|
EXPLORERS USA 2005: Spinnaker holds own against bigger rivals Small independent helped pioneer drilling on Gulf shelf; now focusing on deepwater prospects, has seismic over 48 million acres Ray Tyson Petroleum News Houston Correspondent
Spinnaker Exploration, a small independent that helped pioneer deep-gas drilling in the shallow waters of the Gulf of Mexico’s continental shelf, has shifted its focus to the deeper waters of the Gulf, a seemingly risky maneuver for a company whose financial standing pales in comparison to most of its deepwater competitors.
Nearly two-thirds of the company’s 306.7 billion cubic feet of gas equivalent reserves at year-end 2004 were located in the deepwater U.S. Gulf, Spinnaker chief executive Roger Jarvis disclosed at a March 2005 meeting with industry analysts.
“We’ve built a very high-quality inventory that we feel great about,” Jarvis said. “And we think we’re adequately financed.”
Jarvis and his small crew in Houston have collected seismic data on an astounding 48 million acres covering nearly 22,000 blocks stretching from one end of the U.S. Gulf to the other. The company also participates in federal oil and gas lease sales on a regular basis and generally walks away with a pocketful of Gulf leases for future drilling.
A quick look at Spinnaker’s capital spending plans clearly illustrates the company’s move away from the continental shelf, where production wells decline at an average rate of around 40 percent a year and profit margins can be thin because of high costs.
“There are a lot of wells brought on in the Gulf that are produced and depleted on the shelf in the same year,” Jarvis noted. Shelf spending down Only 25 percent of Spinnaker’s $250 million to $300 million capital budget in 2005 is earmarked for the shelf vs. 49 percent of the company’s $250 million budget in 2004. In contrast, 60 percent of 2005 spending is dedicated to the deepwater Gulf vs. 51 percent in 2004. Also, the remaining 15 percent of the 2005 budget will go to international activities, a new play for the company.
“I think you’re going to see a continuation of the trend to put and expose less capital on the shelf,” Jarvis said. “We won’t necessarily chase marginal shelf projects to maintain or grow base production from the shelf, or at the expense of our capital efficiency.”
However, he said Spinnaker has no plans to abandon the continental shelf, which has been good to the company in the past. Rather, the company will be more selective, he added.
“We’re discriminating carefully at the margin, and I think the result of that is while we’ll continue to be active on the shelf we’ll do that more surgically,” Jarvis said. “We’ll probably do that with fewer total wells.”
In March, Spinnaker was working on four shelf projects: development of the Minuteman discovery at Eugene Island block 213, as well as three other discoveries at Galveston block 210, Ship Shoal block 159 and Vermilion block 287 No. A-13.
So far, the company has been successful in deeper waters of the U.S. Gulf largely through a combination of good prospect selection and stretching dollars by partnering up with larger companies to share expenses and reduce drilling risk. Ultra-deepwater Gulf also of interest And in addition to its current deepwater activities, Spinnaker also made it clear the company is interested in the emerging lower tertiary trend in the “ultra-deepwater” U.S. Gulf, brought to the forefront by Unocal’s St. Malo discovery in Walker Ridge.
“I think industry will acknowledge that there are parts of that play which are very good (with) relative good rock quality,” Jarvis said. “So … we’re preparing to be a participant of some size in that play.”
Spinnaker and it various partners already have scored a string of oil and gas exploration successes in the deepwater U.S. Gulf, including Front Runner, Thunder Hawk, Spiderman and San Jacinto and Seventeen Hands.
Analysts are keeping a particularly close watch on the Dominion-operated Thunder Hawk prospect, which sits on the fringe of the BP-operated Thunder Horse complex in Mississippi Canyon, the largest oil discovery ever in the U.S. Gulf at around 1 billion barrels. So far, drilling at Thunder Hawk has turned up 150 feet to 300 feet of pay in high-quality zones capable of producing upward of 150 million barrels of oil equivalent. An appraisal well is currently drilling and should provide a better fix on the field’s size. Heavy exploration investor More so than many of its peers, Spinnaker invests heavily in exploration. In 2005, the company plans to use 70 percent of its capital budget on exploration and 30 percent on development, compared to 60 percent on exploration and 40 percent on development in 2004.
However, Spinnaker already is reaping the benefits from its active deepwater exploration program through its 25 percent stake in the Murphy-operated Front Runner development project in Green Canyon. The field, located in just over 3,000 feet of water, began producing from one of nine wells last year and should easily fill the daily 60,000 barrels of oil and 110 million cubic feet of gas production facility when additional wells are brought on line.
Moreover, along with successful East Gulf explorers Anadarko Petroleum, Devon Energy, Kerr-McGee and Dominion, Spinnaker has negotiated for production space in the Independence Hub gas processing facility, which is expected to come on line in mid-2007. Through its interests in Spiderman and San Jacinto, two of seven fields that will feed gas to the hub, Spinnaker will get daily production space of 80 million cubic feet, about 10 percent of the facility’s 850 million cubic feet of daily capacity.
Spinnaker also holds a 25 percent stake in the Seventeen Hands development on Mississippi Canyon block 299. The field, located in about 5,880 feet of water, is being developed jointly with a nearby gas discovery. Both discoveries are sub-sea tiebacks to an existing platform and should begin production in the second half of 2005.
Despite the heavy financial burden associated with deepwater exploration and development, Spinnaker has maintained a healthy balance sheet, in large part because of the run up in oil and gas prices. The company reported a 2004 fourth-quarter profit of $13.5 million or 39 cents per share on revenues of $70.1 million, a whopping 109 percent increased compared to 2003 fourth-quarter earnings of $6.5 million or 19 cents per share on $49.1 million in revenues.
However, Spinnaker’s production in the 2004 fourth quarter decreased 4 percent from the fourth quarter of 2003 and was down 2 percent from the third quarter of 2004, “primarily due to normal production declines,” the company said.
| 