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Wood Mac says 2007 in Gulf ‘disappointing,’ saw fewest deepwater discoveries in decade
Gulf of Mexico explorers came up short last year, together posting the least number of discovered deepwater oil and gas reserves in a decade, according to a report compiled by industry consultant group Wood Mackenzie, which released a separate report a month earlier saying U.S. Gulf production had increased just 1 percent in 2007 over 2006.
“In contrast to the successes of 2006, deepwater exploration in the U.S. Gulf of Mexico during 2007 was relatively disappointing,” Wood Mackenzie wrote in its most recent study, released March 5 and entitled, “Gulf of Mexico Deepwater: Review of Exploration in 2007.”
Reserves found in 2007 were estimated at 553 million barrels of oil equivalent, less than half of the 1.4 billion barrels discovered in 2006, which Wood Mackenzie acknowledged as “an exceptional year for GoM deepwater exploration.” And, while the results for 2007 were below average, they were not far short of previous “quiet” deepwater exploration years such as 2001, 2004 and 2005. Still, of the reserves discovered in 2007, only 229 million barrels of oil equivalent have thus far been deemed commercial, or 41 percent of the total reserves discovered versus the 10-year average of 44 percent.
On average 80% of tight holes have been dry Wood Mackenzie also analyzed the historic patterns of results from wells initially held as “tight,” whose results have since been determined. This has shown that on average 80 percent of wells originally classified as tight holes have been dry holes. Applying this as a correction to the nine tight hole results of the past year, that is assuming about two wells will later be declared as successes, the 2007 adjusted success rate becomes a more respectable 45 percent — in line with the 10-year corrected average of 46 percent.
Nevertheless, “the contribution in 2007 to GoM deepwater’s reserves base was the lowest in the past decade,” Wood Mackenzie reported, noting that 38 companies participated in the drilling of 34 exploration wells last year, less than the long-term annual average of 43 wells per year. Moreover, relatively few of these wells targeted the deeper, more complicated plays, and as such the overall average drill time per well of 71 days was shorter than the previous year. In contrast, the deeper Paleogene (Lower Tertiary) and Lower Miocene targets took up a larger proportion of 2006 drilling, accounting for 53 percent of the wells drilled. This fell to 29 percent in 2007. The net effect was fewer total drill days in 2007 in relation to the number of wells drilled.
The average quantity of reserves discovered per exploration well was 16 million barrels of oil equivalent per well in 2007, well below the 10-year average for the Gulf of Mexico deepwater region of 26 million barrels of oil equivalent per exploration well, the report said.
More field appraisal in 2007 Wood MacKenzie attributed the lower level of exploration activity during 2007, at least in part, to higher levels of field appraisal and development drilling activity in the U.S. Gulf coupled with a reported tight rig market.
“We expect exploration drilling to pick up in 2008, driven by a combination of factors. Increased rig availability, further prospect identification from ongoing seismic analysis, and the acquisition of large amounts of acreage in 2007, will all encourage exploration,” the report said.
Last October’s Central Gulf of Mexico Lease Sale 205 drew an eye-popping $2.9 billion in high bids, by far the best financial performance for a Gulf of Mexico lease sale in more than two decades. Moreover, the number of winning and losing bids combined totaled around $5.2 billion, demonstrating the highly competitive nature of the sale.
This year’s Central Gulf lease sale is scheduled for March 19 in New Orleans, La.
Other factors influencing the quiet exploration year of 2007 may include the fact that companies have new seismic to process before committing to exploration drilling activity, Wood Mackenzie said, noting that after the glut of new acreage awarded in the lease sales in 2007 the purchasers of the acreage “will require further time to process information on their prospects.”
To determine whether 2007’s quiet year of exploration was due to increased activity outside of exploration, Wood Mackenzie analyzed the levels of activity on deepwater wells as reported to the U.S. Minerals Management Service. “While these do not paint an exact picture of total drilling taking place in GoM, they do nevertheless provide a barometer to the amount of activity operators are undertaking,” the report said.
2007 say 1% production increase In a separate report released Feb. 5, Wood Mackenzie attributed last year’s paltry 1 percent production increase from deepwater Gulf of Mexico to declining fields which overwhelmed a record number of new starts for the region to create an average output of 1.46 million barrels of oil equivalent per day.
“This 1 percent increase is surprisingly small given the record number of fields that started up in the region,” Wood Mackenzie analyst Matthew Jurecky wrote in the report. Excluding the hurricane-impacted years of 2004 and 2005, he added: “In 2007, we have observed the smallest increase in deepwater production since output began in 1988.”
Of the 2007 deepwater discoveries deemed commercial in Wood Mackenzie’s latest report, West Tonga at Green Canyon (GC) Block 726 was the largest. Discovered by Anadarko, in partnership with Norway’s StatoilHydro, Chevron and Shell, reserves are tentatively estimated at around 100 million barrels of oil equivalent. The discovery is likely to be developed jointly with the neighboring Caesar (GC 683) and Tonga (GC 727) fields. Development options include a subsea tieback to nearby infrastructure, potentially the Constitution or Tahiti spars.
The Droshky (GC 244) discovery was made by 100 percent owner and operator Marathon in April 2007. The field is believed to hold recoverable reserves of 85 million barrels of oil equivalent in the Upper Miocene. Development drilling has already started on the field, with what will ultimately be a three-well subsea tieback expected to come onstream in 2010.
Elsewhere, the Danny and Noonan fields at Garden Banks Block 506 were discovered by 100 percent owner and operator Helix Energy Solutions during 2007. The company estimated combined reserves of 26 million barrels of oil equivalent. These fields are undergoing a fast-track development program in tandem using subsea tiebacks, and are due onstream during the third quarter of 2008.
Also on a fast-track are Anadarko’s wells at East Breaks blocks 598 and 599. These were immediately completed for production and tied in to existing subsea infrastructure and the Boomvang spar. They came onstream in the third quarter of 2007.
Technical reserves bulk of discoveries Technical, or reserves that have not been fully delineated, made up the bulk of U.S. Gulf discoveries in 2007. The largest was Vicksburg at DeSoto Canyon (DC) Block 353, discovered by Shell in partnership with Nexen and Plains E&P. This is an Upper Jurassic reservoir in the Norphlet Trend. The extent of the reserves is yet to be fully determined, but Wood Mackenzie tentatively estimates the resource to be 125 million barrels of oil equivalent. This find may be part of an emerging Jurassic trend in the Gulf of Mexico deepwater, following on from the Shiloh (DC) Block 269 discovery in 2003. It is expected that further exploration will follow in this trend, in the hope of finding a “string of pearls” that could combine into a viable commercial development, Wood Mackenzie said.
Other significant technical discoveries include Julia at Walker Ridge Block 627, a Paleogene reservoir in the Upper Wilcox formation. The discovery well was operated by Shell in partnership with ExxonMobil and StatoilHydro, and it is estimated to hold 150 million barrels of oil equivalent. Shell decided not to participate in further activity at Julia. But the remaining partners have started drilling an appraisal well on the field.
—Ray Tyson
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