A man travels the world over in search of what he needs and returns home to find it.
George Moore
There is a shortage of prime exploration acreage around the world and companies of all sizes are willing to take another look at basins that they’d “walked on by” in the past and to wonder whether new technologies might help increase exploration success rates, bring down development costs and so on.
However, there is one simple fact. Everybody, but especially all the countries bordering the Atlantic – whether Ireland, Trinidad & Tobago, in North-West or West Africa, the Falkland Isles etc, faces competition from the country and the Basin with the most opportunities, the most experience in offering leases, the best terms – the “benchmark” - namely the USA and the Gulf of Mexico. To quote from an Oct 3rd 2007 US MMS press release:
“A Federal sale of offshore oil and natural gas leases in the Central Gulf of Mexico attracted $2,904,321,011 in high bids today, the second highest total of high bids in U.S. leasing history. The sale underscores the Gulf’s continuing importance as a vital source of domestic energy production for the Nation.
The U.S. Department of the Interior’s Minerals Management Service, which conducted Oil and Gas Lease Sale 205, received a total of 1,428 bids on 723 tracts. The sum of all bids received - losing as well as winning bids - was $5,245,583,944. There were 84 companies participating in this sale.”
Yes, that’s $2.9bn and 84 companies and the best Sale since the 1980’s! And there’s another Gulf of Mexico Lease Sale coming up in March this year.
So what’s going on there? Surely, the Gulf Coast and the Gulf of Mexico is the best studied region in the world – there can’t be anything new to do there!
To start to think about this we need to step back for a moment and contemplate Paradigms.
Back in 1982, I went on a field-based course on Gulf Coast sediments led by Rufus Le Blanc, the eminent Shell Oil geologist. Before I left the UK for Houston I borrowed a geological hammer off a colleague and had it with me when Rufus took us to our first Stop to look at a barrier bar, somewhere in the region of Galveston. When I produced my hammer, Rufus looked at it and then at me and said “Son, you should’ve brought a spoon!” I guess my Paradigm, based on trips to Arran, the Lake District, the Pennines etc was that rocks were things you hit with a hammer. The point of the story though is that Rufus had his own Paradigm which became visible when somebody asked him what he thought about the debate that had just begun in Houston, New Orleans etc concerning the likelihood of finding good quality sands that had been deposited in deep water – his answer was along the lines of “No way, Jose!” He argued that there was no way that sand grains could be carried the tens of kilometers, across a shelf and slope, into deep water.
A few years later, early in 1988 to be precise, I moved to Houston and found the debate about deep water sands was more or less over. What had happened was that the Hunt brothers had somehow managed to bet on the price of silver and lose, and as a result had to put their oil company Placid up for sale. What emerged in the data room was that the Placid explorers were bold souls who had drilled a well in deep water; the logs showed hundreds of feet of deep water sand. This had triggered two or three major deep water Lease Sales – in which Shell Oil was a prime mover, obviously having got past Rufus’s Paradigm before others had; because of the risks involved, the MMS awarded 10 year leases, bringing a natural 10 year cyclicity as acreage was returned and thus available for re-leasing, in 1997/8 (slightly muted because of low oil prices) and 2007/8. The Mars discovery was the first proof that deep water sands, in present-day deep water, could yield commercial fields. Nowadays of course, there have been many discoveries and the deep water sands are completely understood and predictable: there’s a new (unshakeable) Paradigm.
Well, not really!
Over the last few years, but especially the last two, the industry has been excited by the opening up of the so-called “Lower Tertiary” trend in deep water. Exhibit 1 summarizes the stratigraphy of the Gulf region, introducing some of the key terms: before anybody complains about the detail, please be grateful that I didn’t include all the palaeontological markers as well! What’s happened here is that formations that are favoured onshore, especially the Wilcox trend – see Exhibits 1 & 2 – are having their lateral equivalents tested offshore, in deep water. Exhibit 3 shows a summary of the geology in cross-section: note the important role of the salt, in blue, in both ‘shaping’ structures and ‘masking’ deeper targets*. Whether the discoveries that have been made turn into commercial fields remains to be seen; the reservoir and oil properties, the drilling depth and the depth of water are all “challenging”. However, the pre-existing Paradigm on deep water sands has needed some profound re-thinking and may need to be scrapped completely for this new trend, on the grounds of its extraordinary distance from the coeval shelf, as shown in Exhibit 4, and the amount of sand. There is a thought-provoking review of the geological implications by Berman and Rosenfeld (2007).
