Regional Roundup: Gulf of Mexico

By: Andy Maslowski
Jan/Feb 2010

Imagine if our nation did not have crude oil or natural gas from the Gulf of Mexico. We would be importing even more petroleum from other nations! Consider these facts:
  • Although production in the Gulf changes every day (especially during the threat of a hurricane), it is responsible for about a quarter of domestic oil production and about 15 percent of America’s homegrown natural gas.
  • For much of 2009, the U.S. Minerals Management Service (MMS) estimated production from the Gulf at 1.3 million BOPD and 7.0 Bcfg/d.
  • In November, Baker Hughes counted 35 active jackup, submersible or semisubmersible drilling rigs operating in the Gulf.
Any way you look at it, Gulf production is a valuable asset to America’s energy mix. Not only does it showcase state-of-the-art petroleum technology for all the world to see, it is also the crown jewel in our domestic petroleum effort. Here’s some more good news from the Gulf — new discoveries during the past year or two promise even more American offshore production, once they are connected via pipeline to coastal facilities.


Recent discoveries below 30,000 feet highlight new Gulf activity.

 
Background
The first offshore discovery in the Gulf was made in 1938, one mile off the coast of Cameron Parish, Louisiana in the Creole Field. It was drilled from a small drilling platform secured to a foundation of timber piles set in about 14 feet of water. Since then, innovation has followed innovation, allowing new discoveries in deeper water with deeper wells farther from shore.
 
An MMS fact sheet on development in the Gulf reported the first well drilled out-of-sight of land was completed in 1947 by the Kerr-McGee Oil Company. Located about 12 miles offshore from Terrebonne Parish, Louisiana, the well was positioned in open water on a fixed platform/drilling tender combination, a major breakthrough in drilling unit design. The well also came in at 600 BOPD and established a pattern for supporting offshore wells from land-based locations.
 
The search for new oil and gas offshore reserves intensified in the 1970s and beyond following the Arab Oil Embargo. In 1980, Shell Oil installed a fixed platform named Cognac in 1,025 feet of water, the world’s tallest platform at the time. Now a number of production platforms stand in water depths of 1,300 feet or more. In 1988, another Kerr-McGee well was drilled in water depths of more than 10,000 feet. By the year 2000, a number of platforms were producing oil or gas in water depths of one mile or more.
 
“A production platform may accommodate from one to as many as 100 production and injection wells,” the MMS explained. “It will remain in place for the life of the reservoir, which may be over 30 years. And throughout the drilling and production phases the MMS inspects the operations to ensure compliance with regulations, operational safety and pollution prevention.”
 
The MMS also oversees leasing, setting maximum rates of production, workover or repair operations, pooling agreements, pipeline installation and plugging. When a producing field is depleted, all equipment from the lease, including the platform and any subsea devices, must be removed.
 
New discoveries
There are about 3,800 production platforms in the Gulf, including some 700 platforms that have production, well servicing or other crews working on them. These are the people who have to be evacuated whenever big storms or other problems develop in the region.
 
With so many producing fields in the Gulf, we could name names all day! Perhaps you have heard of some of these: Atlantis, Constitution, Dorado, Horn Mountain, King, Marco Polo, Mars, Medusa, Neptune, Pompano, Ram Powell, Thunder Hawk and Thunder Horse. More prospects with huge potential are also pending or awaiting new delineation drilling, such as Great White, Hadrian, Kaskida, Merganser, Rigel, Tiber, Shenzi and White Ash.
 
The Gulf’s federal Outer Continental Shelf (OCS) is a great and expensive place to look for oil and natural gas. Considering the exploratory efforts involved — offshore seismic and drilling, helicopter transport, seafloor wellhead and pipeline work — prospects costing hundreds of millions of dollars are the norm. But high risk can occasionally result in big rewards.
 
Many are still buzzing about BP’s giant Tiber discovery in Keathley Canyon, Block 102, announced in September 2009. BP called the discovery “giant,” although specific initial production rate estimates were not revealed. The Tiber well was drilled to a total depth of about 35,055 feet making it one of the deepest wells ever drilled by the industry on land or sea. More than six miles below the surface! A true technological wonder!
 
Of course, the first 4,132 feet was easy drilling, since that was the depth of the water in which Transocean’s Deepwater Horizon rig was positioned. Once everything is set up, it’s relatively simple to drill through sea water — just lower the pipe! Transocean still holds the water depth record of 10,111 feet, something it achieved several years ago while drilling in the Gulf for Chevron.

BP’s new Tiber discovery was drilled more than 6 miles below the surface of the Gulf.

 
“Tiber represents BP’s second material discovery in the merging Lower Tertiary play in the U.S. Gulf of Mexico, following our earlier Kaskida discovery,” said Andy Inglis, the BP chief executive, exploration & production. “These material discoveries together with our industry leading acreage position support continuing growth of our deepwater Gulf of Mexico business into the second half of the next decade.”


