Deep Output Overtakes Shallow

GOM Field Sizes Make the Difference

It's now official: In the Gulf of Mexico, deepwater exploration is THE name of the big game.

Recognition of the shift can be tracked to early 2000, when more oil was first produced from the deepwater Gulf than from the shallow water margins. Deepwater production continued to grow, and today is fast approaching the all-time shallow water Gulf record set in 1971.

Deepwater drilling also has dramatically expanded in recent years, and deepwater fields today account for some of the largest hydrocarbon accumulations ever found in the prolific Gulf. MMS defines "deepwater" as wells drilled in 1,000 feet or more of water.

Its status is official, however, because of the recent Minerals Management Service report titled "Deepwater Gulf of Mexico 2004: America's Expanding Frontier," which outlines the play's last decade of growth — and its role in the future.

According to the report, deepwater reserves today far out-pace the shelf, and the deepwater field sizes are much more significant than the shallow water. During the last 10 years the average shallow-water field added about five million barrels of oil equivalent of proved and unproved reserves, while the average deepwater field added over 86 million barrels of proved and unproved reserves.

In 2002 deepwater oil production accounted for approximately 61 percent of the overall Gulf of Mexico production — and operators are continually expanding the footprint of deepwater exploration.

Gulf deepwater production began in 1979 at Shell's Cognac Field, although it took another five years before the second deepwater field, Exxon's Lena Field, came on line. Despite that early activity, it wasn't until the 1990s that deepwater activity exploded:

  • Today, 54 percent of the approximately 7,800 active leases in the Gulf are in deep water, up from 27 percent of the approximately 5,600 total active leases in 1992.
  • On average, there were 29 rigs operating in deep water last year, compared to only three rigs in 1992.
  • Deepwater oil production rose over 840 percent, and deepwater gas production rose about 1,600 percent from 1992 to 2002.
  • In February 1997 there were only 17 producing deepwater projects in the Gulf, up from just six at the end of 1992. By the end of 2003 there were 86 producing projects in the deepwater Gulf — a 51 percent increase in just two years.
  • Deepwater production rates have risen by over 100,000 barrels of oil and 400 million cubic feet of gas per day since 1997.

Signs of Progress

Seismic activity is often a harbinger of exploration activity in the deep water, and today the 3-D seismic footprint is vast. Seismic acquisition has stepped into progressively deeper waters since 1992 and today blankets most of the deepwater region, even beyond the Sigsbee Escarpment.

Pre-stack depth migration of seismic data also has greatly enhanced the interpretation capabilities in deep water, particularly for areas below salt canopies. Once used sparingly, pre-stack depth migration surveys now are numerous — and widespread use of the technology is pushing exploration, as evidenced by subsalt discoveries like Mad Dog, Thunder Horse, Atlantis and Tahiti.

Going forward, time-lapse seismic surveys will be an important advancement in deep water. According to the MMS the high cost of drilling deepwater wells and challenges associated with re-entry of deepwater wells may promote the use of 4-D technology in the deepwater Gulf.

Leasing is another indicator of activity.

Deepwater leasing activity slowly increased from 1992-95, but immediately following the Deep Water Royalty Relief Act, deepwater leasing exploded.

Other factors contributed to this activity, of course — including improved 3-D seismic data coverage and several key deepwater discoveries — but the royalty relief certainly had an impact. In 1992 leases in water depths greater than 2,625 feet, where the greatest royalty relief was available, only accounted for 3 percent of leases; by the end of 1998 that figure had grown to almost 70 percent.

In 1999 the number of active deepwater leases surpassed that of shallow-water leases.

The Gulf experienced a lull in leasing activities in 1999 — almost a four-fold decrease compared with 1998 levels — but interest rekindled in late 1999 through 2003. The major oil companies dominated deepwater leasing in 1992-93, but by 1996 non-majors began acquiring significant lease holdings, a trend that continued through last year.

Non-major companies are poised to play a leading role in the future of the deepwater Gulf, according to the MMS.

Looking ahead, 10-year deepwater lease expirations will significantly impact deepwater activity, the report said, as the availability of expiring blocks is expected to dramatically increase in 2006 as a result of the 1996-98 leasing boom.

The lease expiration projections, according to the report, will pressure leaseholders to drill and evaluate their holdings and will provide opportunities for other companies to enter an active play by acquiring leases as they expire or by obtaining farm-outs from companies with untested acreage, the agency indicates.

Deeper Still

The number of deepwater wells drilled generally increased from 1992 through 2001. Activity declined in 2002 and 2003, but considerable drilling activity occurred in water depths greater than 7,500 feet.

