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There's a Big Incentive to Go Deep

GOM Thriving On New Technology

Just a few short years ago many oil industry observers were calling the Gulf of Mexico the "Dead Sea."

Many believed the handful of deep water discoveries couldn't offset the plummeting production rates from older shelf fields, and after 50 years of production the Gulf was in its waning years as the premier oil and gas province in the United States.

What a difference 10 years can make.

This summer the U.S. Minerals Management Service announced a milestone that proves the Gulf of Mexico has a bright future.

In late 1999, for the first time, more than 50 percent of the Gulf's oil production and 20 percent of its natural gas production was from deep water fields - a 2,800 percent increase in oil production and a 3,500 percent boost in gas production from deep water compared to 1990.

Ten years ago, only four percent of the oil and less than one percent of the Gulf's natural gas production came from greater than 1,000 feet of water.

Image Caption

Photo courtesy of Shell E&P

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Just a few short years ago many oil industry observers were calling the Gulf of Mexico the "Dead Sea."

Many believed the handful of deep water discoveries couldn't offset the plummeting production rates from older shelf fields, and after 50 years of production the Gulf was in its waning years as the premier oil and gas province in the United States.

What a difference 10 years can make.

This summer the U.S. Minerals Management Service announced a milestone that proves the Gulf of Mexico has a bright future.

In late 1999, for the first time, more than 50 percent of the Gulf's oil production and 20 percent of its natural gas production was from deep water fields - a 2,800 percent increase in oil production and a 3,500 percent boost in gas production from deep water compared to 1990.

Ten years ago, only four percent of the oil and less than one percent of the Gulf's natural gas production came from greater than 1,000 feet of water.

In the early 1990s, Gulf of Mexico oil production hovered around 300 to 315 million barrels per year. By 1999 production had skyrocketed to almost 500 million barrels, primarily from deep water fields, according to an MMS report titled "Deep Water Gulf of Mexico: America's Emerging Frontier."

Production potential from deep water reserves is estimated to be around two billion barrels of oil and six trillion cubic feet of gas. And although U.S. oil production declined about 410,000 barrels a day from 1994 to 1998, the decline would have been nearly twice as large if deep water GOM production had not increased by 321,000 barrels a day.

By the Numbers

There won't be a decline in deep water activity any time soon if leasing figures are any indication.

Today there are approximately 7,600 active leases in the Gulf of Mexico, and 48 percent of that total is in deep water. In 1992 there were 5,200 active leases, and only 27 percent were in deep water regions

By the end of 1999 there were 30 producing deep water fields, up 30 percent in just 12 months, according to the MMS report.

This summer the MMS announced a record 34 rigs were drilling in the deep water Gulf, up from 26 rigs working in 1999. Also, while major oil companies have historically dominated the deep water plays, 13 of those 34 rigs were working for independent companies. These include:

  • Conoco, in 5,898 feet of water.
  • Marathon, in 5,620 feet.
  • Anadarko, in 4,320 feet.
  • Kerr-McGee, in 3,678 feet.
  • Mariner Energy, in 3,462 feet.

Several major drivers in the deep water coalesced in the late 1990s, according to MMS regional director Chris O. Oynes:

  • High flow rate wells have driven the economics of projects and acted as a strong incentive to explore and develop deep water leases.
  • The use of subsea well completions also has contributed to the economics of deep water projects. At the end of 1999 there were 186 subsea completions - 62 in deep water - and they accounted for 25 percent of all deep water oil production and 40 percent of deep water gas production.

Other major technical and engineering achievements have driven deep water activity, including:

  • Subsea production in 5,000 feet of water at Mensa.
  • Tension leg platform production in 3,800 feet at Ursa.
  • The first spar production at Neptune.
  • The first mini-TLP production at Morpeth.

"These technological advances, when combined with incentives passed by Congress under the Deepwater Royalty Relief Act of 1995, have also led to a tremendous surge in deep water leasing," Oynes said.

"This act provided automatic royalty relief to new oil and gas leases issued from 1996 to 2000."

Between 1996 and 1999 more than 3,000 new leases were issued in water depths of 200 meters or greater, with more than 2,600 of those in 800 meters of water or more, Oynes added.

The royalty relief legislation provides economic incentives that include the automatic suspension of federal royalty payments on:

  • The initial 17.5 million barrels of oil equivalent produced from fields in 200 to 400 meters of water.
  • 52.5 MMBOE for a field in 400 to 800 meters of water.
  • 87.5 MMBOE for a field in greater than 800 meters of water.

Although the royalty relief expires in 2000, all leases acquired from late 1995 to November will retain the incentives, which will continue to drive activity in the deep water, according to the MMS report.

Frontier Arena

Although the traditional deep water mini-basin plays are far from mature, the Mississippi Fan foldbelt, the Perdido foldbelt and the Tertiary Fan/Mesozoic plays show that the deep water arena is still very much a frontier area.

Although sparsely tested, the Mississippi Fan foldbelt play shows great potential with announced discoveries at Mad Dog in Green Canyon, Neptune in Atwater Valley and Atlantis in Green Canyon.

The Perdido foldbelt is essentially untested with only one shallow discovery in Alaminos Canyon at the Baha Field. The Tertiary fan/Mesozoic play is heavily leased, but remains untested.

These new plays are large in areal extent, have multiple opportunities, and contain potentially huge structural and stratigraphic traps with the possibility of billions of barrels of hydrocarbons.

The massive reserve potential of the deep water provinces coupled with technological advances in deep water exploration, drilling and development will continue to lure companies into deeper waters.

"Advances in deep water drilling and production technology are as remarkable as the strides made in the space industry," said MMS director Walt Rosenbusch.

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