Energy XXI has successfully installed and placed in service a bi-directional pipeline lateral between its Main Pass 61 and 73 fields offshore Louisiana, restoring more than 2,000 barrels of oil equivalent (BOE) per day of production that had been shut-in on April 6 by a rupture of the third-party-owned Cypress Pipe Line. The new lateral enhances transportation options to route around any future downstream system outages while helping achieve higher margins on the company's sales volumes.
Nearby in the South Pass area, Energy XXI has acquired additional interests in several properties, adding 2.2 million BOE of proved and probable reserves that are approximately 40 percent oil. The transaction closed with an effective date of March 1, 2010 and is subject to ordinary post-closing adjustments.
Reflecting the pipeline-related production shut-in, volumes for the fiscal fourth quarter ending June 30, 2010 are expected to average about 25,000 BOE per day. Current production approximates 26,000 BOE per day, with total production capacity of 28,000 BOE per day.
Shelf Exploration and Development Activity
Including Davy Jones and Blackbeard West, the McMoRan-operated partnership (in which the company has various interests) has identified 15 sub-salt prospects in shallow water near existing infrastructure. The partnership's sub-salt-shelf drilling plans in 2010 include the Blackbeard East and Lafitte exploratory wells and a delineation well at Davy Jones.
In February 2010, the Davy Jones discovery well on South Marsh Island Block 230 was drilled to a total depth of 29,000 feet. As reported in January 2010, McMoRan logged 200 net feet of pay in multiple Eocene/Paleocene (Wilcox) sands in the well. In March 2010, a production liner was set and the well was temporarily abandoned until necessary equipment for the completion is available. Flow testing will be required to confirm the ultimate hydrocarbon flow rates from the well. McMoRan, working with a team of experts, finalized the well design in the second quarter of 2010 and the long-lead equipment needed to complete, test and produce the well is being ordered. The completion and flow test are expected to be performed in the third quarter of 2011.
On April 7, 2010, the partnership commenced drilling the Davy Jones offset appraisal well (Davy Jones #2) on South Marsh Island Block 234, two and a half miles southwest of the discovery well. The well is currently preparing to run casing at 10,447 feet on its way to a proposed total depth of 29,950 feet. Davy Jones #2 is expected to test similar sections up-dip to the discovery well, as well as deeper objectives, including potential additional Wilcox and possibly Cretaceous (Tuscaloosa) sections.
Davy Jones involves a large structure encompassing four lease blocks (20,000 acres). Energy XXI is funding 14.1 percent of the exploratory costs to earn a 15.8 percent working interest and 12.6 percent net revenue interest in Davy Jones. The company's investment in both wells at Davy Jones to date has totaled about $20 million.
The Blackbeard East exploration well commenced drilling on March 8, 2010 and is drilling below 16,500 feet. The well, which is located in 80 feet of water on South Timbalier Block 144, has a proposed total depth of 29,950 feet, targeting Middle and Deep Miocene objectives seen below 30,000 feet in Blackbeard West, nine miles away, as well as younger Miocene objectives. Energy XXI is funding 16 percent of the exploratory costs to earn an 18 percent working interest and 14.35 percent net revenue interest in Blackbeard East. The company's investment in the well to date has totaled about $8 million.
The Lafitte exploration well is expected to commence drilling in 2010 with Energy XXI funding 16 percent of the exploratory costs to earn an 18 percent working interest and a 14.6 percent net revenue interest. Like Blackbeard East, Lafitte will target Middle and Deep Miocene objectives. Lafitte is located on Eugene Island Block 223 in 140 feet of water.
Gulf of Mexico Operations Review
Energy XXI recently finished two recompletions on its operated South Timbalier 21 field, the ST 21 #88 ST1 and ST 21 #F1, which are now producing at a combined net rate of approximately 580 BOE per day. To date, none of the company's production, drilling activities or future plans has been materially affected by the deepwater Gulf of Mexico oil spill.
"We have continued to successfully execute our growth plans in the Gulf of Mexico and there have been no material impacts on our operations," Energy XXI Chairman and CEO John Schiller said. "During this quarter we have been successful in executing our key programs, constructing a pipeline lateral that significantly improves our operational and marketing flexibility, completing a low-cost acquisition of interests in fields we already operate and advancing a frontier exploration program that has the potential to meaningfully add to the nation's natural gas supply."
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