The first well in over 10,000 feet of water began drilling late last year at ChevronTexaco's Toledo prospect in Alaminos Canyon block 951.

There are multiple exploration trends that will continue to enhance the importance of the deepwater province. Exploration drilling in the deepwater Gulf of Mexico in 2002 and 2003 found over two billion barrels of oil equivalent.

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Image Caption

Figure 1
Cumulative plot of the number of fields, operators and reserves discovered from 1975-2003 in the deepwater Gulf of Mexico. Note the change in slope of all the graphs around 1995 when the Royalty Relief Act was passed.
Data courtesy of Steve Cossey

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It's now official: In the Gulf of Mexico, deepwater exploration is THE name of the big game.

Recognition of the shift can be tracked to early 2000, when more oil was first produced from the deepwater Gulf than from the shallow water margins. Deepwater production continued to grow, and today is fast approaching the all-time shallow water Gulf record set in 1971.

Deepwater drilling also has dramatically expanded in recent years, and deepwater fields today account for some of the largest hydrocarbon accumulations ever found in the prolific Gulf. MMS defines "deepwater" as wells drilled in 1,000 feet or more of water.

Its status is official, however, because of the recent Minerals Management Service report titled "Deepwater Gulf of Mexico 2004: America's Expanding Frontier," which outlines the play's last decade of growth — and its role in the future.

According to the report, deepwater reserves today far out-pace the shelf, and the deepwater field sizes are much more significant than the shallow water. During the last 10 years the average shallow-water field added about five million barrels of oil equivalent of proved and unproved reserves, while the average deepwater field added over 86 million barrels of proved and unproved reserves.

In 2002 deepwater oil production accounted for approximately 61 percent of the overall Gulf of Mexico production — and operators are continually expanding the footprint of deepwater exploration.

Gulf deepwater production began in 1979 at Shell's Cognac Field, although it took another five years before the second deepwater field, Exxon's Lena Field, came on line. Despite that early activity, it wasn't until the 1990s that deepwater activity exploded:

  • Today, 54 percent of the approximately 7,800 active leases in the Gulf are in deep water, up from 27 percent of the approximately 5,600 total active leases in 1992.
  • On average, there were 29 rigs operating in deep water last year, compared to only three rigs in 1992.
  • Deepwater oil production rose over 840 percent, and deepwater gas production rose about 1,600 percent from 1992 to 2002.
  • In February 1997 there were only 17 producing deepwater projects in the Gulf, up from just six at the end of 1992. By the end of 2003 there were 86 producing projects in the deepwater Gulf — a 51 percent increase in just two years.
  • Deepwater production rates have risen by over 100,000 barrels of oil and 400 million cubic feet of gas per day since 1997.

Signs of Progress

Seismic activity is often a harbinger of exploration activity in the deep water, and today the 3-D seismic footprint is vast. Seismic acquisition has stepped into progressively deeper waters since 1992 and today blankets most of the deepwater region, even beyond the Sigsbee Escarpment.

Pre-stack depth migration of seismic data also has greatly enhanced the interpretation capabilities in deep water, particularly for areas below salt canopies. Once used sparingly, pre-stack depth migration surveys now are numerous — and widespread use of the technology is pushing exploration, as evidenced by subsalt discoveries like Mad Dog, Thunder Horse, Atlantis and Tahiti.

Going forward, time-lapse seismic surveys will be an important advancement in deep water. According to the MMS the high cost of drilling deepwater wells and challenges associated with re-entry of deepwater wells may promote the use of 4-D technology in the deepwater Gulf.

Leasing is another indicator of activity.

Deepwater leasing activity slowly increased from 1992-95, but immediately following the Deep Water Royalty Relief Act, deepwater leasing exploded.

Other factors contributed to this activity, of course — including improved 3-D seismic data coverage and several key deepwater discoveries — but the royalty relief certainly had an impact. In 1992 leases in water depths greater than 2,625 feet, where the greatest royalty relief was available, only accounted for 3 percent of leases; by the end of 1998 that figure had grown to almost 70 percent.

In 1999 the number of active deepwater leases surpassed that of shallow-water leases.

The Gulf experienced a lull in leasing activities in 1999 — almost a four-fold decrease compared with 1998 levels — but interest rekindled in late 1999 through 2003. The major oil companies dominated deepwater leasing in 1992-93, but by 1996 non-majors began acquiring significant lease holdings, a trend that continued through last year.

Non-major companies are poised to play a leading role in the future of the deepwater Gulf, according to the MMS.

