Stone has committed approximately $50 million to cover its share of costs to date and future drilling commitments.
"Our Gulf of Mexico strategy includes forming joint ventures, like these agreements with Stone Energy, that offer favorable terms for our company and allow us to leverage our exploratory drilling dollars across a broader range of prospects," said Dave Hager, Kerr-McGee senior vice president responsible for oil and gas exploration and production. "We retain appropriate interests in these prospects to realize meaningful impact when successful. Our team is among the industry's best in offshore exploration and production and this agreement demonstrates Stone Energy's support of our exploration and production efforts."
"This joint venture represents the first major step in implementing Stone's augmented growth strategy to diversify from the conventional Gulf of Mexico shelf," said David H. Welch, Stone's president and chief executive officer. "We are fortunate and excited to participate in the deepwater environment with such a reputable, experienced and successful company as Kerr- McGee. This agreement is an ideal vehicle for Stone's entry into higher- potential prospects. This portfolio of opportunities spreads the geologic risk across the flex trend, emerging basins and the deep shelf. Additionally, these prospects all meet the risk mitigation criteria we have developed to improve the probability of value creation as we pursue our focused diversification strategy."
The agreements cover several identified deepwater and deep shelf prospects, including the Kerr-McGee-operated Essex prospect in Mississippi Canyon blocks 23, 24 and 25. Kerr-McGee retains a 65% working interest, while Stone acquires a 35% working interest in the Essex prospect, which is currently drilling. Kerr-McGee estimates its resource range is 40 million to 150 million barrels of oil equivalent (BOE).
Kerr-McGee's Kung Pao prospect, located in Garden Banks block 171, also is part of the agreement. Kerr-McGee and Stone each holds a 50% working interest in the prospect, with Kerr-McGee as operator. The companies expect to spud Kung Pao in the fourth quarter of 2004. Kerr-McGee estimates the resource range is 20 million to 100 million BOE. The Kerr-McGee-operated Fawkes prospect in Garden Banks block 303 also is expected to spud in the fourth quarter. Kerr-McGee estimates its resource range is 25 million to 50 million BOE. Stone acquires a 16.67% working interest in Fawkes. Kerr-McGee retains a 50% working interest. The Kung Pao and Fawkes prospects are potential satellite tiebacks to the Baldpate facility located on Garden Banks block 260.
In addition to the six-well commitment, Kerr-McGee and Stone expect to participate on several other opportunities during the next two years. The majority of the blocks covered in the agreements are located in the Garden Banks and Green Canyon areas of the deepwater gulf. The deep shelf leases are located in the areas of Grand Isle, Ship Shoal, South Timbalier, Vermilion and South Marsh Island.
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