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Kerr-McGee hopeful Yorktown oil prospect can be salvaged
Petroleum News
Partners Kerr-McGee and Devon Energy apparently believe their Yorktown oil prospect in the deepwater Gulf of Mexico is worth saving, despite spending an unheard of $86 million on a troublesome exploration well that was never completed.
“We still see this as a viable prospect,” Dave Hager, Kerr-McGee’s head of exploration and production, told analysts in a Jan. 28 conference call on 2003 fourth-quarter earnings.
Hager said no decision had been made to resume drilling at Mississippi Canyon Block 886, where operator Devon encountered numerous drilling delays because of downhole problems and strong ocean currents, known as “loop currents,” that disrupted operations at Yorktown for nearly a year. Drilling was suspended in October.
Nevertheless, Kerr-McGee and Devon are completing engineering work on Yorktown, crunching expense numbers and formulating “a go forward plan” for the prospect, Hager said. He gave no indication whether the partners might spud a new well or attempt to re-enter the original well bore. Drilling was halted just shy of the well’s 25,000 foot target where deterioration of the hole’s lower section was detected.
Although Kerr-McGee and Devon are 50-50 owners in Yorktown, Devon’s share of the $86 million in drilling-related expenses amounted to about $60 million. The prospect is located in 2,100 feet of water.
Despite the setback at Yorktown, Kerr-McGee has an aggressive deepwater drilling program planned for 2004, Hager told analysts. He said the company would participate in about 12 exploration wells, four to six of which would be “pure wildcats” or frontier wells. He also said satellite wells would be drilled near producing fields, including Nansen, Boomvang and possibly recent startup Gunnison.
“We feel we are going to put together a quality program this year,” Hager said. “But we’re still working on geoscience and partner-related issues.” He said drilling likely would get under way during the 2004 second quarter. Company earnings up 50 cents per share On the earnings front, Kerr-McGee reported net income of $50.5 million or 50 cents per share in the 2003 fourth quarter, compared to a loss of $345 million or $3.43 per share for the same period a year earlier. After extracting special items and other charges from the recent quarter, the company turned a profit of $86.9 million or 86 cents per share, surpassing analysts’ consensus by 6 cents.
The company said it was aiming to reduce its year-end 2003 debt of $3.656 billion by another $550 million in 2004. Its year-end 2002 debt was $3.904 billion, about 6 percent higher that the current level, the company said.
Company production for the 2004 first quarter is expected to average daily between 257,000 and 274,000 barrels of oil equivalent, roughly flat compared to the 271,000 barrels Kerr-McGee averaged for full-year 2003. On the oil side, production averaged 139,000 barrels per day compared to 178,000 bpd in the year-ago period. The decrease was attributed to the sale of nearly $1 billion of “high-cost, non-core producing properties.” Daily natural gas production averaged 742 million cubic feet compared to 792 million cubic feet a year earlier.
Kerr-McGee said it replaced 135 percent of its 2003 worldwide production and that year-end reserves totaled 1.026 billion barrels of oil equivalent, which included reserves gained from property acquisitions. Hager said “exploration success” accounted for 80 percent of the company’s reserve additions, resulting in 105 percent production replacement coming via the drill bit. The Gulf of Mexico alone accounted for 60 percent of Kerr-McGee’s reserve replacement.
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