Let’s move on to think about another Paradigm.
The Gulf Coast has been explored for the best part of 150 years and the first offshore seismic was shot as early as 1940, I believe, by Shell Oil. So it’s reasonable to suppose that the onshore and shallow water areas have been completely explored, other than ‘mopping up’ the odd million barrels or few bcf here and there, and that the move into deeper and deeper water is simply pursuing the one remaining Frontier.
Well, again not really!
It’s fairly clear that the shallow water area (the Shelf – the middle part of the cross-section of Exhibit 3) has been under-explored at depths below about 16,000’ partly because of the difficulties of developing reliable regional geological frameworks below this depth (itself related to the difficulty of obtaining seismic images of sufficient quality) and partly because of the difficulties of drilling through over-pressure and into HPHT. So there’s been a depth Paradigm which is now being challenged, using 3D seismic and new drilling techniques. The MMS has estimated the ‘federal waters’ resource potential of the Gulf of Mexico Deep Shelf as up to 55 Tcf of natural gas. Likewise, the U.S. Geological Survey has estimated a mean of 113.7 trillion cubic feet of undiscovered natural gas, a mean of 690 million barrels of undiscovered oil, and a mean of 3.7 billion barrels of undiscovered natural gas liquids in onshore lands and State waters of the Gulf Coast.
One way of summarizing all of this is to say that geological and technological innovation is breaking new ground in our abilities to deal with “below ground” risk in the Gulf region, and actually not just there. Over the last 12 months, Royal Dutch Shell, BP and Marathon have all announced multi-billion dollar investments in Canadian oil sands. And just today (6th Feb 2008), the MMS announced that a sale of oil & gas leases in the U.S. waters of the Chuckhi Sea, off the NW coast of Alaska, has brought in a record $2.66bn, compared with the MMS’s estimate that it would receive only $67m for the acreage. Twenty-five years ago, high costs ruled out Chuckhi developments even though oil had been found to be present: not any more, it seems – companies are no longer “walking on by”.
Something extraordinary is happening and one might glean from all this that there is another factor at play other than the geological and technological transformation of “below ground” risks and the transformation of economics by high oil prices. My own guess is that conversations about “above ground” risk have become less relaxed in the Majors’ boardrooms – perhaps North America feels like a comfortable place for the engineers and accountants who have their hands on the steering wheels!
I will return to this topic in my next article, on global exploration “hot spots”.
Reference
Berman, A. E. and J. H. Rosenfeld, 2007, Deep-water Gulf of Mexico Wilcox play: A new paradigm for the Gulf Coast Paleogene: Petroleum Frontiers, v. 21, no. 1, IHS, Inc., Englewood, CO, 56 p.
: for a version of this paper, follow:
http://energy.ihs.com/Resource-Center/Presentations/ and click on the article by Art Berman under Offshore Gulf Coast Panel.
*Another Paradigm, waiting to be broken and an embarrassing one for me, was my declaration to a small BP audience in the late 1990’s that I did not believe that achieving high fidelity seismic images beneath the type of salt bodies found in the Gulf of Mexico offshore was possible and that we would do better to spend our R&D dollars on other things. Again this prejudice (sorry, Paradigm!) was rooted in my own research work of some years’ before, based on exotic 3D ‘ray-tracing’, a half-baked understanding of Zoeppritz’s equations, and a computer with the processing power of my current mobile phone: I reckoned without the application of some better, very sharp, minds and a huge leap in computing power!
Author:
David Bamford
Thursday, February 14, 2008 14:23