Since the announcement earlier this year of the successes of the Blackbeard, and particularly the Davy Jones exploration well, drilled by McMoRan Exploration Company, there has been significant press attention given as to how such large, deep gas plays could be extracted from shallow-water regions in the Gulf of Mexico.
Questions are being asked – is this the resurgence of the shelf which was long ago relegated to being a very mature, declining play?
If estimates of the size of the discovery prove real, the find would be one of the largest ever made in the Gulf; 2-6trillion cu ft is suggested.
The discovery has led many commentators to question whether a sleeping giant is indeed about to awake in the sub-salt geology of the US Gulf, joining those discovered lately offshore ultra-deepwater Brazil.
Davy Jones lies in a similar geological formation to a number of other major gas finds made offshore, principally deepwater. The same sediments that have yielded an abundance of oil&gas in deeper waters may extend well inshore, deep beneath the shelf.
The well itself was drilled in 6m (20ft) to a total depth exceeding 8,534m (28,000ft). Located in the upper Wilcox Sandstone below the salt weld, the company intends to drill an additional 301m (1,000ft) to evaluate the Cretaceous Tuscaloosa Sandstone for signs of additional gas.
Tuscaloosa sands have been significant in containing a number of producing reservoirs on and offshore, and the potential is creating a lot of excitement.
The shelf, with its significant infrastructure, cheaper rigs and easier logistics, suggests it’s a great opportunity. With an estimated 22,000 miles of pipeline and almost 5,000 structures in place, almost a fifth being major platforms, the region is well equipped to deal with large discoveries.
Does this mean there might be a move from deepwater exploration to shallow-water plays, given this initial success? Well, let’s wait a minute.
Davy Jones is based on information from well logs and, as yet, does not represent an actual flow test.
According to McMoRan, of the 48,000 or so wells drilled into the Gulf of Mexico shelf, only seven have penetrated 7,620m (25,000ft) and below.
The high temperatures and pressures found at such extreme depths will no doubt pose hurdles to overcome as, with estimated bottom-hole pressures potentially as high as 25,000 pounds per square inch and temperatures of over 400F, the successful testing and delineation of the reservoir is fraught with difficulties, let alone the economic extraction.
It’s not that cheap, either. It is estimated that drilling the Davy Jones well has cost the company and its partners in the region of $200million.
This compares with $100milion or so for a deepwater well. Note also that the $200million costs to date relate to exploratory, and if development drilling was to take place, the costs may increase tenfold.
The proximity to the shore is a positive when it comes to development and utilising existing infrastructure – although, in anyone’s book, this is a very high risk play and not one that is going to be open to the biggest risk-taking exploration strategy.
Another exciting development is President Obama’s proposal that vast expanses of water along the Atlantic coastline, the eastern Gulf of Mexico and the north coast of Alaska be opened to oil&gas exploration and development in order to not only reduce America’s dependence on oil imports, but also generate revenue from the sale of offshore leases.
With the expansion of the United States Deep Water Royalty Relief Act (UWRRA) to now encompass the entire Gulf of Mexico shelf, the question is that, with additional deep drilling incentives now available, who else may be able to fund similar drilling programmes?
With the historic shift away from the shallower waters and towards deepwater exploration and drilling locations, many of the majors have sold off their acreages to smaller independent companies.
It is currently estimated that the majors, such as BP, Shell and ExxonMobil, account for only a quarter of the available acreage. This, in itself, poses a problem in that many of the independents will not have the finances available to them to fund such drilling activities. What we may witness is the development of joint ventures where by the large majors will form new relationships with the existing leaseholders.
What is, however, known is that the deep and ultra-deep shelf plays have yet to be properly explored. With Davy Jones still undergoing appraisal, wireline log results from the Tuscaloosa section should provide an insight as to how much gas is actually down there.
As noted above, some analysts have suggested that Davy Jones reserves could be as much as 6TCF and that production might be possible by 2013.
Personally, this all seems a little premature, and given the risk profile on exploration costs and the potential production challenges, it will be some time yet before we see a resurgence activity driven by deep plays on the shelf.
Andrew Reid is CEO of analysts Douglas-Westwood