Gulf Tops OCS Sale Schedule

The Minerals Management Service has once again set a new five-year outer continental shelf leasing program and -- surprise, surprise -- the Gulf of Mexico remains the jewel in the U.S. offshore crown.

Twelve of the 20 proposed lease sales slated from July 2002 to July 2007 will cover acreage in the Gulf of Mexico, including two sales in the Eastern Gulf region.

The remainder of the sales is set for Alaska, including the Beaufort Sea, the Cook Inlet/Shelikof Strait, Chukchi Sea and Hope Basin, and Norton Basin.

Based on the MMS 2000 outer continental shelf national petroleum assessment, the estimated economically recoverable resources available for leasing are 10.2 to 22.4 billion barrels of oil and 39.5 to 59.2 trillion cubic feet of natural gas -- and the Gulf of Mexico makes up the lion's share of those figures.

Specifically, the total resources available for the western and central Gulf are an estimated 7 to 12 billion barrels of oil and 37 to 56 trillion cubic feet of gas; the eastern Gulf accounts for 122 to 289 million barrels of oil and 504 billion cubic feet to over one trillion cubic feet of gas of the estimated available resources.

A general comparison of the 1995 and 2000 MMS resource assessment results indicates the still mammoth role of the Gulf of Mexico in the nation's energy picture. The considerable increase in the Gulf OCS region's undiscovered, conventionally recoverable oil and gas resources accounts for most of the significant overall increase in OCS estimates.

This increase is attributable to recent deepwater exploration results and additional areas assessed, including:

• The deep, older sections on the central and western Gulf shelf below 20,000 feet sub-sea.
• The Cenozoic section beyond the Sigsbee Escarpment.
• The deepwater Mesozoic section not on the Florida platform.

Looking Ahead

Under the new five-year lease plan, annual area-wide lease sales are slated for the western and central Gulf, and sales covering parts of the eastern Gulf are planned for 2003 and 2005.

Ninety-nine previous sales have offered tracts in the western and central Gulf, and nearly 40,000 wells have been drilled in the region -- resulting in production of over 11 billion barrels of oil and 14 trillion cubic feet of gas.

The two sales planned for the eastern Gulf will consist of the 256 deepwater tracts directly off Alabama and adjacent to the central planning area, as identified in Sale 181 scheduled for later this year. The configuration of these sales recognizes the concerns of Florida, the positions of the other Gulf States and competing uses for military operations.

Ten previous sales have been held in the eastern Gulf, but currently there are only 23 existing leases.

An aggressive leasing program will be important in coming years if operators in the Gulf of Mexico are to keep pace with production. According to MMS figures the Gulf OCS should:

• Increase its daily oil production from 945 million barrels of oil per day in 1995 to a range between 1.5 and 2 billion barrels of oil per day by year end 2005.
• Increase gas rates from 13 billion cubic feet of gas a day in 1995 to between 11 and 16.5 billion cubic feet of gas daily by the end of 2005.

The deep water obviously will play an important role in those increases. In 1999 deepwater oil production surpassed production on the shelf for the first time, and that gap will widen in coming years. By 2005 production from deepwater fields will account for 67 percent of the daily oil production and 26 percent of the daily gas production in the Gulf, according to the MMS.

Reasons to Believe

The MMS 2000 OCS petroleum assessment clearly outlines the two primary reasons the Gulf of Mexico will remain the premier oil and gas province in the United States -- the deep water and the promise of deep gas targets below 15,000 feet.

In 1999 Gulf of Mexico total oil production reached an estimated 494 million barrels, after hovering around 300 million barrels yearly for most of the decade, and virtually all that increase came from new deepwater fields, said Chris Oynes, regional director of the MMS, in a recent agency publication. Factors included:

• High flow rates have driven the economics of deepwater projects and acted as a strong incentive to explore and develop deepwater leases.
• The use of subsea well completions has contributed to the economics of deepwater projects. At the end of 1999 there were 186 subsea completions -- 62 of those were in deep water and accounted for 25 percent of all deepwater oil production and 40 percent of deepwater gas production, he said.
• A significant number of major technical and engineering achievements in the late 1990s. These included such projects as:
  • The first subsea production in over 5,000 feet of water at Mensa in 1997.
  • Tension leg platform production in 3,800 feet of water at Ursa in 1999.
  • The first spar production at Neptune in 1997.
  • The first mini-TLP production at Morpeth in 1998.

"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 deepwater 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 in the Gulf of Mexico, with more than 2,600 of those in 800 meters of water or greater."

The number of producing fields tells the story of the growing reliance on deepwater production:

• In February 1997 there were 16 producing deepwater fields, up from only five at the end of 1992.
• By the end of 1999 there were 30 producing fields in the deep water, up 30 percent from just one year earlier.
• In 1998 deepwater oil production rose 47 percent over 1997.
• In 1999 production increased an additional 41 percent over 1998.

Similarly, deepwater gas production increased 47 percent in 1998, followed by a 51 percent jump in 1999.

What does that increase mean for the nation's energy picture?

Although U.S. oil production declined about 410,000 barrels a day from 1994 to 1998, that decline would have been nearly twice as large if the deepwater Gulf production had not increased by 321,000 per day, according to the MMS.

Deep Impact

The deepwater royalty relief had a significant impact on deepwater Gulf activities. The incentives provided under the act included automatic suspension of federal royalty payments for new leases issued in 1996-2000 on:

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

Leases acquired under the legislation will retain the incentive until their expiration.

One of the first impacts of the royalty relief was a dramatic increase in 3-D seismic acquisition activity in the deep water -- 3-D seismic data blankets most of the deep water, even beyond the Sigsbee Escarpment, and it has helped generate new ideas.

Although the traditional deepwater mini-basin plays are far from mature, the Mississippi Fan Foldbelt, Perdido Foldbelt and Tertiary Fan/Mesozoic plays indicate that the deepwater arena is still very much a frontier area:

• The Mississippi Fan Foldbelt play has been only sparsely tested but shows great potential with announced discoveries in several areas, including Mad Dog in Green Canyon block 826, Neptune in Atwater block 575 and Atlantis in Green Canyon block 699.
• The Perdido Foldbelt play is still only lightly tested.
• The Tertiary Fan/Mesozoic play is heavily leased, but with few tests.

"These plays are large in areal extent, have multiple opportunities and contain potentially huge structural and/or stratigraphic traps," the MMS report said, "with the possibility of billions of barrels of hydrocarbons."

Table 1.

Recent Reserve Additions and Ultimate Recovery by Product on the Gulf of Mexico OCS Shelf.

Source: NRG Associates, The Significant Oil and Gas Fields of the Gulf of Mexico Database

Table 2.

Recent Reserve Additions by Type and Area on the Gulf of Mexico OCS Shelf (million BOE).

Source: NRG Associates, The Significant Oil and Gas Fields of the Gulf of Mexico Database

Table 3.

The Distribution of Recent Reserve Additions by Amount Added and Type on the Gulf of Mexico OCS Shelf.

Source: NRG Associates, The Significant Oil and Gas Fields of the Gulf of Mexico Database

Table 4.

The Composition of Recent Reserve Additions by Type of Addition and Geologic Age on the Gulf of Mexico OCS Shelf.

Source: NRG Associates, The Significant Oil and Gas Fields of the Gulf of Mexico Database