Looking ahead, 10-year deepwater lease expirations will significantly impact deepwater activity, the report said, as the availability of expiring blocks is expected to dramatically increase in 2006 as a result of the 1996-98 leasing boom.

The lease expiration projections, according to the report, will pressure leaseholders to drill and evaluate their holdings and will provide opportunities for other companies to enter an active play by acquiring leases as they expire or by obtaining farm-outs from companies with untested acreage, the agency indicates.

Deeper Still

The number of deepwater wells drilled generally increased from 1992 through 2001. Activity declined in 2002 and 2003, but considerable drilling activity occurred in water depths greater than 7,500 feet.

The first well in over 10,000 feet of water began drilling late last year at ChevronTexaco's Toledo prospect in Alaminos Canyon block 951.

There are multiple exploration trends that will continue to enhance the importance of the deepwater province. Exploration drilling in the deepwater Gulf of Mexico in 2002 and 2003 found over two billion barrels of oil equivalent.

Traditional deepwater mini-basin plays are still providing many exploration opportunities, the MMS report notes, but recent discoveries in new deepwater plays continue to expand the deepwater's exploration potential.

Although not a geologic play, the Gulf's ultra-deepwater areas also can be considered frontier territory, according to the MMS. During the last three years there have been 11 industry announced discoveries in more than 7,000 feet of water with volumes of more than 1.75 billion barrels of oil equivalent.

Trident, discovered in 2001 in over 9,800 feet of water, is the deepest of these discoveries, and was found in 2001.

Other Findings

Recent drilling results indicate very significant production volumes in the near future from the deepwater Gulf. According to the MMS report, the deepwater region is still an immature exploration province with many large fields awaiting discovery.

The 2000 assessment report indicated the deep water is expected to have ultimate reserves of approximately 71 billion barrels of oil equivalent, of which 56.4 billion barrels remain to be discovered. This compares to shallow water ultimate reserves of about 65 billion barrels of oil, of which 15.2 billion remain to be discovered.

Shallow water oil production has steadily declined since 1997, and by the end of 2002 was at its lowest level since 1967. In contrast, deepwater Gulf production is dramatically increasing today — similar to the trend seen in the shallow water Gulf during the 1960s — and some predict this production surge has not yet peaked, the MMS report indicated.

Other findings include:

  • In 2002 deepwater oil production accounted for about 61 percent of overall Gulf oil production.

  • Shallow water gas production rose sharply in the 1960s and '70s, then leveled off for the next 15 years before declining steadily since 1996.

    (While deepwater gas production has not seen the same dramatic jump as oil production, a steady increase has offset the shallow water decline.)

  • Recent subsea completion technology has driven new deepwater developments, helping to increase production from the region. Approximately 300,000 barrels of oil and two billion cubic feet of gas per day come from deepwater subsea completions, according to the MMS, accounting for about 30 percent of deepwater oil production and about 50 percent of deepwater gas production.

  • Deepwater gas production from subsea completions began in early 1993, and by mid-1994 they accounted for over 40 percent of the total deepwater gas figures.

  • Subsea gas completions increased from 1996 through 1999, remained constant in 2000, and again increased rapidly after 2000.

Table 1: This year's deepwater Gulf of Mexico discoveries, through June 1.
Prospect Name Operator Area/Block Water Depth (ft.) Year Lease Issued Ownership

Tobago

Unocal

AC 859

9627

12-1-98

Unocal 40.01%
Shell Offshore, Inc. 30.00%
Nexen Petroleum Offshore 13.34%
BP Exploration & Production 16.65%

San Jacinto

Dominion E&P

DC 618

7850

2-1-02

Dominion E&P 66.6%
Spinnaker Exploration 33.3%

Dawson Deep

Kerr-McGee

GB 625

2900

1-1-96

Chevron U.S.A. Inc. 100%

Ticonderoga

Kerr-McGee

GC 768

5250

6-1-00

Noble Energy Inc. 100%

Puma

BP E&P Inc.

GC 823

4130

8-1-96

Unocal 15.0%
BHP Billiton 33.3%
BP Exploration & Production 51.6%

Atlas N W

Anadarko

LL 005

8810

3-1-02

Anadarko Petroleum 100%

Thunder Hawk

Dominion E&P

MC 734

5724

6-1-00

Dominion E&P 37.50%
Spinnaker Exploration 25.00%
Murphy E&P 37.50%

Goldfinger

Dominion E&P

MC 771

5423

6-1-02

Dominion E&P 75%
Pioneer Natural Resources 25%

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