Kerr-McGee, after agreeing to swap onshore for offshore assets with BP, is positioning itself for another “hub-and-spoke” development in the deepwater Gulf of Mexico, a strategy that has played well in the past for the big exploration and production independent.
Under terms of the deal announced Nov. 29, Kerr-McGee would pick up BP’s 37.5 percent interest in the deepwater Blind Faith oil discovery in the U.S. Gulf, in exchange for various Kerr-McGee assets in the Arkoma Basin of southeast Oklahoma.
Blind Faith is in Mississippi Canyon just 20 miles east of BP’s Thunder Horse discovery, the largest field ever discovered in the U.S. Gulf.
Dave Hager, Kerr-McGee’s vice president responsible for exploration and development, characterized the transaction as “a real win-win” for both companies.
“It will allow them to further consolidate their (dominant) position there, while we obtain an interest in what is going to be a high-quality development,” Hager said Nov. 30 at the Friedman Billings Ramsey annual investor conference in New York.
Possible satellites near Blind Faith
Moreover, there are possible satellite fields near Blind Faith that could be funneled through a central processing facility, one development option that will be explored by Kerr-McGee and operator and 62.5 percent owner ChevronTexaco, he added.
“This is a continuation of our hub-and-spoke exploration strategy of having the critical mass to put a … spot out there in the ocean with solid economics and possibly adding on satellite opportunities around that to enhance the economics,” Hager said. “These satellite opportunities around existing hubs offer very fast cycle times.”
Kerr-McGee currently participates in five producing hubs in the U.S. Gulf: Nansen and Boomvang in East Breaks, Red Hawk and Gunnison in Garden Banks, and Neptune in Viosca Knoll. Additionally, hub construction is under way at the Constitution field in Green Canyon and pending on three of its gas discoveries in the Eastern Gulf.
More than 100 million boe estimated at Blind Faith
The Blind Faith discovery, with estimated reserves exceeding 100 million barrels of oil equivalent, is expected to be sanctioned for development “sometime” in 2005 with first production expected in 2007, Hager said.
“Recent successful appraisal drilling shows Blind Faith will be a high-impact development creating value-adding, growth opportunity for our company,” he said.
Located on Mississippi Canyon blocks 695 and 696, the Blind Faith discovery well was drilled in June 2001 and uncovered more than 200 feet of net pay in Miocene sands from 20,900 to 24,300 feet. A successful appraisal well was drilled earlier this year. The prospect is situated in 7,000 feet of water, about 175 miles southeast of New Orleans, La.
Kerr-McGee has lowered its 2005 daily production forecast to a range of 154,000 to 166,100 barrels of oil equivalent to reflect the loss of about 3,000 Arkoma barrels per day that would go to BP. However, as part of the deal, BP would pay Kerr-McGee an undisclosed amount of money that would more than offset cash flow lost from Arkoma production, Hager said.
“So on a cash flow basis in 2005, this is a cash neutral transaction due to the cash consideration we are receiving,” he added.
