had not yet reached the primary target in the lower Miocene section.

Sure enough, after extending the well to 34,000 feet, the deepest ever in the Gulf, the partners declared a combined 600 feet of net pay sands in multiple zones, doubling the earlier estimate. That put Knotty Head in the top tier of deepwater Gulf discoveries.

However, “We are looking forward to completing the additional drilling required to confirm our estimate of the total resource we have captured,” Charlie Fischer, Nexen’s president and chief executive officer, cautioned in a Dec. 20 press release.

Results unveiled after sale

By design or sheer coincidence, Nexen and Anadarko waited until after the recent Central Gulf lease sale to unveil the drilling results from a sidetrack off the Knotty Head discovery well, causing the partners to narrow Knotty Head’s estimated reserves to a more firm 200 million to 500 million barrels of oil equivalent, still a giant.

The sidetrack well was drilled downdip to a total depth of 32,986 feet, with a bottom-hole location roughly 4,500 feet to the south of the original wellbore. The sidetrack encountered all reservoirs seen in the discovery well and 400 feet of net oil pay were logged, Nexen said.

“We are encouraged with the results of the wells drilled to date, which has confirmed Knotty Head to be a potential world-class discovery,” Nexen’s Fischer announced March 21, six days after the Sale 198. He added: “We will continue to accelerate the appraisal of the field in order to determine ultimate reserves and formulate an optimal development plan.”

Nexen also waited until after the March 15 Central Gulf lease sale to declare: “We believe the majority of the resources are located on our leasehold.”

In area of Anadarko discoveries

Knotty Head also is located in the same general area of four other Anadarko discoveries in Green Canyon — Marco Polo, K2, K2 North and Genghis Khan.

“The Knotty Head discovery is part of an extensive middle-to-lower Miocene play we are aggressively pursuing within the Mississippi fan foldbelt,” Bob Daniels, Anadarko’s senior vice-president in charge of exploration and production, disclosed in a statement following the lease sale.

Anadarko and partner Newfield Exploration, another E&P independent, shelled out nearly $34 million, the second highest single bid in the March 15 sale, for Green Canyon block 551. It was one of the most highly sought after blocks in the sale, attracting six bids totaling nearly $70 million from a combination of nine companies.

“The Lyell prospect identified on GC 551 is in close proximity to and targets the same Miocene pay zones found in Anadarko’s Knotty Head discovery and Tahiti and Tonga fields,” Anadarko disclosed a day after Sale 198.

Nexen, Anadarko, Australia’s BHP Billiton and Chevron each hold a 25 percent share of the Knotty Head.






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