Gulf of Mexico explorers came up short last year, together posting the least number of discovered deepwater oil and gas reserves in a  decade, according to a report compiled by industry consultant Wood  Mackenzie, which released a separate report a month earlier saying U.S. Gulf production had increased a paltry 1% in 2007 over 2006.
    “In contrast to the successes of 2006, deepwater exploration in the U.S. Gulf of Mexico during 2007 was relatively disappointing,” Wood Mackenzie wrote in the recent study, released March 5 and entitled,  “Gulf of Mexico Deepwater: Review of Exploration in 2007.”  U.S. Gulf reserves found in 2007 were estimated at 553 million barrels of oil equivalent, less than half of the 1.4 billion barrels discovered in 2006, which Wood Mackenzie acknowledged as “an exceptional year for GoM  deepwater exploration.” And, while the results for 2007 were below average, they were not far short of previous “quiet” deepwater exploration years such as 2001, 2004 and 2005. Still, of the reserves discovered in 2007, only 229 million barrels of oil equivalent have thus far been deemed commercial, or 41% of the total reserves discovered versus the 10-year average of 44%.

Tight wells are usually dry holes

   Wood Mackenzie also analyzed the historic patterns of results from wells initially held as “tight,” whose results have since been determined. This has shown that on average 80% of wells originally classified as tight holes have been dry holes. Applying this as a  correction to the nine tight hole results of the past year, that is assuming about two wells will later be declared as successes, the 2007 adjusted success rate becomes a more respectable 45% --  in line with the ten-year corrected average of 46%. Nevertheless, “the contribution in 2007 to GoM deepwater’s reserves base was the lowest in the past decade,”  Wood Mackenzie reported, noting that 38 companies participated in the drilling of 34 exploration wells last year,  less than the long-term annual average of 43 wells per year.
   Moreover, relatively few of these wells targeted the deeper, more complicated plays, and as such the overall  average drill time per well of 71 days was shorter than the previous year. In contrast, the deeper Paleogene (Lower Tertiary) and Lower Miocene targets took up a larger proportion of 2006 drilling, accounting for 53% of the wells drilled. This fell to 29% in 2007. The net effect was fewer total drill days in 2007 in relation to the number of wells drilled.
   The average quantity of reserves discovered per exploration well was 16 million barrels of oil equivalent  in 2007, well below the ten-year average for the GoM deepwater region of 26 million barrels of oil equivalent per exploration well, the report said. Wood MacKenzie attributed the lower level of exploration activity during 2007, at least in part, to higher levels of field appraisal and development drilling activity in the U.S. Gulf coupled with a reported tight rig market.
    “We expect exploration drilling to pick up in 2008, driven by a combination of factors. Increased rig availability, further prospect identification from ongoing seismic analysis, and the acquisition of large amounts of acreage in 2007, will all encourage exploration,” the report said.
   Last October’s Central Gulf of Mexico Lease Sale 205 drew $2.9 billion in high bids, by far the best financial performance for a GoM sale in the previous  two decades. Surprisingly, this year’s Central Gulf Sale 206, held on March 19, topped Sale 205 by a huge margin, totaling $3.67 billion in apparent high bids. Moreover, the number of winning and losing bids combined in both lease sales totaled more than $10 billion, demonstrating the highly competitive nature of the sales.

Seismic work can slow drilling

   On the other side of the equation, factors influencing the quiet exploration year of 2007 may include the fact that companies have a bunch of new seismic to process before committing to exploration drilling activity, Wood Mackenzie reported, noting that the glut of new acreage awarded in the lease sales in 2007 (and 2008) and the purchasers of the acreage “will require further time to process information on their prospects.”
To determine whether 2007’s quiet year was due to increased activity outside of exploration, Wood Mackenzie analyzed the levels of activity on deepwater wells as reported to the U.S. Minerals Management Service.
   “While these do not paint an exact picture of  total drilling taking place in GoM, they do nevertheless provide a barometer to the amount of activity operators are undertaking,”  the report said.
   In a separate report released last February 5, Wood Mackenzie attributed last year’s sorry 1% production increase from deepwater Gulf of Mexico to declining fields which overwhelmed a record number of new starts for the region to create an average output of 1.46 million barrels of oil equivalent per day.
   “This one percent increase is surprisingly small given the record number of fields that started up in the region,”  Wood Mackenzie analyst Matthew Jurecky wrote in  the report.  Excluding the hurricane-impacted years of 2004 and 2005, he added: “In 2007, we have observed the smallest increase in deepwater production since output began in 1988." 
   Of the 2007 deepwater discoveries deemed commercial in Wood Mackenzie’s latest report, West Tonga at Green Canyon (GC) Block 726 was the largest. Discovered by Anadarko, in partnership with Norway’s StatoilHydro, Chevron and Shell, reserves are tentatively estimated at around 100 million barrels of oil equivalent. The discovery is likely to be developed jointly with the neighboring Caesar (GC 683), and Tonga (GC 727) fields. Development options include a subsea tieback to nearby infrastructure, potentially the Constitution or Tahiti spars.
   The Droshky (GC 244) discovery was made by 100% owner and operator Marathon in April 2007. The field is believed to hold recoverable reserves of 85 million barrels of oil equivalent in the Upper Miocene. Development drilling already has started on the field, with what will ultimately be a three-well subsea tieback expected to come on-stream in 2010.
   Elsewhere, the Danny and Noonan fields at Garden Banks Block 506 were discovered by 100% owner and operator Helix Energy Solutions during 2007. The company estimated combined reserves of 26 million barrels of oil equivalent. These fields are said to be undergoing a fast-track development program in tandem using subsea tiebacks, and are due onstream during the third quarter of  2008.
   Also on a fast-track are Anadarko’s wells at East Breaks blocks 598 and 599. These were immediately completed for production and tied in to existing subsea infrastructure and the Boomvang spar. They came on-stream in the third quarter of 2007. Technical, or reserves that have not been fully delineated, made up the bulk of U.S. Gulf discoveries in 2007. The largest was Vicksburg at DeSoto Canyon (DC) Block 353, discovered by Shell in partnership with Nexen and Plains E&P. This is an Upper Jurassic reservoir in the Norphlet Trend. The extent of the reserves are yet to be fully determined, but Wood Mackenzie tentatively estimates the resource to be around 125 million barrels of oil equivalent. This find may be part of an emerging Jurassic trend in GoM deepwater, following on from the Shiloh DC Block 269 discovery in 2003. It is expected that further exploration will follow in this trend, in the hope of finding a “string of pearls”  that could combine into a viable commercial  development, Wood Mackenzie said.