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EXPLORERS USA 2005: Going deep for the gold Gulf ‘ultra-deep’ play could hold trillions of cubic feet of natural gas Ray Tyson Petroleum News Houston Correspondent
Exploration and production companies with deep pockets and a high tolerance for risk taking are tip-toeing into what could be the last pure wildcat play in the Gulf of Mexico.
So far, only a handful of explorers have dared to venture below 25,000 feet in the relatively shallow waters of the U.S. Gulf’s continental shelf, where extreme pressures and temperatures in the so-called “ultra-deep” zone could wreak havoc with drilling equipment.
Nevertheless, the payoff could be grand — perhaps trillions of cubic feet of natural gas trapped within immense geological structures identified through seismic surveys.
“I’m starting to hear more and more that the ultra-deep areas have prospects that are comparable to some of the larger ones out in the deep water,” said Chris Oynes, Gulf regional director for the U.S. Minerals Management Services. “And it always comes back to the size of the hydrocarbon potential.” MMS backing up faith in ultra-deep MMS already has backed its faith in the ultra-deep with a regulation that would suspend or extend current primary lease terms of five and eight years, provided applicants follow a few rules that include submitting a reasonable schedule of work that leads to drilling.
Additionally, in early 2005 the agency proposed a rule that would further change and liberalize the government’s lease suspension policy for ultra-deep drilling on the continental shelf.
“It’s not final but certainly it’s a strong signal from the agency that we’re trying to move this area and get it developed,” Oynes said.
According to MMS, an estimated 55 trillion cubic feet of natural gas rests under the U.S Gulf. Annual production from the deep shelf, or depths greater than 15,000 feet but less than 25,000 feet, more than doubled from 187 billion cubic feet in 1994 to about 421 bcf in 2002.
MMS actually launched its deep-gas incentive program several years ago by including in lease terms the suspension of federal royalties on the first 20 bcf of gas produced from discoveries below 15,000 feet. But the provision applied only to leases awarded in a particular sale. Gas incentive program expanded In 2003, MMS vastly expanded the program to include about 2,400 existing federal leases on the continental shelf and added sliding scale royalty relief based on depth and the number of wells drilled on a lease.
Under that program, MMS offers royalty suspension on existing leases for the first 15 bcf of gas produced from depths greater than 15,000 feet and less than 18,000 feet, or on the first 25 bcf of gas produced from 18,000 feet or deeper.
A royalty suspension volume of 15 bcf can be increased to 25 bcf from a second successful well to 18,000 feet or deeper. In the event of a dry hole below 18,000 feet, a producer qualifies for a royalty suspension supplement on 5 bcf of gas equivalent that can be applied to future oil or gas production from any depth. Two supplements are available per lease prior to production from a deep well. The maximum relief a lease can earn from either successful or unsuccessful deep wells is 35 bcf. Additionally, sidetrack wells could earn royalty suspensions in amounts based on drilling depth and sidetrack length. MMS later adopted the separate rule for ultra-deep wells, largely in response to companies that felt they needed time beyond the primary lease terms to adequately prepare for ultra-deep drilling. Majors had abandoned the shelf Until fairly recently, the major oil and gas companies had largely abandoned exploration on the continental shelf because of the shrinking and heavily exploited reserves found in the shallower geological zones of the shelf.
“Why would a major fool with extremely harsh drilling conditions and go back to the shelf?” Oynes said. “It’s because the potential size of the prize is quite big.”
Shell is believed to be the first major oil company to drill below 25,000 feet on the shelf, an arbitrary line that separates deep from the ultra-deep. The Shark well, drilled to a depth of around 26,000 feet, turned out to be a dry hole.
Several other exploratory wells have been drilled to around the 25,000 foot level on the continental shelf, including the ChevronTexaco-operated Cadillac well on Viosca Knoll block 251. By early March, Cadillac had reached 17,000 feet headed to 25,000 feet. Six companies pooled their financial resources to drill the well, considered at the time to be a “high risk, high reward” play. Blackbeard closely watched However, no ultra-deep well on the continental shelf is being more closely watched than the ExxonMobil-operated Blackbeard West wildcat well on South Timbalier block 168. The well is permitted to 32,000 feet but could go to 38,000 feet, which would put the hole just a few thousand feet shy of the deepest well (40,000 feet) ever drilled on planet Earth.
Blackbeard, spud Feb. 9, 2005, is expected to take nine months to a year to complete, depending on any downhole problems encountered along the way. Contract driller Rowan was tapped for the project and is using its latest jack-up rig, the powerful Scooter Yeargain. Rowan, which has drilled roughly two-thirds of the wells more than 18,000 feet on the continental shelf, stands to earn between $28 million and $35 million for the job.
To spread the risk, six companies have teamed up on the Blackbeard project. ExxonMobil holds a 25 percent stake in the project, followed by partners Newfield Exploration with 23 percent, BP with 20 percent, Brazil’s Petrobras with 20 percent, Dominion Exploration and Production with 7 percent and Australia’s BHP Billiton with 5 percent. Production would be a challenge While risky, a major discovery at Blackbeard would dramatically alter the production dynamics of the continental shelf, which has been in decline for years and currently produces about 4.5 tcf of natural gas per year. The Blackbeard prospect alone is so large it could easily house between 1 tcf and 5 tcf, according to some estimates.
“Here are things that are rivaling deepwater areas,” MMS’ Oynes said. “And that’s why you’re seeing the majors throw some heavy duty cash into these areas. I mean these are very expensive wells.”
However, he said that in the event of a commercial discovery between 25,000 and 35,000 feet in shallow water, “they haven’t figured out how in the world they are going to produce it yet. But they’ll develop the technology when they have a reason to develop the technology.”
Also, one of the biggest challenges facing deep-shelf operators is said to be securing the specialized drilling equipment and steel pipe necessary to withstand the extreme pressures and temperatures in the ultra-deep zone. For example, ExxonMobil contracted with Rowan some six months in advance for a rig to work at Blackbeard.
“Major oil companies and independent operators are increasingly drilling wells to depths beyond 15,000 feet … to recover much-needed natural gas from what many in the industry see as a whole new offshore exploration play,” said Danny McNease, Rowan’s chief executive officer.
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