Even with all its E&P work during the past 70 years, the Gulf of Mexico has much more potential.

  
Tiber is operated by BP with a 62 percent working interest. Co-owners include Petrobras (20 percent) and ConocoPhillips (18 percent). The company said appraisal for the offshore discovery will continue with a WATS (wide azimuth towed streamer) seismic acquisition survey in early 2010 followed by another test well in 2011.
 
BP is the largest producer of oil and gas in the Gulf with a net production of more than 400,000 barrels of oil equivalent per day. The company is progressing on at least nine other Gulf prospects with various partners, including the nearby Kaskida discovery, drilled below 32,000 feet in a water depth of 5,675 feet. Tiber and Kaskida are both located more than 200 miles southeast of Houston and more than 200 miles southwest of New Orleans.
 
Like many new productive wells, Gulf wells come in strong. Sometimes, very strong! MMS data indicated BP Exploration’s K002 well (API #608174094702) yielded 3,452,592 barrels of oil, an average of about 493,227 barrels a month during a seven month interval in 2004. That calculated to a daily total of about 16,440 barrels. Shell Offshore’s A004 well (API #608174099600) produced more than 79 Bcfg during its first 20 months, including many months with production greater than 4 Bcfg. That means on some good days the well yielded more than 130 MMcfg/d. Too bad not all wells are like K002 and A004!
 
The MMS constantly monitors all drilling activity in the Gulf, including new deepwater action. In November [2009], the agency listed more than a dozen wells drilling in water depths of more than one mile. Shell Offshore’s Great White test in Alaminos Canyon/ Block 857 led the way in water 8,033 feet deep. Anadarko Petroleum’s Merganser prospect came in second in Avery Terrace/Block 37 — just 100 feet less, at 7,933 feet of water.
 
Future activity
Even with all its E&P work during the past 70 years, the Gulf of Mexico has much more potential. Last summer the federal government maintained more than 6,900 oil and gas mineral leases in the Gulf consisting of about 37 million OCS acres. The states bordering the Gulf — Texas, Louisiana, Mississippi and Alabama — also collect petroleum from their state waters.
 
Leasing totals change every year as leases expire or as new sales are held. For example, MMS Lease Sale 208 in the Central Gulf in March 2009 offered 6,458 parcels, encompassing 34.5 million acres. Of that, 328 parcels and 1.7 million acres were successfully leased realizing more than $690 million for the federal government. Some of the biggest bidders included Shell Gulf of Mexico, Inc. with more than $153 million paid for 39 accepted bids; BHP Billiton Petroleum Inc. ($50 million+ for 28 bids); BP Exploration & Production, Inc. ($77 million for 25 bids) and Ecopetrol America Inc. ($18 million for 22 bids). The highest bid accepted on one tract was for $65 million submitted by Shell in Mississippi Canyon, Block 721.
 
The Eastern Gulf of Mexico near Florida is wide open. But it would take a trailblazing operator to attempt to drill there again following the debacle of the Destin Dome play. During the late 1980s and 1990s Chevron and its partners drilled three apparently successful natural gas discoveries on the Destin Dome structure, located about 25 miles south of Pensacola, Florida. Following litigation and pressure from the state of Florida, Chevron was eventually forced to abandon its offshore wells and leases for a financial settlement of about $115 million, paid in 2002.
 
A drilling moratorium is now in effect in waters up to 125 miles from the Florida coast to “protect” the state’s environment and tourism industry. But how long would the tourism industry last in Florida if it couldn’t use gasoline, diesel, jet fuel and marine fuel to power all the motor vehicles, aircraft and boats bringing visitors to the Sunshine State?
 
During the past year there have been new discussions within the U.S. Senate concerning new offshore OCS leasing and drilling in Florida. We’ll see what happens.
 
Meanwhile, more E&P work is expected in Mexico’s portion of the Gulf, specifically in the Gulf of Campeche. The U.S. Energy Information Administration reported that the Gulf of Campeche accounted for about 80 percent of Mexico’s total oil production in 2008.
 
And believe it or not, Cuba is also getting in on Gulf action. The Cuba state oil company, Cubapetroleo, has signed agreements with at least seven foreign firms to explore for oil and gas within its economic exclusion zone of the Gulf of Mexico. The U.S. Geological Survey estimated the North Cuba Basin, which extends into the Gulf, could contain as much as 4.6 billion barrels of oil and 9.8 Tcf of natural gas.
 
Wouldn’t that be something — companies from Brazil, India, Venezuela, Vietnam and elsewhere, drilling for oil and gas in Cuban waters not far from Florida where offshore petroleum exploration is pooh-poohed? Imagine that!