Independence Project a Blueprint for Future Deepwater Exploration

The Independence Project in the ultra-deepwater Gulf of Mexico (GOM), only a vision three years ago, is eight months away from piping up to 1 Bcf/d of natural gas to U.S. markets. The record-setting collaboration by a midstream operator, four independent producers and an offshore production contractor could serve as a blueprint for other deepwater endeavors in the future.

The idea to build a single platform and one export pipeline to serve several gas fields in the Eastern GOM deepwater took shape following Kerr-McGee Corp.'s gas discovery at the Merganser prospect in the Atwater Valley Block 37 in 2002 (see Daily GPI, April 8, 2002). Gas discoveries by other producers followed in the Atwater, DeSoto Canyon and Lloyd Ridge blocks, and the participants began to look for a solution on how to get the gas to shore.

"The discoveries added up," recalled Enterprise CEO Bob Simpson. "After several discoveries, we realized there was critical mass in an area with very little midstream infrastructure. So we had to come up with a common solution."

The handful of discoveries was not considered economical to develop alone. So GulfTerra Energy Partners LP, which Enterprise purchased in 2003 (see Daily GPI, Dec. 16, 2003), agreed to work with a consortium of gas producers to bring all of the resources together in one commercial group, said Simpson.

"It didn't take long to realize we needed partners," said Anadarko's Bob Abendschein, vice president of Eastern GOM operations. Anadarko had the lion's share of discoveries in the region, but building infrastructure was going to take a long time and a lot of money. "We had the resources, and we needed a commercial solution."

Enterprise and the original Atwater Valley Producers Group launched an ambitious plan to build a frontier deepwater hub and pipeline system in November 2004 (see Daily GPI, Nov. 11, 2004). Some of the players have changed, but the concept remains the same two years later. BHP Billiton exited the group. Anadarko purchased member Kerr McGee this year; another member, Spinnaker Exploration, was bought by Norsk Hydro (see Daily GPI, Sept. 20, 2005). And Helix, formerly Cal Dive International, acquired a 20% interest in the Independence Hub from Enterprise shortly after the project was announced in December 2004 (see Daily GPI, Dec. 16). All of the players had deepwater experience, and each leveraged their talents as the project took shape.

Enterprise and Helix agreed to build and own the hub, which will be located about 110 miles from the Mississippi River Delta. Enterprise also agreed to build and own (100%) the gas export pipe from the hub to a new shallow water platform in West Delta 68 that interconnects with Tennessee Gas Pipeline. Even though Enterprise and Helix led the design and construction, Simpson said all of the players relied a unique "integrated project team" approach, giving everyone a seat at the table.

Speaking in Ingleside, TX, on Tuesday, Simpson said the $2 billion-plus project "caps a lot of hard work," with "a lot of world record-setting achievements." Everyone, he said, wanted to be associated with anything that had the word "world" in front of it, and "each element is a significant, stand-alone achievement."

The gas output will be "the single largest increase of gas from the Gulf of Mexico." Gas from the project will represent an increase of up to 2% to U.S. gas supply and add up to 10% more to the daily domestic gas supply from the GOM, which now stands at about 10 Bcf/d.

"It is a very important project to the Gulf of Mexico," Simpson said. No spin doctors are needed to play up what the project entails. In every aspect, the Independence Project is indeed world-class.

In water 8,000 feet deep, the Independence Hub -- the world's deepest platform -- will be located in Mississippi Canyon Block 920, just inside the eastern boundary of the Central GOM planning area. Operated by Anadarko, the hub has been engineered to last at least 30 years. The 105-foot deep-draft, semisubmersible platform rises more than 200 feet into the air, with a two-level stainless steel production deck. Crew quarters are designed to comfortably house at least 16 people full-time.

Now undergoing its final topside work at Ingleside, the hub is scheduled to be moved to its new deepwater home in the next month. The original concept called for an 850 MMcf/d facility, but early this year, the hub was expanded to 1 Bcf/d to accommodate expected output from three additional discoveries made in the region since 2004 (see Daily GPI, Jan. 12). The expansion, which added $28 million to the overall cost, was principally supported by an increase in fixed fees by the producer group in the first five years of operation.

