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Newfield still seeking Treasure Island partner Forms separate alliance with BHP; looking for company to pick up drilling costs in exchange for interest in tracts Ray Tyson Petroleum News Houston Correspondent
Exploration and production independent Newfield Exploration, faced with expiration of its Treasure Island leases, says it needs “a little more time” to secure a partner to drill into the “ultra-deep” prospect located below 25,000 feet on the Gulf of Mexico’s continental shelf.
Newfield recently told Petroleum News the company also has formed a separate exploration alliance with Australia’s BHP Billiton covering some 50 blocks just west of Treasure Island called Treasure Bay. Blocks that make up Treasure Bay were assembled by the two companies during the past three Central Gulf of Mexico oil and gas lease sales, Newfield said.
In regard to Treasure Island, Newfield, a major natural gas producer on the continental shelf, said it continues to discuss a possible drilling venture with “a number of large companies” that sources believe may include ExxonMobil, ChevronTexaco and BP, as well as BHP Canada’s Nexen.
Geologists believe the same giant structures that produced large discoveries in deeper waters of the U.S. Gulf extend beneath the relatively shallow waters of the continental shelf. Only known effort a dry hole Shell is believed to be the only explorer to have drilled below 25,000 on the continental shelf, an effort that resulted in a dry hole at the company’s high-profile Shark prospect on South Timbalier Block 174. Shares of Newfield and 40 percent Shark owner Nexen were hammered when preliminary drilling results were disclosed in February.
Despite the dry hole and having its feathers ruffled by investors, Newfield said it has not altered its plan for Treasure Island, which is in close proximity to Shark and said to be a Shark “look alike” in terms of geologic structure.
“This hasn’t discouraged industry,” said Steve Campbell, Newfield’s head of investor relations. “It proved a well could be drilled.”
Analysts wrongly speculated that because of extreme heat and pressures below 25,000 feet, the Shark exploratory well might cost $60 million or more and take upward of a year to drill. Shell completed the well in just a few months and at a cost thought to be well below $60 million.
However, because the 20 government leases that make up Treasure Island begin to expire in March 2005, Newfield’s immediate goal is to find a drilling partner and spud an exploratory well at Treasure Island before year-end 2004, Campbell said. Newfield wanted BP to drill Newfield wanted BP to drill the Treasure Island well because of the major’s financial strength and “technical savvy,” even after BP reneged on an earlier commitment to spud a well by year-end 2003. Under its agreement with Newfield, BP was to pick up 100 percent of the well’s expense to maintain a 75 percent stake in Treasure Island. If BP missed the deadline, the leases would automatically revert to Newfield.
Campbell said Newfield has now received full title to Treasure Island leases, but both Newfield and BP declined to say whether the two companies are still negotiating. “We don’t speculate on negotiations,” BP spokesman Larry Thomas said.
Newfield said months ago that if a deal could not be worked out with BP, it would seek another partner with terms similar to what it had with BP, meaning the new partner would have to pay the entire cost of an exploratory well.
Newfield actually inherited its Treasure Island position from independent EEX in an acquisition. Under terms of the original agreement, BP acquired a 75 percent interest in the EEX blocks, promising to do additional leasing and geophysical activities. EEX’s 25 percent interest was carried by BP, meaning BP would cover all initial exploration costs.
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