Gulf of Mexico forecast

Amidst all the doom and gloom that pervaded North America’s oilpatch in 2009, one region forged ahead; the Gulf of Mexico. In early 2008, production was 1.3 million bpd and 7 billion ft3/d. The US Department of the Interior’s Minerals Management Service (MMS) expects the region to finish-out 2010 with 1.4 million bpd and 6.7 billion ft3/d. “

The Gulf of Mexico became a major contributor to US production in the 1970s with the advent of shallow offshore drilling and production. By the 1990s, however, production had tailed off dramatically due to reservoir decline. In the last decade, a trio of new plays has both revived the basin and promised hope for the future.

The first is known as the ultra deep play. For the last several years, special drill rigs capable of operating at depths up to 6 miles have targeted thick Eocene and Paleocene sediments beneath the shallow waters of the Gulf. In January, a consortium led by McMoRan Exploration of New Orleans announced that it had encountered 200 ft of pay at 28 600 ft in the Davy Jones prospect.

Deepwater (1000 - 5000 ft) and ultra deepwater (greater than 5000 ft) plays beckon beyond the Gulf’s shores. There are two major targets for offshore drilling in the Gulf of Mexico; structures in the Miocene/Pliocene and structures in the Lower Tertiary.

Miocene/Pliocene targets are essentially extensions of fields found in shallower waters near the shores of Texas and Louisiana. Recent new Miocene/Pliocene fields include the Tahiti field (500 million boe; 125 000 bpd), the Neptune field (150 million boe; 50 000 bpd), the Blind Faith field (100 million boe, 30 000 bpd production) and the Thunder Horse field.

And the Miocene/Pliocene play shows no signs of abating. In late 2009, Anadarko and partners encountered more than 600 ft of net crude pay in the Lucius play. The discovery well went to a total depth of 20 600 ft in 7100 ft of water.

The Lower Tertiary exploration trend runs from the middle to the western side of the Gulf of Mexico and is about 50 - 70 miles wide and 200 miles long. Estimates issued by the MMS indicate that the trend may contain 3 - 15 billion barrels of oil. The Perdido region, located 200 miles south of Houston, consists of three fields; Great White, Tobago, and Silvertip. The fields will be tied into a production spar platform anchored in 8000 ft of water. The field, which is jointly owned by Shell, BP and Chevron, is expected to begin operation in mid-2010.

The Cascade/Chinook field, coming onstream in 2010, will be the first Lower Tertiary production in the central Gulf of Mexico. Initial production of 80 000 bpd and 16 million ft3/d will be centred around an FPSO (Floating Production Storage Offloading).

Several new discoveries also promise a bright future for the Lower Tertiary.

New technologies
The charge into the deep is being led by cutting-edge technology. A major obstacle has been a mobile salt layer up to 10 000 ft thick that has prevented seismic surveys from accurately pinpointing Lower Miocene/Pliocene and Lower Tertiary targets. Starting in the late 1990s, advances in computing technology and seismic software, including improvements to offshore data gathering, processing and interpretation, have allowed companies to identify large trapping structures with confidence.

Extreme performance rigs are also being built for ultra deepwaters. In late 2009, Transocean delivered Development Driller III semisubmersible dual-activity rig to BP. The semi-submersible can drill to 35 000 ft in 7500 ft of water.

Innovations include dual rig drilling platforms, downhole completion valves made of corrosion-resistant duplex stainless steel, high pressure subsea trees, and super strong flexible risers for water injection.

BP has been in the forefront of exploration in the Gulf of Mexico, as well as the development of new technologies. Starting almost two decades ago, it has built up the largest land position in the Gulf and identified dozens of major reservoirs.

While many of the new fields operate in areas with existing pipeline infrastructure, new systems will be needed as explorers push out further into the Gulf. Enbridge will construct and operate a 40 mile, 20 in. oil pipeline from the proposed Big Foot ultra deepwater development. The US$ 250 million pipeline, reaching depths up to 5900 ft, will transport 100 000 bpd to a subsea connection on its existing pipeline infrastructure. And 123 km of new crude lines will transport 130 000 bpd of oil from the Perdido field, which is jointly owned by Shell, BP and Chevron.

Hurricanes, and other clouds on the horizon
The Gulf of Mexico is not without its challenges. The recent number of tracts posted for lease, and the prices paid for them, have fallen. There are several reasons for the drop. Firstly, the previous years were considered anomalies. In the record-breaking 2008 sale, a number of leases that had not been drilled before their deadline came back on the market. The drop in oil prices, from a high of US$ 147 to below US$ 40 also scared off many tyre-kickers, but those with a long range view still remained core investors.

Unlike many other basins, bad weather abounds in the Gulf of Mexico. In 2005, Hurricanes Katrina and Rita roared through the core of the Gulf, causing widespread damage to New Orleans and the heart of the offshore petroleum industry. The hurricanes cost 1800 people their lives, US$ 80 billion in rig, near-shore and pipeline damages, and US$ 16 billion in lost production revenues.

After the disaster, the petroleum industry and federal agencies prepared new hurricane guidelines. Design standards for platforms and rigs were upgraded to increase the space between platform hulls and sea level. The moorings for Mobile Offshore Drilling units (MODUs) were made 50% stronger. Vulnerable pipelines were buried deeper to avoid damage from dragging anchors; others were relocated away from mudslide-prone regions. Near-shore facilities were moved further inland and more back-up generating facilities installed.

In late 2009, a new federal restriction was dealt to exploration in the Gulf. Interior Secretary Ken Salazar announced that the MMS’s March 2010 sale of 36 million acres of leases in the central Gulf of Mexico would include shorter initial lease terms. In a ‘use it or lose it’ approach, blocks lying in 400 - 800 m of water will change from an 8 year term to a 5 year initial term (which would extend to 8 years once drilling of an exploratory well begins). Blocks in 800 - 1600 m of water will change from a 10 year to a 7 year initial lease term (which would extend to 10 years once an exploratory well is drilled). The American Petroleum Institute (API) criticised the move as an impediment to increasing domestic energy supplies and providing additional government revenues at a time when they are desperately needed.

Longer term concerns centre around the costs of drilling in the Gulf. A deepwater drill rig can run US$ 500 000/d and development of a production hub can total several billion dollars. While some rig rates have fallen, the latest ultra deepwater rigs are largely locked into multi-year contracts.

In spite of the challenges, the Gulf of Mexico remains an excellent hydrocarbon basin. The MMS estimates that remaining proved numbers of reserves stands at 5.2 billion barrels and 15.9 trillion ft3. Unproved resources could add another 4.4 billion barrels and 8.3 trillion ft3.

Author: Gordon Cope

Published on 25/05/2010

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