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Vol. 9, No. 43 Week of October 24, 2004
Providing coverage of Alaska and northern Canada's oil and gas industry

Independents team up

Kerr-McGee, Stone to focus on Gulf deep shelf and deepwater exploration prospects; McMoRan and Palace to concentrate on deep shelf exploration

Ray Tyson

Petroleum News Houston Correspondent

Four exploration and production independents have formed or expanded joint ventures to pursue drilling opportunities in the Gulf of Mexico region.

Kerr-McGee and Stone Energy signed exploration agreements covering interests on 30 leases held by Kerr-McGee in both shallow and deeper waters of the U.S. Gulf, the companies said Oct. 19.

McMoRan Exploration and Palace Exploration expanded their exploration venture with an initial commitment of $500 million for future expenditures to acquire and exploit high potential prospects, primarily in the deep Miocene zone of the U.S. Gulf and Gulf Coast area, the companies said Oct. 18.

Kerr-McGee remains operator

Under the Kerr-McGee-Stone deal, Stone acquired working interests ranging from 16.67 percent to 50 percent, while Kerr-McGee remains operator and retains working interests from 50 percent to 75 percent.

In addition, Stone will participate with Kerr-McGee in at least six exploratory wells through the end of 2005. Stone committed roughly $50 million to cover its share of costs.

The majority of the blocks covered in the agreements are in the Garden Banks and Green Canyon areas of the deepwater U.S. Gulf. Geologically deep prospects in shallower waters of the continental shelf are on leases in areas of Grand Isle, Ship Shoal, South Timbalier, Vermilion and South Marsh Island.

The agreements specifically include the Kerr-McGee-operated Essex prospect on Mississippi Canyon blocks 23, 24 and 25. Kerr-McGee retains a 65 percent working interest, while Stone acquired a 35 percent working interest in Essex, which is currently drilling. Kerr-McGee believes the prospect holds 40 million to 150 million barrels of oil equivalent.

Kung Pao, Fawkes expected to spud this year

Kerr-McGee’s Kung Pao prospect, on Garden Banks block 171, also is part of the agreement, with Kerr-McGee and Stone each holding a 50 percent working interest and Kerr-McGee serving as operator. The companies expect to spud Kung Pao in the fourth quarter of 2004. Kerr-McGee estimated the resource range at between 20 million and 100 million barrels of oil equivalent.

The Kerr-McGee-operated Fawkes prospect on Garden Banks block 303, said to contain between 25 million and 50 million barrels of oil equivalent, also is expected to spud during this year’s fourth quarter. Stone acquired a 16.67 percent working interest in Fawkes, while Kerr-McGee retains a 50 percent working interest.

The Kung Pao and Fawkes prospects are potential satellite tiebacks to the Baldpate facility on Garden Banks block 260, Kerr-McGee said.

In addition to the six-well commitment, Kerr-McGee and Stone expect to participate in several other drilling opportunities during the next two years, Kerr-McGee said.

Dave Hager, Kerr-McGee’s senior vice president of exploration and production, said having Stone as a partner would allow Kerr-McGee “to leverage our exploratory drilling dollars across a broad range of prospects.”

David Welch, Stone’s chief executive officer, said teaming up with Kerr-McGee represents a first step in diversifying away from the more conventional plays on the continental shelf.

“This portfolio of opportunities spreads the geologic risk across the flex trend, emerging basins and the deep shelf,” he said.

McMoRan-Palace to share revenues, expenses equally

The McMoRan-Palace Joint Venture will share revenues and expenses equally on McMoRan’s existing inventory of deep shelf prospects, as well as with “new prospects as they are identified or acquired,” McMoRan said.

McMoRan and Palace, a private company, have been jointly conducting exploration activities in the Gulf of Mexico since December 2003. The venture has drilled one non-commercial well and is currently participating in six other wells, including Dawson Deep at Garden Banks 625, Minuteman at Eugene Island blocks 212 and 213 and Deep Tern at Eugene Island block 193.

The companies said they plan a continuous acquisition and drilling effort and plan to drill at least 10 to 12 additional wells during the next six months, and hope to accelerate efforts as new opportunities arise.

Based on McMoRan’s JB Mountain and Mound Point discoveries, “we are encouraged by the potential for large accumulations of hydrocarbons in the deep Miocene,” McMoRan co-chairmen James Moffett and Richard Adkerson said in a joint statement.

“The joint venture and its decisions will be driven by pure economics and monies will be spent as needed, so as to most effectively maximize the economics of each prospect, without regard to fiscal year or other non economic considerations,” Palace Chairman Richard Siegal said.



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