New Technology Drives New Interest in Gulf

So-called 'Dead Sea' still lively

Without a doubt, shale plays are the sexy show du jour in the oil and gas industry.

Even so, it’s likely a stretch to think that this now-exciting shale performance will have the staying power of that old industry workhorse, the Gulf of Mexico.

The Gulf’s production history dates back to 1947, over 65 years ago, when the first well drilled from a fixed platform out of sight of land marked the beginning of the offshore oil and gas industry.

Despite a few lean times – including a stretch when it was derided as the Dead Sea – the GOM always comes roaring back to life to reclaim its position as the shining star of domestic hydrocarbon production.

Mere mention of the Gulf conjures up thoughts of giant platforms in the deep water, under the command of big names in the industry, such as Shell, BP, Chevron and the like.

It’s a different story on the busy continental shelf, where the water depths measure less than 200 meters.

There are a number of smaller companies who appear to be jockeying for the kingpin designation in this region. To do so, there’s an apparent ongoing trend to gobble up one another.

The Competition

It’s a competitive scene, involving some heretofore low-profile actors, relatively speaking.

Image Caption

Shell's Olympus platform on the Mars field in the Gulf of Mexico. Photo courtesy of Shell.

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Without a doubt, shale plays are the sexy show du jour in the oil and gas industry.

Even so, it’s likely a stretch to think that this now-exciting shale performance will have the staying power of that old industry workhorse, the Gulf of Mexico.

The Gulf’s production history dates back to 1947, over 65 years ago, when the first well drilled from a fixed platform out of sight of land marked the beginning of the offshore oil and gas industry.

Despite a few lean times – including a stretch when it was derided as the Dead Sea – the GOM always comes roaring back to life to reclaim its position as the shining star of domestic hydrocarbon production.

Mere mention of the Gulf conjures up thoughts of giant platforms in the deep water, under the command of big names in the industry, such as Shell, BP, Chevron and the like.

It’s a different story on the busy continental shelf, where the water depths measure less than 200 meters.

There are a number of smaller companies who appear to be jockeying for the kingpin designation in this region. To do so, there’s an apparent ongoing trend to gobble up one another.

The Competition

It’s a competitive scene, involving some heretofore low-profile actors, relatively speaking.

They’re willing to pay big bucks to stake a claim on the shelf as evidenced by a few recent deals on record:

Talos Energy Offshore LLC snapped up conventional shelf properties from Lafayette-based Stone Energy, with the transaction just closing in August. The tab: $200 million cash.

Talos also is assuming $117 million in estimated future abandonment liabilities. Talos president and CEO Tim Duncan noted that the company is getting more diversity and tracts that fit well in its database.

Relative GOM newcomer Fieldwood Energy LLC is focused on both the shelf and the deep water. It cut a giant deal with its recent purchase of Apache’s shelf operations and properties for a whopping $3.7 billion in a cash transaction.

Apache will retain 50 percent of its ownership interest in all exploration blocks and in horizons below production in developed blocks, where high potential deep hydrocarbon plays are being tested.

Energy XXI sent waves through the industry with its recent purchase of EPL Oil & Gas for a price of $2.3 billion. The deal will make Energy XXI the largest publicly-traded independent operator on the Gulf shelf.

However, Chevron has still held on to its large number of producing fields on the shelf, according to AAPG member Clint Moore, vice president and corporate secretary at Houston-based GulfSlope Energy.

Gulf Slope is among the industry newcomers jumping into the area, with its founding executives having worked together in the GOM at Anadarko.

The company, which focuses on the present-day outer shelf and upper slope, picked up 21 lease blocks there at offshore lease sale 231 in the central Gulf of Mexico in March. The firm now controls 98,941 acres, covering 17 prospects with subsalt potential, according to chairman and CEO John Seitz.

Seitz, an AAPG member and former CEO and president at Anadarko, said the company’s third-party external estimate of potential recoverable resources associated with the prospects on the 21 lease blocks awarded is more than two billion boe.

He also noted that these newly acquired leases are located along the edge of the outer continental shelf in 300-800 feet of water, with most drillable using jackup rigs, which are typically much less expensive than the deepwater floating rigs.

Besides giving up considerable production from various formations above the extensive salt sheets, the shelf has garnered a reputation as a locale with significant subsalt production and ongoing potential.

It’s where the famed Mahogany well discovery occurred 80 miles offshore Louisiana in 1994. Mahogany was the first commercial subsalt discovery in the Gulf, and both Seitz and Moore were key members of the discovery team.

In the 1990s overall, 350 MMboe were discovered in the shelf Miocene subsalt play, and more recently, billions more have been discovered below salt in the deep water GOM, as well as off Brazil and West Africa.

A number of other companies hold leases in the same general area as GulfSlope, but GulfSlope launched its strategy in May 2013, hiring experienced GOM subsalt geoscientists, licensing 2.2 million acres of seismic, and RTM processing much of that, in time for strategic bidding at the March 2014 lease sale.

Operators are tight-lipped about the ultimate goals of their recent leasing activity. Even so, it’s not likely they’re interested in anything above “supra-salt” given most of that was heavily drilled and produced in the 1970s and 1980s.

New Tech

Much of the current action and obvious interest can be traced to advances in technology that can “see” beneath salt sheets, which for decades served as a virtual stop sign to drillers back in the day.

Particularly important are advanced seismic imaging technologies, such as broad-frequency Reverse Time Migration (RTM).

RTM became commercially viable in all phases of the imaging sequence in 2008, according to Moore, who until co-founding GulfSlope was VP at ION Geophysical.

“Industry has successfully used RTM in deep water because of its superior image quality,” he said. “The salt out there is not as deformed as on the shelf, so it was easier to reprocess.”

The shelf subsalt accumulations require advanced RTM processing, which has only been technically possible in the last five years, according to Moore.

“The industry has not come back to the subsalt play on the shelf earlier,” Seitz added, “because it takes this technology in its advanced form to sort out what it is you can see under the salt. The technology is necessary to make the play, but the 3-D velocity models of salt and sediment, provided by interaction with geoscientists, are the key to proper imaging.

RTM’s clearer imaging technology cost us many millions of dollars, but it has significantly reduced our risk, allowing us to identify 2 billion boe resource potential.”

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