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June 2006

Vol. 11, No. 24 Week of June 11, 2006

Well data brings top dollar in deepwater Gulf

‘Ultra-deepwater’ projects await outcome of Jack production test

Ray Tyson

For Petroleum News

Anadarko Petroleum and an undisclosed number of Lower Tertiary players in the “ultra-deepwater” Gulf of Mexico who are not party to the Jack discovery are said to be paying large sums of money for data from an on-going production test at the Chevron-operated oil prospect in Walker Ridge.

Moreover, numerous drilling projects involving the Lower Tertiary or deep Eocene trend are on hold awaiting final results later this year from the first production test ever conducted on this promising but financially risky play.

Industry has scored impressive discoveries in Walker Ridge’s Lower Tertiary, including Jack, St. Malo, Cascade and Stones. But whether the reservoir rock itself is of sufficient quality to produce oil in commercial quantities is said to be a major concern. Those who have access to the information evidently are hoping the Jack production test will answer the question.

“It’s highly valued by industry,” Devon Energy CEO Larry Nichols said of the Jack production test at the May UBS Global Oil & Gas Conference in Austin, Texas. “In fact, we are selling the information from that test to other interested parties for significant sums of money.”

Chevron 50% Jack owner

Chevron owns 50 percent of Jack, located on Walker Ridge Block 759 in about 7,000 feet of water. Big exploration and production independents Devon and EnCana each hold a 25 percent share of the prospect. The Jack discovery, announced in September 2004, uncovered more than 350 feet of net oil pay.

E&P independent Anadarko, although not a partner in the Jack prospect, does have a large inventory of Lower Tertiary prospects including a 25 percent stake in the BP-operated Kaskida wildcat on Keathley Canyon block 292. Kaskida, Anadarko’s first stab at the Lower Tertiary, is said to be nearing its target depth at around 30,800 feet.

“We are anxious to watch and see what happens with the Jack test,” Anadarko CFO Al Walker said at the UBS conference. “We have well over 20 prospects that if we find that the Eocene-age rock can be commercially produced, we’ve got a lot of things to do out there in the Western Gulf of Mexico.”

Devon’s Nichols said a host of Devon projects also hang on the outcome of the Jack production test. “We have about 19 projects we’ve already identified with seismic that if the test works, we would be poised to start doing further exploration out there,” he added.

Test results confidential

The names of other parties who have or plan to acquire information from the Jack production test were not readily available, due in large part to the highly confidential nature of the test. In fact, Jack participants were required to sign a confidentiality statement agreeing not to discuss the test.

Stuart Strife, Anadarko’s exploration manager for the Gulf of Mexico, said Anadarko already was receiving and analyzing information from the Jack production test.

“Obviously there are reservoir issues to be addressed, and we think we are addressing those,” Strife added. “But until we get all of our data in and really get to look at it, I probably shouldn’t comment more on it right now.”

Other companies with Lower Tertiary discoveries in the deepwater Gulf of Mexico include BP, Shell and Marathon. BP, a partner in the Shell-operated Stones discovery on Walker Ridge block 508, would not say whether the company had or planned to buy information from the Jack test.

“Well tests typically have confidentiality clauses associated with them,” BP spokeswoman Ayana McIntosh-Lee said. “As a matter of course, we would not comment on this subject.”

Jack operator Chevron put a lid on the Jack production test as far back as August 2005 for “proprietary” and “confidentiality” reasons. However, Chevron did say it hoped the test “would demonstrate that (Jack) can produce at commercial rates over a long-term period without significant draw downs.”

A full-scale production test, such as the one being conducted at Jack, is rare in deepwater Gulf of Mexico and could run $30 million or more, according to analysts.

In the past, industry argued that flow testing in the deepwater Gulf of Mexico was largely unnecessary with today’s sophisticated seismic technology and downhole tools that can provide accurate readings on fluids, pressures and other reservoir characteristics.

However, with billions of dollars in potential field investment riding on such a high-stakes venture as the Lower Tertiary, “you want to make sure you’re right,” Devon President John Richels said last year at an oil conference. “That’s not just for us. That’s for everyone playing in the trend.”






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