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BP bails out of Treasure Island wildcat well Newfield may seek new Gulf partner, but still prefers BP’s ‘savvy,’ financial might Petroleum News
BP Exploration & Production has taken itself out of the running this year to drill an ultra-deep exploration well into untested territory below 25,000 feet at the so-called Treasure Island play on the Gulf of Mexico’s outer continental shelf.
And unless BP and partner Newfield Exploration come up with a new plan, the 20 offshore leases that make up Treasure Island automatically would revert to Newfield at year-end under their current agreement. “Newfield and BP are discussing alternatives,” Newfield said Nov. 14.
BP provided no explanation as to why it reneged on an earlier pledge to drill a test well this fall, saying only that BP does not comment on exploration plans. However, BP does own acreage near the Treasure Island leases. And the massive ultra-deep play is within a 116-block area that was included in an exploration and farm-in agreement between BP and the former EEX, an independent that was acquired by Newfield last year. The 116 blocks are spread across a vast area of South Timbalier, Ship Shoal and Eugene Island. No company has yet penetrated ultra-deep horizon Under the current agreement, BP also would absorb 100 percent of initial drilling costs to maintain its 75 percent stake in Treasure Island. Industry analysts say a well drilled to a geological depth of 30,000 feet could run to $50 million and perhaps more should unexpected problems arise downhole, where extreme heat and pressure could threaten drilling equipment.
However, no explorer is believed to have penetrated into the ultra-deep horizon on the gulf’s continental shelf below 25,000 feet, although Shell likely would be the first to break the ultra-deep barrier with its South Timbalier Block 174 wildcat, currently headed to 26,000 feet.
Although risky, the prospect of finding large natural gas reserves in an otherwise heavily exploited area has driven exploration and production companies to pursue deeper and deeper targets on the continental shelf. Many geologists now believe the same giant structures that have produced large discoveries in deeper waters of the gulf extend north and well below the relatively shallow waters of the shelf. Newfield not closing the door So obviously intriguing to Newfield is the ultra-deep shelf that the Houston-based independent has decided not to close the door on BP, although Newfield said it would seek a new partner if a deal cannot be reached with BP.
Steve Campbell, Newfield’s manager of investor relations, said Newfield’s “first goal” is for BP to drill a well at Treasure Island, in part because the major is a “good partner.” He said BP has “the technical savvy” and “capital to drill a well of this magnitude.”
If a new agreement cannot be reached with BP, Newfield would “look to bring a partner in on this with similar terms, to give us exposure to this play,” Campbell said, adding that such a venture would entail “a high-risk well ... so we would like an exposure with limited risk.”
Because of the unknowns and great depths, where seismic imaging is difficult, Newfield chooses to characterize Treasure Island as an “exploration concept,” rather than a trend or play.
Newfield cautioned potential investors that because there are no proved reserves or production associated with Treasure Island, “commercialization of any one of the currently identified prospects may never be realized because the prospects are never tested” or hydrocarbons found. Moreover, in the event of a discovery, “costs of development may make commercialization uneconomic,” the company said.
Newfield issued a similar warning to EEX shareholders when asking their approval for the merger and to participate in the Treasure Island Royalty Trust, in which they were offered a 5 percent overriding royalty on any production that might come from the ultra-deep shelf formations. Newfield also specified that EEX shareholders would have no say on exploring or developing the play, and that Newfield would not be obligated to finance or commit other resources to a project.
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