Shelf Incentives Reaping Results

In recent months the Gulf of Mexico shelf has rocketed like a Phoenix rising from the ashes.

The promise of deep gas has revived this mature producing province that only a few years ago suffered a mass exodus by major oil companies and many large independents, and was derisively called "the Dead Sea."

Today, however, companies — including the majors — are coming back to the shelf to hunt for deeply buried large gas deposits that the government hopes can stem the tide of declining gas reserves and production from the Gulf.

While the deep gas play on the shelf is not new — major discoveries were made in the deep sands in the late 1970s and early '80s — the resurgence comes after a decade of dormancy.

Rapidly expanding demand for natural gas and strong prices have made this expensive, technically challenging deep play in the shallow-water Gulf more attractive than it's ever been.

The Minerals Management Service has done its part to boost activity in the shelf deep gas play as well. Beginning with Gulf Sale 178 last March, the MMS provided deep gas royalty relief for blocks in less than 200 meters of water where a new deep gas reservoir 15,000 feet or greater subsea is drilled and begins production within the first five years of the life of the lease. The incentive provides royalty suspension on the first 20 billion cubic feet of deep gas production.

MMS also is considering various options for offering incentives to explore and produce deep gas from OCS blocks already under lease prior to sale 178.

The primary goal of the MMS's deep gas initiative is to increase the volume of gas production from the OCS through 2006. Gas produced from Gulf deepwater fields and in Alaska and Canada is not expected to contribute significant increases in gas production until after 2006, so the MMS granted royalty relief for the Gulf of Mexico shelf deep gas play where reserves can be brought on line faster.

In a 2001 reported titled "The Promise of Deep Gas in the Gulf of Mexico," the MMS noted that deep reservoirs on the Gulf of Mexico shelf are key to adding significant new natural gas reserves to the United States market in the next few years.

According to the report:

• New discoveries of deep gas on the OCS offer the best short-term opportunity for achieving the large reserve additions and necessary high flow rates to offset declining gas production, which has been falling since 1997.
• Recent deep gas discoveries on the OCS have shown these new completions can produce as much as 20 to 80 million cubic feet of gas per day. The abundance of platforms, producing facilities and pipelines on the shelf will allow new deep gas production to flow quickly to the market to help meet increasing U.S. demand for gas.
• Only five percent of all wells drilled on the OCS have penetrated sediments below 15,000 feet — but the MMS estimates there could be five to 20 trillion cubic feet (the most likely value at 10.5 trillion cubic feet) of deep gas recoverable resources below this depth.
• Production from the GOM's federal waters supplies about 23 percent of domestic gas production; according to forecasts for increased gas demand, the federal waters will have to contribute from 6.5 to 7.5 trillion cubic feet of gas production per year by 2015 compared with the estimated five trillion cubic feet currently produced each year.
• Of the 10.5 trillion cubic feet of estimated undiscovered resources, the deep gas potential under existing leases in the OCS is estimated at about 6.3 trillion cubic feet, with another 4.2 trillion cubic feet under blocks not currently under lease.

"Potential deep gas resources also exist out to the edge of the continental shelf," the report said, "where some of that potential is located under thick sheets of salt."