Deep Output Overtakes Shallow

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.