Imagine shale-level well expenditures on targets that produce a 60% recovery factor instead of the 3% to 5% yield from tight formation oil.
Better bang for the buck? It is for a small group of public E&P companies who believe they have discovered a pot of black gold at the far end of the investment rainbow. The new scenario is playing out on the old Gulf of Mexico (GoM) shelf, where operators are employing wide-azimuth (WAZ) seismic technology, reprocessing older seismic data, mapping reservoirs, and conducting short-radius horizontal drilling to coax new oil pay out of a stacked pay legacy region.
It is a target-rich environment ranging from a few hundred feet to 20,000 ft (6,096 m) below the mud line in shallow water off the Louisiana coastline. Despite decades of development, only 4% of shelf wells have penetrated below 4,572 m (15,000 ft) of total vertical depth. The deep shelf has now become an exploration play.
So what did the majors, who formerly developed most of the properties, miss? In the old days operators sought formations 30 m (100 ft) or more in thickness to compensate for low commodity prices. They left numerous 3-m, 6-m, or 9-m (10-ft, 20-ft, or 30-ft) sections behind as uneconomic. Later, independents pursued fast-declining natural gas targets on the shelf in the 1990s.
The storyline today is that operators can locate targets previously overlooked thanks to improvements in seismic capability coupled with the ample incentive provided by high oil prices. Seismic processing once required a room full of Cray computers and weeks to crunch volumes of data. That task can be executed now on a laptop within days, leveling the playing field for technologically oriented smaller independents.
“Technology has changed dramatically for the ability to reprocess 3-D datasets,” Gary Hanna, CEO for EPL Oil and Gas Inc., told attendees at the Westlake Securities New Frontiers in Energy Conference in Austin in October.
“Literally, the price has come way down, and that allows us to do this on a very large scale regionally instead of on postage-stamp sized targets,” he said.
EPL expects its shelf oil production to rise by 77% in 2013 on the basis of the transformational acquisition of Hilcorp Energy GOM Holdings LLC properties coupled with organic growth from previous acquisitions over the last four years. The company’s story reflects the renaissance under way on the shelf where, after a series of consolidations, new owners have discovered that big fields get bigger on the shelf while technology provides opportunity in newer, deeper resources. On balance, today’s shelf targets feature an oilier profile and carry a margin premium up to US $10/bbl greater than tight formation oil onshore at similar well costs.
Then there is the wizard of WAZ. After being perfected in the deepwater GoM, the high-resolution seismic technique is moving closer to shore. It is the equivalent of transitioning from an impressionistic geologic watercolor to a digital photograph. WAZ is shedding new light on the highly varied nature of salt domes. Where older textbooks showed a solid column of salt up to 1,219 m (4,000 ft) in height, operators now see a roiled area of hydrocarbon-saturated sands drug up behind a protruding salt bubble.
WAZ programs are under way at Apache Corp., which maintained 50% of its deep rights after selling its shelf properties for $3.75 billion to Riverstone Holdings affiliate Fieldwood Energy LLC, and at Bay Marchand with Chevron. Several WAZ surveys have been proposed that stretch nearly west to the Texas coast. EPL’s Hanna expects that the majority of the shallow central GoM will be reshot with WAZ seismic within three to five years.
Consequently, the GoM shelf is embarking on an exploration effort focused around the numerous salt domes that underlie the shelf. Specifically, Apache Corp. and Energy XXI, a 25% working interest joint venture (JV) partner, are conducting a 2,331-sq-km (900-sq-mile) WAZ survey covering 135 blocks at Main Pass and have already reached total depth on the vertical Heron well on Block 295 as part of the nascent salt dome exploration effort.
Farther west, Energy XXI is involved as a 50% working interest partner with ExxonMobil in a two-well JV exploring a salt dome structure at the Vermillion block. The Merlin well is targeting the first of seven potential prospects and was drilling below 4,267 m (14,000 ft) in October. Energy XXI is directing a majority of its exploration capital spending to the salt dome program in 2014 after expending big dollars on the technically challenging ultra-deep shelf in 2012.
Besides the deep exploration effort, Energy XXI also is moving forward on a short-radius horizontal well program where it will drill 14 horizontal wells on the shelf with the majority located on its West Delta 73 properties. These are not the 1,219-m to 1,829-m (4,000-ft to 6,000-ft) laterals common in tight formation drilling onshore. Rather, they are short-radius laterals typically 213 m to 366 m (700 ft to 1,200 ft) in length.
“Horizontal drilling increases the recovery rate drastically from these reservoirs,” Ben Marchive, executive vice president for E&P, told attendees at the Westlake Securities Conference in Austin. Marchive referred to historical reservoir recoveries of 40% to 50% on vertical wells before water coning and inefficient sweep left stranded oil behind. Horizontal drilling allows another 15% to 20% recovery, ultimately producing a 55% to 65% recovery rate.
“When you start with reservoirs or fields that have 750 million to 1 billion barrels of oil in place and you increase the recovery factor 10%, that’s a lot of oil,” Marchive said.
Energy XXI acquired the largest bulk of its oily shelf properties via a $1 billion acquisition from ExxonMobil in December 2010. ExxonMobil drilled 32 horizontal wells on the properties during the 1990s. The independent now owns and operates five of the largest GoM oil fields, some of which have been producing for six decades and are still generating oil as new technology is brought to bear.
Energy XXI spudded its first horizontal well in 2012 and has since consummated 14 wells to date with successful completions on all but two.
Energy XXI attributed 2,200 b/d of oil in new horizontal production on West Delta 73 in June 2013, a double over the same period one year prior. The company sees a five- or six-year inventory encompassing 95 horizontal locations from South Timbalier to Main Pass, with a majority to be drilled on its West Delta holdings.
While describing activities at West Delta 73, Marchive echoed comments frequently associated with onshore shale plays, using terms like “a very repeatable program.” And, like shale plays, horizontal drilling is not always as easy as it sounds. At West Delta, Energy XXI is looking at seven stacked dense sand plays, each of which lies in a horizon of 3-m to 6-m thick with multiple undulations in a low-relief environment. The trick is keeping the lateral within the sands.
“If you vary anywhere from 5 ft to 7 ft or 8 ft [1.5 m to 2.1 m or 2.4 m], you can get out of zone,” Marchive said. But the economic argument is compelling despite the technical challenges. Combining horizontal drilling with recent acquisitions provided an 80% uplift on proved reserves for Energy XXI, according to Marchive.
Those sorts of stories are becoming more common in a consolidating GoM. While tight oil formations onshore generate loud headlines, the shelf is quietly generating new oil.
Contact the author, Richard Mason, at email@example.com.
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