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Devon gives up on Yorktown, Kerr-McGee takes troubled deepwater Gulf prospect
Ray Tyson Petroleum News Houston Correspondent
Devon Energy has bailed out of the Yorktown prospect in deepwater Gulf of Mexico, leaving former partner Kerr-McGee with 100 percent of a troublesome exploration well whose price tag already ranks among the most expensive in the Gulf at $86 million.
Still, it now appears Kerr-McGee will be returning to Yorktown later this year to either complete the current well or drill a new one. The prospect is in 2,100 feet of water on Mississippi Canyon Block 886.
“No decision has been announced regarding whether we will drill a new well or go back into the current well,” Kerr-McGee spokeswoman Debbie Schramm told Petroleum News.
Dave Hager, Kerr-McGee’s head of exploration and production, told industry analysts April 28 Devon “stepped out of the prospect” but that Kerr-McGee remains bullish on Yorktown.
“We’ve completed our costs estimates (and) we still feel very much that there is a viable prospect,” he said, characterizing Yorktown as a “work in progress.”
Although Kerr-McGee and operator Devon were 50-50 owners in Yorktown, Devon’s share of the $86 million in drilling-related expenses amounted to about $60 million.
Drilling at Yorktown was suspended last October shy of its 25,000-foot objective, after numerous delays due to down hole well problems and strong ocean currents, known as “loop currents,” that disrupted operations for nearly a year.
To avoid loop currents Hager said it was most likely Kerr-McGee would not return to Yorktown until late in the third quarter or fourth quarter. “We don’t plan to go out there where there is any risk of that occurring again this year,” he said.
Hager said Kerr-McGee also is shopping around for another Yorktown partner.
“We are showing it to potential interested parties on the street,” he said. Kerr-McGee profits up Meanwhile, Oklahoma-based Kerr-McGee said it more than doubled its profit in the 2004 first quarter compared to the year-ago period. The company reported net income of $152.2 million or $1.41 per share versus $69.9 million or 68 cents per share. First-quarter 2004 revenues of $1.1 billion remained essentially flat compared with the prior year period.
First-quarter 2004 operating profit was $330.3 million, compared with $269.6 million in the 2003 first quarter, the company said. Exploration and production operating income for the 2004 period was $329.9 million, compared with $272.2 million for the prior-year quarter.
The increase in 2004 first-quarter operating profit was due primarily to higher oil and natural gas sales prices and lower exploration expense, partially offset by lower oil sales volumes due to 2003 property divestitures and higher gathering and general and administrative costs, the company said. Oil production down, gas up slightly Kerr-McGee’s oil production during the 2004 first quarter averaged 143,200 barrels per day, down 13 percent from 165,400 barrels per day in the year-ago period. In addition to divestitures of non-core properties, lower production from the North Sea contributed to the decrease in oil volumes, the company said.
Natural gas sales averaged 763 million cubic feet per day for the 2004 first quarter, up slightly from the prior-year period. The average natural gas sales price, including the effects of the company’s hedging program, was $5.35 per thousand cubic feet, a 14 percent increase from the 2003 first quarter.
During the first quarter of 2004, the company said it reduced debt by $174 million, resulting in total debt at March 31, 2004, of about $3.5 billion. This compares with total debt of about $3.7 billion at Dec. 31, 2003, and about $3.8 billion at March 31, 2003.
“We continue to consistently meet or exceed our guidance in all aspects of our operations,” said Luke R. Corbett, Kerr-McGee’s chief executive officer.
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