Number of Deepwater GOM Exploration Wells and Drilling Days, 1997-2007

?In contrast to the successes of 2006, deepwater exploration in the U.S. Gulf of Mexico during 2007 was relatively disappointing. Reserves found were an estimated 553 million barrels of oil equivalent (BOE).


This is fewer than half the reserves found in 2006, and the lowest annual contribution to the deepwater Gulf’s reserve base in the past decade. Of the reserves discovered in 2007, 229 million BOE, or 41%, have been deemed commercial to date.


The results for 2007 come in sharp contrast to 2006, which saw an exceptional 1.4 billion BOE discovered. However, while the results for 2007 were low, they are not far short of previous, quiet deepwater-exploration years, such as 2001, 2004 and 2005.


Success rates for 2007 were below par at 41%, compared with the 10-year average of 44%. These success rates are based on wells drilled whose results are unknown (tight holes) being classified as unsuccessful

Wood Mackenzie also analyzed the historic patterns of results from wells initially held as tight, whose results have since been determined. According to the results, 80% of wells originally classified as tight holes have proven to be dry holes. Applying this as a correction to the nine tight-hole results of the past year—that is, assuming about two will later be declared as successes—the 2007 adjusted success rate becomes a more respectable 45%—in line with the 10-year corrected average of 46%.
Shallow plays (Middle/Upper Miocene, Pliocene and Pleistocene received more drilling attention in 2007, and deep plays (Lower Miocene and Palegene) received less. One well (Vicksburg) and its sidetrack targeted Jurassic in 2007; the older rock had been targeted only once before (in 2003).

The average quantity of reserves discovered per exploration well was 16 million BOE in 2007. This is well below the 10-year average for the deepwater Gulf of 26 million BOE.

Drilling activity
A total of 34 exploration wells were drilled in the deepwater during 2007. (For analysis purposes, 2007 exploration wells are those for which operations ended in 2007.) While this is below the 10-year average of 43 wells, it is a number similar to those drilled in each of 2005 and 2006.


However, while the number of wells is similar, the number of drilling days showed a sharp fall for 2007, compared with the previous year. A total of 2,430 days were spent drilling exploration wells in 2007, down 42% from the previous year and the lowest level in the past decade.

Of the 2007 deepwater discoveries deemed commercial, West Tonga is the largest. the owners, Anadarko Petroleum Corp., StatoilHydro, Chevron Corp. and Shell Oil Co., estimate it holds some 100 million barrels of oil equivalent of reserves.

While the number of wells was similar to recent years, far fewer of the 2007 wells targeted deep plays. In particular, the deeper Paleogene (Lower Tertiary) and Lower Miocene targets took up a larger portion of 2006 drilling, accounting for 53% of wells drilled.


This fell to 29% in 2007. The net effect is fewer total drill days in 2007 in relation to the number of wells drilled. However, notable in 2007 were the Vicksburg well and its sidetrack, which targeted Jurassic—a geologically older play that had only been targeted once before, in 2003.


The 2007 exploration wells took an average of 71 days to drill. This is substantially below the 108 days taken on average for each exploration well in 2006, when more wells targeted the deeper plays. Excluding 2006, the long-term average drill time is in line with drill times for 2007.

Other drilling
While exploration drilling activity declined during 2007, this is not necessarily an indication that overall activity in the deepwater Gulf has declined. For example, appraisal drilling in 2007 amounted to 2,339 days, which is above the long-term average of 2,170. However, this was still fewer than the 2,799 appraisal-well drilling days spent during 2006, a busy year.


To determine whether 2007’s quiet year of deepwater Gulf exploration was due to increased activity outside of exploration, Wood Mackenzie analyzed the levels of activity on deepwater wells as reported to the Minerals Management Service. While these do not paint an exact picture of total drilling taking place in the Gulf, they do nevertheless provide a barometer to the amount of activity operators are undertaking.


While exploration activity fell in 2007 from a peak in 2006, total well activity remained steady during the same period. This indicates that, while exploration was down, the decline was complemented by increased activity in drilling appraisal and development wells.


Other factors influencing the quiet exploration year of 2007 may include the fact that companies have new seismic to process before committing to exploration drilling. An abundance of new acreage was awarded in the lease sales of 2007 and will require further time to process for prospect development.

Discoveries
Of the 2007 deepwater discoveries deemed commercial, West Tonga (Green Canyon 726) was the largest. Discovered by Anadarko Petroleum Corp.—in partnership with StatoilHydro, Chevron Corp. and Shell Oil Co.—reserves are tentatively estimated at around 100 million BOE. The discovery is likely to be developed jointly with the neighboring Caesar (Green Canyon 683) and Tonga (Green Canyon 727) fields.
Development options include a subsea tieback to nearby infrastructure—potentially the Constitution or Tahiti spars.


In addition, the Droshky (Green Canyon 244) discovery was made by Marathon Oil Co. (100% working interest and operator) in April 2007. The field is believed to hold recoverable reserves of 85 million BOE in the Upper Miocene. Development drilling has already started on the field, with what will ultimately be a three-well subsea tieback and is expected to come onstream in 2010.


Elsewhere, the Danny and Noonan fields (Garden Banks 506) were discovered by Helix Energy Solutions Group Inc. (100% working interest and operator) during first-half 2007. These have estimated combined reserves of 26 million BOE. The fields are undergoing a fast-track development program in tandem, using subsea tiebacks, and are due onstream during the third quarter.

Also on a fast-track were Anadarko’s wells at Ewing Bank 598 and 599. These were immediately completed for production and tied into existing subsea infrastructure and the Boomvang spar. They came onstream in third-quarter 2007.


Technical reserves made up the bulk of discoveries in 2007. The largest was Vicksburg (De Soto Canyon 353) that was discovered by Shell in partnership with Nexen Inc. and Plains Exploration & Production Co. This is an Upper Jurassic reservoir in the Norphlet Trend. The extent of the reserves is yet to be fully determined; Wood Mackenzie tentatively estimates the resources to be 125 million BOE.


This find may be part of an emerging Jurassic trend in the deepwater Gulf, following on from the Shiloh (De Soto Canyon 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.


Other significant technical discoveries include Julia (Walker Ridge 627), a Paleogene reservoir in the Upper Wilcox formation. The discovery well was operated by Shell in partnership with ExxonMobil Corp. and StatoilHydro, and it is estimated to hold 150 million BOE. Shell decided not to participate in further activity at Julia; the remaining partners, ExxonMobil and StatoilHydro, have started drilling an appraisal well on the field.

Summary
The lower level of exploration activity during 2007 is in part due to higher levels of appraisal and development drilling activity, coupled with a tight rig market. Exploration drilling should pick up this year, driven by several 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.

Hugh Hopewell is an analyst with energy-research and -consulting firm Wood Mackenzie in Houston. He can be reached at 713-470-1675.