The facility will provide gas processing, compression and measurement services for 1 Bcf/d of gas, and it will be the largest gas processor in the GOM. BP plc's Thunder Horse facility, now the largest offshore GOM gas processor, is designed to process about 250 MMcf/d.

The Independence Project producers gave special attention to the flow capabilities of their platform. To prevent methane hydrate from forming in the flow lines, monoethylene glycol (MEG) will be injected. As the gas flows from the wells to the platform, the processing equipment will recover and regenerate the MEG to use again. It will be the largest offshore MEG reclamation unit in the world -- 40% larger than any existing offshore unit.

Another component, the Independence Subsea, will initially connect 15 subsea wells from 10 gas fields: San Jacinto, Spiderman, Q, Merganser, Mondo NW, Atlas NW, Atlas, Vortex, Jubilee and Cheyenne. The subsea unit includes the world's deepest subsea production tree in 9,000 feet of water at the Cheyenne gas field. The umbilicals, which are the first use of carbon fiber rod in subsea umbilicals, contain six million feet, or 1,100 miles of stainless steel tubing -- enough to travel from Houston to Denver. The flowlines -- the deepest ever in the world -- are 210 miles long.

The third integral part of the project is the Independence Trail Pipeline, 100% owned by Enterprise, which will be the world's deepest export pipeline at 8,000 feet. Completed in August, the pipe will export the gas via a 134-mile, 24-inch pipe and interconnect with Tennessee Gas Pipeline at Enterprise's new West Delta Block 68 junction platform.

The hub is in "an area of the Gulf of Mexico where there is very little infrastructure," said Simpson. A project of this size is capital intensive, and it would have been "very difficult for producers to develop without midstream infrastructure. This will accelerate deepwater development."

By the first quarter of 2007, he said Enterprise's midstream facilities will be "mechanically complete," and production is expected to ramp up toward at the beginning of the second half of the year.

Under the commercial arrangement, the producers will pay for processing capacity in relation to their use of the platform. Enterprise will receive a monthly demand charge, or reservation fee, regardless of the amount of gas flowing across the platform, said spokesman Rick Rainey. The demand fee is on the platform only. For the first five years of operation, Anadarko reserved 49% of the gas processing capacity. Once the processing reaches 1 Bcf/d of gas, the producers will not reallocate firm capacity for the first five years.

Enterprise also will receive a commodity fee per Mcf on the platform and the pipeline.

"Collaboration yields benefits," said Simpson. "With a $2 billion project, there are sizable risks and technical challenges." Using the integrated approach, the independents were able to align their interests, gain higher utilization per capital employed and efficiently use their resources. "It frees up capital for their core businesses," he said of the partners. If the producers had individually tried to build proprietary pipelines, not only would it be costly, but they might ended up with unused capacity. "We think this is an efficient, economical solution...and we've proved we can work together."

Anadarko's Abendschein added, "Going forward in the future, these are the type of deals to make these projects work. A typical project of this size usually takes seven [to] 12 years. We have done this in four-and-a-half years... The most important thing is leveraging expertise," he said. "That's what has made this a success."

Enterprise views the Independence Project as "a blueprint for the future."

In September, Devon and partners Chevron Corp. and Statoil ASA announced completion of the deepest extended drill stem test in history, with a successful production test on the Jack No. 2 well at Walker Ridge Block 758 in the Lower Tertiary (see Daily GPI, Sept. 6). Simpson said that type of project, which will require a lot of money and resources, would work well under the Independence Project model.

"It's going to take collaboration between the producers and midstream to build the infrastructure" for Jack and other deepwater prospects, said Simpson. "The partnerships give us the economics. The Jack tests and others...all of these are going to be very important to the future of supplies in the United States." The Independence Project, he said, is only the beginning.

Copyright 2006 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

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