Industry Officials Expect Delay in Deepwater Drilling Payoff

Although future Gulf of Mexico oil production lies in deep water, industry experts say consumers aren't likely to reap the benefits from it anytime soon.

New finds in the Gulf spurred interest in deepwater drilling in depths below 1,000 feet of water. In the past several years, companies have probed ultradeep water of more than 5,000 feet.

Once you spend the money there, you are talking about two to three years to get these developments online even after there is a discovery, said Al Petrie, spokesman for New Orleans exploration and production company Energy Partners Ltd.

Discoveries on the (continental) shelf, however, can have an impact in as little as six months.

In September, San Ramon, Calif.-based ChevronTexaco announced a discovery at the company's Jack Prospect, approximately 270 miles southwest of New Orleans. The size of the find has not yet been determined. The Jack discovery is our latest success in the deepwater Gulf of Mexico, where we have had a greater than 50 percent success rate in our 16 wildcat wells since late 2001, said Ray Wilcox, vice president of ChevronTexaco and president of ChevronTexaco Exploration and Production Co.

The ChevronTexaco discovery is the 12th deepwater strike this year. In 2003, there were 13 announced deepwater discoveries. Deepwater findings tend to be many times greater in size than recent shallow-water discoveries, according to Chris Oynes, director of the U.S. Department of the Interior Minerals Management Service's Gulf of Mexico Region.

Oynes said the average shallow-water find during the past 10 years consisted of 5 million barrels of proven and unproven oil reserves, while the average deepwater find consisted of 64 million barrels of proven and unproven reserves.

Also in September the state-run Mexican oil company Petroleos Mexicanos mapped out potential reserves of more than 50 billion barrels of oil, including at least 45 billion barrels under deep water in the Gulf, Pemex officials said.

Because Pemex lacks the technology to extract oil from deepwater prospects, the company will most likely partner with American companies to drill for it, said Luis Ramirez Corso, head of Pemex's exploration and production company. However, that idea has already met with protest in Mexico's Congress.

Mexico's constitution bans certain oil and gas concessions. Pemex also has been criticized for taking an overly optimistic view of the size of the reserves. The 54 billion figure is based on 3-D seismic surveys and not on test drilling.

Starting in 2001, deepwater deposits in the United States have surpassed shallow water deposits in oil production. In that year, more than 314 million barrels of oil were produced in the deepwater Gulf, 56 percent of the total 557 million barrels produced in the Gulf as a whole. By 2003, deepwater production was 70 percent of the total Gulf of Mexico oil output. According to the Minerals Management Service, there are potential reserves of at least 70 billion barrels of oil in the Gulf. Only 14 billion barrels worth of reserves have been discovered so far, MMS officials said.

Since 2001, the MMS has been offering royalty relief to companies drilling in deep water. Companies drilling in the deepwater Gulf are exempt from royalties on initial production, calculated on a case- by-case basis. Increased deepwater drilling could benefit several Louisiana oilfield service companies, Petrie said.

Hornbeck Offshore would be one of them because they have several new-generation vessels that are geared toward the deep water, Petrie said. It could also be good for Gulf Island Fabrication because of new structures being built.

Torch Offshore, which is testing a patented-design deepwater pipelay vessel, could gain work laying pipe from auxiliary wells to platforms, Petrie said. Unfortunately, the expense of deepwater drilling shuts out many of the smaller exploration and production companies, Petrie said. Companies typically form partnerships to undertake deepwater drilling. Most smaller companies like EPL don't have an interest in the deep water because you typically don't operate those, so you are at the mercy of someone else, Petrie said. You don't have much control over the timing if the lead partner chooses not to develop a project.