Deep Shelf Gas Search Excites 'Privateer' Spirit

It's virtually an untried concept, but drilling wells 6 miles below the Gulf of Mexico’s shallow-water OCS could produce new "booty" in natural gas form.

"Avast, me heartys!"

When the first rig sails to test the Treasure Island concept, ye might keep yer peepers peeled, for the outcome could add still more ballast to the idea that the shallow depths of the Gulf of Mexico are a sight more than leagues away from being relegated to the backwaters of the world offshore E&P scene.

More simply, the Treasure Island exploration concept is the search for natural gas deep – really deep – below the Gulf Outer Continental Shelf (OCS). A major oil company, BP Exploration & Production, and an independent producer, Newfield Exploration, plan to test the concept by drilling a number of wells to ultra-deep geological horizons below the relatively shallow water that covers the OCS. Such wells could be drilled to as deep as 25,000 ft. or even 35,000 ft., nearly twice the depth of even recent deep shelf gas discoveries, and deeper than even most record-depth onshore wells.

And while BP/Newfield has their section of such uncharted depths, a growing number of other companies also believe that the shallow Gulf of Mexico still holds treasure troves of hydrocarbon production, mainly in the form of natural gas. With current high wellhead prices likely to remain in place for some time, Gulf operators of many different corporate flags are developing deep shelf gas programs.

The U.S. Minerals Management Service (MMS) says only 7 percent of all the wells drilled in the Gulf of Mexico through 2002 were drilled to below 15,000 ft., and only 2 percent went below 18,000 ft. In 2002, says MMS, Gulf operators drilled only 64 wells below 15,000 ft.; 39 below 16,000 ft.; 27 below 17,000 ft.; and only 18 below 18,000 ft.

So far in 2003, only a scant few wells have been drilled deeper than 18,000 ft. In May, for example, El Paso Production Oil & Gas announced it had made its first deep shelf gas discovery off Texas. As operator for partner Houston Exploration, El Paso said the well was drilled to a total depth of 19,800 ft. and tested gas production from an undisclosed Interval at a rate of 20 million cubic feet per day. Water depth at the High Island Area Block 115 wellsite was only 44 ft. El Paso earlier drilled several deep shelf gas discoveries off Louisiana, one of which was bottomed at 19,700 ft. in South Timbalier Area Block 212. Several other companies also have drilled similar wells.

Meanwhile, together and singly, BP and Newfield hope to find and exploit gas production believed to be located below a weld of salt that meanders seaward from beneath the Louisiana-Mississippi coast at depths ranging from 18,000 ft. to 22,000 ft. and even deeper. The salt weld serves to seal off much of the substrata below it. BP and Newfield are betting that beneath their leases, it is sealing off a lot of natural gas, as well, since geologically, the tight sands and high pressures found beneath such salt sheets is thought to be more amenable to the accumulation of gas than oil.

The first Treasure Island program well should be spudded sometime this fall, though neither company has given many details, except to indicate it will be spudded sometime before January 1, 2004 in the Eugene Island Area in about 250 ft. of water. Suffice it to say that if the well goes below 25,000 ft., BP/Newfield will be stretching some of the limits of existing deep-drilling experience. Together, they’ve got hundreds of OCS leases in water depths ranging from 20 ft. to 600 ft. No deep gas production or proved reserves of any kind are currently associated with the Treasure Island blocks, and no wells have yet been drilled to test the ultra-deep horizons. But if the rewards are worth the financial risks they will be taking, it once again could change the often-altered face of E&P on the Gulf OCS.

It’s no revelation that during the past few years, the pursuit of gas in Gulf OCS waters has been particularly forceful at drilling depths far greater than "normal" for that area, which generally comprises wells in the 5,000- to 10,000-ft. depth range. In the 1980s, when major and larger independent companies turned from the OCS to the Big Discovery areas in much deeper water, they were followed onto the OCS by smaller independents, most working in partnership with other small producers. At first, their entry was likened to "rag-picking" – finding and developing smaller, passed-over oil and gas reserves left undeveloped by the majors, who considered them to be uneconomic from an economies-of-scale viewpoint (see "Oil and Gas Renewable Energy Sources, Too," Oil and Gas Advisory, 09-09-02).

But today, 20 years or more later, that's all changed. The independents, using new geological and seismic exploration technologies and better drilling technology, began to search for and find all-new reserves at deeper geological horizons. Today, many of them are benefiting from new gas found below 12,000 ft. to 15,000 ft. drilled depths. And they want to look deeper. So, just as with Newfield and their program with BP, major companies have begun returning to the OCS in varying degrees, their sights now also leveled at deep and ultra-deep gas targets.

And reentry of majors probably is welcomed by most independents, since deep shelf E&P is an expensive proposition. Newfield officials say, for example, that the drilling and completion costs necessary for deep wells on its acreage in the Treasure Island play, which covers some 115 leases in the South Timbalier, Ship Shoal, and Eugene Island areas, could exceed $30 million per well. But once completed, the wells can be connected rather easily to existing infrastructure, and the gas reaches markets with little delay in production facilities construction.

However, availability of offshore rigs – chiefly jackups – for drilling deep shelf exploratory holes, at least for a time, will be at a premium. Drilling a well more than six miles deep requires not only a beefed-up ability to handle the tubular goods – drillpipe, casing, and tubing – involved, but also an enhanced pumping capability to control the drilling fluid necessary to drive downhole drill motors and bits and to lift cuttings while lubricating the borehole. Only about 30 such jackups exist today, and not all of them are in the Gulf area. A new jackup of the type needed for deep shelf drilling was described in this space last week (see "August 'Dog Days' Always Create Offshore News," RigZone, 08-25-03).

Finally, though deep shelf operators have difficulty identifying likely locations at which to spud deep gas wells, they do have some indicators to help them. The northern Gulf of Mexico has been thoroughly covered by both 2-D and 3-D seismic surveys, and existing well information for the thousands of conventional shallow wells already drilled also can be combined with seismic data to get an improved image of the subsalt geology. What's more, leading geologists say that hydrocarbons from strata deposited during the Tertiary and Jurassic periods exist at depth below the Gulf, and hold some 8 percent to 10 percent of the region's total hydrocarbons. This, they say, represents about 60 billion barrels of oil and 370 trillion cubic feet of gas, most of it recoverable. That's a tempting prize in anyone's world.

And, of course, operators will have a federal government incentive in the form of royalty relief for wells completed below 15,000 ft. Operators consider the incentive chiefly as an offset to drilling and completion costs, but it’s certainly better than nothing, considering the financial risks involved.

But from a practical standpoint, formation pressures and temperatures at such depths are virtually untested, and the extent of the corrosive nature of formation fluids found there are pretty much unknown. And since few wells have been drilled to such depths anywhere in the Gulf, the concept of deep shelf drilling and production still holds the aura of mystery associated with exploration drilling of any kind. It tends to drive off investment dollars.

But despite such challenges, ask even the most inexperienced "hearty" on the rig and you'll most likely get the feeling that while it's far from anything like piracy, drilling deep shelf gas wells in the Gulf of Mexico excites the "privateer" spirit in everyone involved, with the booty – new gas reserves – definitely worth the crew's efforts.