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October 2007

Vol. 12, No. 43 Week of October 28, 2007

Blackbeard may rise from the ashes

McMoRan planning to re-drill world’s most closely watched exploration well more than 30,000 feet below Gulf’s continental shelf

Ray Tyson

For Petroleum News

Blackbeard West, arguably the world’s most closely watched exploration well until it was abandoned in August 2006 short of its primary target more than 30,000 feet below the U.S. Gulf of Mexico’s continental shelf, may soon be resurrected.

McMoRan Exploration, which recently acquired $1.1 billion worth of Newfield Exploration shelf properties, including the former ExxonMobil-operated Blackbeard West well on South Timbalier Block 168, plans to re-drill the 30,067-foot well as soon as next year’s first quarter.

“It’s our intention to deepen this well to allow it to test its primary target,” McMoRan co-chairman Richard Adkerson said during the company’s Oct. 19 third-quarter earnings conference call.

McMoRan, which has established a new depth target of around 31,300 feet, added that “drilling results that they saw confirmed the geological model and thesis that led to the prospect being tested.”

No word on partners

However, the company did not say whether ExxonMobil or any of the other former Blackbeard partners, including Newfield, BP, Petrobras and BHP Billiton, would participate in the re-drill. The original well took a year and a half to drill and is said to have cost up to a staggering $200 million, certainly ranking it among the most expensive wells drilled anywhere in the U.S. Gulf.

In fact, Blackbeard West cost more than McMoRan’s entire 2008 capital expenditure budget. “McMoRan is currently pursuing drilling arrangements,” the company said.

Despite its size, McMoRan is considered to be among the more talented deep-gas drillers on the continental shelf, with numerous discoveries to its name.

But whatever the partnership arrangement, one thing is clear: McMoRan will have to secure a rig other than the high-powered Scooter Yeargain, which drilled the initial well. That’s because the Rowan jack-up is working in Saudi Arabia on a contract lasting until 2011.

McMoRan said it intends to use a beefed up drilling rig, explaining that the Yeargain was capable of going deeper than 30,000 feet but lacked a suitable tree and blowout preventer, one of the reasons why the well was abandoned, the company said, noting that it intends to strengthen the surface blowout preventer stacks before re-drilling.

“If we can get everybody together and get the rig situation (worked out), we hope to be started by the first quarter of 2008,” said Jim Bob Moffett, McMoRan’s other co-chairman.

Tied into Miocene plays

Blackbeard is said to be geologically similar to plays in the deepwater Gulf of Mexico that have resulted in major discoveries. “Geologically, it’s tied into the Miocene plays in the deepwater that we see in Mississippi Canyon,” McMoRan’s Adkerson said.

He added that with an understanding of sand deposition and McMoRan’s deep-gas experience, “we can find very attractive, potentially prolific prospects to drill in that area. Then, lying below that, in the middle Miocene and lower Miocene and older aged sands is the exploration that has been done in the deepwater, and which we now have the opportunity to pursue on the shelf through the ultra deep plays that we have acquired.”

Conventional oil and gas plays down to around 10,000 feet beneath the relatively shallow waters of the U.S. Gulf’s continental shelf have been nearly exhausted, forcing explorers to drill deeper in search of fresh prospects, in particular natural gas prospects, where today drilling below 15,000 is fairly common. But drilling below 25,000 feet, the zone generally regarded as the dividing line between the deep and ultra-deep on the shelf, is expensive and hard on drilling equipment given the extreme temperatures and pressures.

The original Blackbeard West exploration well attracted worldwide interest, no doubt because of its targets ranging downhole to 38,000 feet, just shy of the world record of around 40,000 feet, established years ago by Russian scientists studying the worlds geological depths.

Even before the Blackbeard West well was completed promises of more ultra-deep wells to come were rampant. In March 2005, Rowan was telling industry analysts that ExxonMobil wanted to drill more ultra-deep wells in the region, even if Blackbeard came up dry. In May 2005, Newfield said it was discussing with third parties the possibility of drilling more ultra-deep wildcats on prospects near Blackbeard West, including Blackbeard East.

Bad news from Blackbeard

However, Newfield later said companies that were interested in participating in ultra-deep drilling had decided to wait it out on the sidelines until results from Blackbeard came in. Then came the bad news and all talk of another ultra-deep well on the scope of Blackbeard pretty much evaporated.

ExxonMobil and its partners opted to abandon the Blackbeard West well due to “higher-than-expected” pressures and temperatures downhole after reaching a measured depth of 30,067 feet. The well project reportedly cost upward of $200 million, certainly ranking Blackbeard West among the most expensive exploration wells ever drilled in the U.S. Gulf.

The Newfield properties acquired by McMoRan included 125 fields on 146 offshore blocks currently producing approximately 270 million cubic feet of natural gas equivalents per day. Proved reserves were estimated to be 327 billion cubic feet of natural gas equivalents, with about 90 percent of the reserve estimates based on proved reserves. About 70 percent of the proved reserves are natural gas. Offshore leases included in the purchase agreement totaled 1.3 million gross acres.

McMoRan also acquired a 50 percent stake in Newfield’s non-producing exploration leases on the shelf which included Newfield’s interests in leases associated with its Treasure Island ultra-deep prospect inventory, including the Blackbeard West prospect. McMoRan also expected to retain technical and operating personnel and contractors that have supported Newfield’s management of the acquired properties. In addition, McMoRan and Newfield are to jointly pursue exploration activities in the future.

While exploration at Blackbeard thus far has turned up only a thin layer of gas down around 30,000 feet, a major discovery farther down could dramatically alter the production dynamics of the shelf, which has been in decline for years. The shelf currently produces something less than 4 trillion cubic feet of natural gas per year. At one point, the Blackbeard prospect alone was thought to hold 1 tcf to 5 tcf of gas.

“It’s simply that this is on the shelf, and the other prospects were off the shelf, where they have to be drilled using the kinds of exploration processes and face the completion issues of dealing in the deepwater,” Adkerson said of the Newfield properties. “They are similar type targets, and we’re very excited about this. We believe it’s a great opportunity for our company to put together the drilling arrangements.”






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