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GOM Exploration Is Fair Dinkum

Aussies Making Their Mark

Count Australia among the international players busy in the Gulf of Mexico.

An Aussie invasion has impacted all levels of activity, both on- and offshore in the Gulf Coast region.

It's "fair dinkum" — generally defined as a true, genuine thing.

Why? Consider these three companies from down under: Each has taken a different approach to its U.S. operations, yet all have been successful — and each is positioned for future growth.

Santos USA

Santos USA (known as Weeks Exploration before 1995) made its first entry in the United States in 1988 when its Australian-based parent Santos Ltd. acquired Peko Oil. In the beginning, Santos' U.S. operations were a conglomeration of small, non-operated investments that had little impact on the parent company, according to Santos' president Kathleen Hogenson.

By 2000 Santos was giving serious consideration to pulling out of the United States, but a new managing director arrived and the decision was left to the new management team. Fortunately for Santos USA, the new team had other ideas.

"Santos decided to substantially grow the firm's business in the United States," Hogenson said. "The new management felt Santos could benefit from access to the world's largest gas market, and by late 2000 there were signs that the United States was going to face a declining supply of natural gas and a tight supply-demand relationship.

"The U.S. market offers Santos high cash operating margins and very short cycle times from discovery to production," she said.

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Count Australia among the international players busy in the Gulf of Mexico.

An Aussie invasion has impacted all levels of activity, both on- and offshore in the Gulf Coast region.

It's "fair dinkum" — generally defined as a true, genuine thing.

Why? Consider these three companies from down under: Each has taken a different approach to its U.S. operations, yet all have been successful — and each is positioned for future growth.

Santos USA

Santos USA (known as Weeks Exploration before 1995) made its first entry in the United States in 1988 when its Australian-based parent Santos Ltd. acquired Peko Oil. In the beginning, Santos' U.S. operations were a conglomeration of small, non-operated investments that had little impact on the parent company, according to Santos' president Kathleen Hogenson.

By 2000 Santos was giving serious consideration to pulling out of the United States, but a new managing director arrived and the decision was left to the new management team. Fortunately for Santos USA, the new team had other ideas.

"Santos decided to substantially grow the firm's business in the United States," Hogenson said. "The new management felt Santos could benefit from access to the world's largest gas market, and by late 2000 there were signs that the United States was going to face a declining supply of natural gas and a tight supply-demand relationship.

"The U.S. market offers Santos high cash operating margins and very short cycle times from discovery to production," she said.

Santos USA took its first important step toward growth in 2002 with the acquisition of Esenjay Exploration Inc., which had a strong portfolio of prospects in the Frio and Wilcox trends.

"Since the acquisition we have been drilling up the portfolio of prospects to immediately boost production," said Bill Hogenson, Santos USA's vice president of exploration and development.

For the future, Santos has established a new ventures group that since 2001 has been studying the Gulf Coast region and the Gulf of Mexico looking for new opportunities.

"We have taken apart the Gulf Coast and the Gulf of Mexico starting in the Triassic through present day to develop new concepts," he said. "We have been screening those now for two years, and we feel this work is going to put us in some very new and different plays, but with a continued focus on deeper, geopressured natural gas. We will begin drilling some of our new ventures concepts late this year."

In addition to the drill bit, Santos is looking for acquisition opportunities, according to Ben Bates, vice president of strategic development.

So, for Santos, why the Gulf of Mexico?

  • The United States, company officials said, offers a lower risk environment that offsets high risk opportunities in regions such as the Middle East, Papua New Guinea and Indonesia.
  • The United States' projects "have a strong market for our production," Bates said.
  • The United States offers relative easy entry.
  • It leverages a Santos Cooper Basin core competency: frac-stimulation.

Santos USA plans to drill about 17 exploration, appraisal and development wells in 2004, although that number could increase depending on drilling results.

Woodside Energy Ltd.

