Drillers Still Uncover Promising Oil Bounty in GOM

Despite a tough economy that forced cuts elsewhere, oil and gas producers in 2009 continued their push into the deep-water Gulf of Mexico, and many of their efforts were rewarded.

So far this year, there have been 12 discoveries in at least 1,000 feet of water, representing some 1.35 billion barrels of oil equivalent, the most found there in a single year since 2002, according to an analysis by Wood Mackenzie, an energy industry consulting firm.

Announcing discoveries were oil majors including BP and Chevron Corp. as well as independent producers including Anadarko Petroleum Corp., all of which rode out the recession and huge commodity price swings in hopes of a big score.

The discoveries won't get the U.S. to energy independence anytime soon. The nation still imports about two-thirds of its oil needs, and probably will after the new fields come online.

And getting them online will require meeting the huge technical and cost challenges of developing the fields.

Well over half the volume of oil and gas discovered in 2009 is in a frontier area known as the Lower Tertiary play -- miles below the sea floor in an outer rim of the Gulf between Texas and Louisiana -- where extreme pressures and temperatures present new obstacles.

But in coming years, the discoveries should help offset declines in shallow water fields and lift overall output of the Gulf of Mexico, which today accounts for about a quarter of U.S. oil production.

"I wouldn't say by any means it's a panacea, but it is an important piece of the overall supply equation," said Andy Steinhubl, North American upstream practice leader at consultant Booz & Company in Houston.

Over the decades that it has been scoured for oil and natural gas, the Gulf of Mexico has been pronounced dead by industry more than once. But major deep-water discoveries, made possible by recent advances in drilling and surveying technology, have revived interest in the region.

They've also helped extend the life of a stable and friendly area for Western oil companies as their global hunt for resources grows more difficult.

Nevertheless, it took nerve to proceed this year. After hitting nearly $150 a barrel in July 2008, oil prices fell to as low as $33 in February before going back above $70 in recent months. Natural gas prices also plummeted and remain low. Add to that deep water drilling rig rates above $500,000 a day in some cases, and it's a recipe for heartburn.

"If you look at 2009, you could say the Gulf of Mexico has weathered the storm," said Gary Luquette, president of Chevron's North American exploration and production company in Houston.

Four failed projects

In February, San Ramon, Calif.-based Chevron announced its Buckskin discovery, among the year's biggest. Located in nearly 7,000 feet of water in the Lower Tertiary about 190 miles southeast of Houston, it encountered more than 300 feet of net oil pay.

But in a reminder of the risks, the oil giant also drilled four dry holes in the region this year, at a cost of more than $100 million per well, Luquette said.

"It's hard to put 'good year' next to four deep water dry holes, but I would say it's not the kind of outcome that discourages us," he said, noting the company's success at Buckskin will cover the costs of misfires.

Among other major oil companies, London's BP also made headlines in the Gulf this year. Its Tiber field, discovered in September in the Lower Tertiary, is thought to be among the offshore region's biggest finds ever. Additional drilling at its deep water Kaskida field also revealed more oil than previously thought.

Independent producers also had victories, including Mariner Energy, Noble Energy, Newfield Exploration Co. and Walter Oil and Gas Corp.

Anadarko Petroleum, based in The Woodlands, landed discoveries at four of five deep water Gulf of Mexico wells it drilled, said Stuart Strife, vice president of exploration for the Gulf of Mexico.

Output projections

When asked about the prospect of more big oil finds in the deep-water Gulf, which the company identified as a focus area in 2006, he said, "That's one of the reasons we're there."

Output from deep water, at 1.3 million barrels of oil equivalent per day in 2008, could reach nearly 2 million barrels in 2011, before slipping to about 1.7 million barrels by 2016, according to a Wood Mackenzie projection. New projects such as Shell's Perdido deep-water hub will buoy production beginning next year.

"I think the industry looks at the Gulf of Mexico, particularly the deep water, as potentially a very high reward for the risk they're taking," said Lars Herbst, Gulf of Mexico regional director for the U.S. Minerals Management Service, which oversees oil and gas activity in federal waters.

One exception is Devon Energy Corp., which said last month it will sell its Gulf of Mexico and international properties to focus on its lower-risk domestic onshore oil and gas business.

Other independent producers that are heavily tied to onshore natural gas fields may be forced to unload deep-water Gulf of Mexico assets or find joint-venture partners to defray development costs, said Booz & Co.'s Steinhubl. Benefiting from a weak dollar, foreign oil companies could seize on the opportunity.

But if other competitors want to leave, Strife said he is happy to show them the door. Anadarko remains bullish on the deep-water Gulf.

"There have been a lot of wells drilled and a lot of oil found," he said, "but there is a lot left to do."

Copyright (c) 2009, Houston Chronicle. Distributed by McClatchy-Tribune Information Services.

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