Operators consider hub for gas-prone Eastern Gulf

Petroleum News

The Eastern Gulf of Mexico, although still in its exploration infancy, seems to contain far more gas than oil, based on early drilling results that also show gas discoveries thus far are not large enough to justify stand-alone deepwater developments.

That predicament has led big independents Anadarko Petroleum and Kerr-McGee, as well as other, undisclosed operators in the region to discuss the possibility of forming a hub or central production facility to process dry gas from a host of discoveries, including Anadarko's Jubilee and Atlas fields and Kerr-McGee's Merganser and Vortex fields.

The idea is not without precedent. Over the past few years, BP and others in the northern deepwater sector of the Eastern Gulf were able to tie together three relatively small fields — King's Peak, Aconcagua and Camden Hills — into a vibrant project that today feeds about 500,000-million cubic feet of gas into the Canyon Express pipeline system. None of the fields by itself was considered to be commercial.

However, discoveries in the southern portion of the Eastern Gulf promise to be more challenging to develop employing the hub concept. For one, the fields are spread across a much broader area than Canyon Express. Moreover, the fields are located beneath ultra-deep waters ranging up 9,000 feet or greater, where extreme pressures on subsea pipelines and equipment can be menacing.

Still, operators believe a hub project in the south would be doable, largely because developing dry gas in smaller, remote fields apparently would be far less expensive than for oil. “We are confident these will be developed,” Richard Sharples, Anadarko's vice president of marketing and planning, said of the company's Jubilee and Atlas discoveries.

Anadarko has proposed hub development

Murphy, either alone or together with ChevronTexaco, holds a substantial acreage position with attractive prospects within the great circle and relatively close to Anadarko and Kerr-McGee discoveries. First on Murphy's list is South Dachshund, located on a pair of Lloyd Ridge blocks just inside the East Gulf sale area.

South Dachshund, owned 50-50 with ChevronTexaco, holds an estimated 400 to 500 billion cubic feet of gas reserves, John Higgins, Murphy's U.S. exploration and production manager, told analysts at the recent RBC Capital Markets energy conference in Houston, Texas. He said drilling could begin in the 2004 second quarter.

“We are hot to trot on this prospect,” Higgins said. “In the southern area, we're trying to couple up enough reserves for another gas development.”

Other Murphy prospects that fall within the great circle include North Dachshund, Bull Dog, Great Dane and perhaps Perro, which actually is located on the northeast boundary of the circle and next door to Anadarko's high-profile Spiderman prospect.

In fact, Anadarko now believes Spiderman could hold enough reserves to serve as its own hub, if drilling proves up reserves of more than 100-million barrels of oil equivalent, Anadarko officials disclosed at the energy conference. “Spiderman has the potential to be a major hub location,” Anadarko's Sharples said.

Anadarko is hoping to spud a first exploration well at Spiderman in the 2003 fourth quarter, once a joint operating agreement is reached with Dominion Resources and Spinnaker Exploration, which own an adjoining block that includes a portion of the prospect they call Amazon. It likely would be a 50-50 deal with some type of split operatorship, the company indicated.

Disappointments mount for Devon Energy

Petroleum News

Tuscany East, with pre-drill reserve estimates ranging up to 240 million barrels of oil equivalent, turned out to be a duster, Devon partner EOG Resources disclosed at Sept. 23 analysts' meeting in Houston, Texas.

“Unfortunately, it is a dry hole,” said Loren Leiker, EOG's executive vice president of exploration and development. EOG holds a 37.5 percent interest in the prospect.

Devon, through its acquisition of Ocean Energy, has a 62.5 percent stake in Tuscany East and operates the prospect, located in 6,700 feet of water on DeSoto Canyon blocks 180 and 224. Dry hole costs initially were pegged at $26 million, although a spokesman for Devon said the tab likely would be less.

Kerr-McGee, a Devon partner at the Shiner Deep prospect at Garden Banks Block 700, said during a Sept. 24 conference call an initial exploration well operated by Devon is probably not commercial.

Rich Buterbaugh, Kerr-McGee's vice president of investor relations, said that while the well encountered 60 feet of primarily oil pay, “we're unsure whether there are sufficient quantities for a commercial development.”

Despite the uncertainty over Shiner Deep, Kerr-McGee said it has decided to take a $20-million dry hole charge in the 2003 third quarter, adding that the well has been temporarily abandoned.

Shiner Deep, situated in 4,480 feet of water, came with a pre-drill mean reserve estimate of 115-million barrels of oil equivalent, with well costs estimated at around $36 million. Kerr-McGee, Devon, Anadarko Petroleum and Dominion Resources each hold a 25 percent working interest in the prospect.

Drilling resumed at Yorktown

Spud nearly a year ago on Mississippi Canyon Block 886, Yorktown well expenses are now projected at roughly $80 million, ranking it among the most expensive wells ever drilled in the Gulf of Mexico. Although Kerr-McGee and Devon are 50-50 partners in Yorktown, Devon's share of well costs will be substantially higher, about $57 million.

Located in 2,100 feet of water, Yorktown is currently at 23,400 feet and headed to 25,000 feet, Kerr-McGee said. Pre-drill reserve estimates ranged from 175 to 450-million barrels of oil equivalent.