In 1998 Woodside Energy began building a balanced diversified risk and reward portfolio, taking a significant position in a small number of areas comprising short-term production of up to five years, medium-term production of five to 10 years and long-term production of 10 to 15 years, according to Rob R. Millhouse, Woodside's corporate affairs manager.

The deepwater Gulf of Mexico was on the list. Woodside initially acquired interests ranging from 12.5 to 33 percent in 43 deepwater exploration blocks operated by Marathon Oil for $25.6 million. These blocks covered 21 identified prospects and leads.

"This acreage enabled Woodside to begin building a high-quality exploration portfolio in a world-class hydrocarbon province," Millhouse said.

In 2000 the firm participated in two dry wells, acquired additional acreage through a 6 percent interest in six Walker Ridge deepwater blocks and, with Marathon, successfully bid on several deepwater blocks in Mississippi Canyon and Green Canyon.

The following year Woodside participated in its first deepwater discovery with a 2.75 percent interest in the Timberwolf discovery on Mississippi Canyon block 555.

The firm spent most of 2001 studying the Gulf of Mexico. In 2002 it participated in four wells — three of which were dry — and farmed into the successful Neptune acreage, operated by fellow Australian company BHP Billiton, and participated in Neptune 3, which discovered 137 meters of gross hydrocarbons and 40 meters of net oil pay.

Last year Woodside:

  • Participated in the successful Neptune 5 well, which found more than 152 meters of net oil pay from a gross hydrocarbon column of more than 300 meters — considered one of the best net-to-gross ratios in the Gulf of Mexico, Millhouse said.
  • Formed a joint exploration program with Pioneer Natural Resources for a two-year deep gas campaign in the shallow water Texas shelf region. The agreement covered eight prospects and 19 leads and included drilling five wells last year and three in 2004, with most targeting gas plays below 15,000 feet.

Today Woodside has interests in 130 blocks in the Gulf — 82 in deepwater and 48 on the Texas shelf.

So, for Woodside, why the Gulf of Mexico?

  • A significant undiscovered resource base.
  • The United States represents the largest energy market in the world and that market continues to grow.
  • The Gulf offers rapid life-cycle discovery to production due to the extensive infrastructure network.
  • The United States' low political risk and favorable fiscal regimes.
  • Companies can combine medium to long-term growth goals in the Gulf of Mexico deepwater with near-term cash flow and production from the shelf region.

BHP Billiton

BHP Billiton, the world's largest metals and mining company, has been involved in the Gulf of Mexico since the early 1990s via its petroleum group and from the beginning has focused on the elephant hunting grounds in the deepwater.

2003 was a watershed year for the company's U.S. operations — in February it announced initial production from its first operated deepwater field, the Boris Field (in 2,400 feet of water in Green Canyon block 282). It came on line producing 7,500 barrels of oil per day, and when fully developed production could reach 18,000 barrels of oil and 27 million cubic feet of gas daily. The estimated commercial life of the field is six to eight years.

June brought a discovery at the Chinook prospect in ultra-deepwater (about 8,830 feet, with total subsurface depth exceeding 27,650 feet). The wildcat encountered a gross hydrocarbon column of 620 feet with 260 feet of net oil pay.

In a speech last year Francis McAllister, BHP Billiton's manager of investor relations in the Houston office, said the firm believes the deepwater Gulf of Mexico is currently the hottest play in the global oil and gas industry.

The company's oil and gas strategy encompasses four elements, including high margin exploration and production, which is where the Gulf of Mexico lies.

"The deepwater Gulf of Mexico has world-class potential, very attractive fiscal terms and access to the United States' premium oil and gas market," McAllister said. "BHP Billiton's strategy was to get in early and tie up some of the most prospective blocks at low prices."

The firm began bidding on deepwater blocks in 1993 and at mid-year 2003 had interests in more than 340 Gulf blocks. McAllister said the average cost per block is $550,000, which is in the lowest quartile of acquisition costs in the industry.

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