?The Gulf Coast region is characterized by numerous modest-size fields with strong water drives, steep declines and short reserve lives. Although the region is intensely explored, significant activity continues. Current production from the basin is 5.8 billion cubic feet equivalent per day from some 18,180 active wells (69% gas).


Most new gas resources are believed to occur in existing fields through seismic re-interpretation. Additional potential exists by drilling deeper in mature areas. Proved reserves in the region are approximately 11.7 trillion cubic feet equivalent with a proved reserves-to-production ratio of only 5.4 years.


Attractions, challenges. The region features multiple stacked pays, application of 3-D seismic technology, deep exploration potential, well-developed energy infrastructure and low pricing differentials. Challenges include short reserve life, steep declines, abandonment liabilities, deeper drilling in old fields and relatively high well costs.


Geology. The region is characterized by a regressive sequence of clastic rocks that built the continental margin, south and west from the shelf margin. Activity in the Gulf Coast began as early as 1893. It has become one of the most explored and developed basins in the U.S., with more than 9,000 fields discovered.


Use of 3-D seismic to identify amplitude anomalies has advanced the understanding of geology in the Gulf Coast basin, which consists of relatively simple trap types, primarily roll-over anticlines downthrown to major down-to-the-coast normal faults and more complicated salt-dome features. Reservoirs range in age from late Cretaceous to late Tertiary and include the Miocene, Frio, Vicksburg, Wilcox, Yegua, Austin Chalk and Tuscaloosa.


Major fields. The top Gulf Coast fields produce primarily from Austin Chalk, Miocene and Tuscaloosa. The Austin Chalk productive trend is approximately 30 miles wide and extends from Mexico across Texas and into southern Louisiana. It produces in aggregate 523 million cubic feet per day from approximately 2,500 wells.


The Tuscaloosa deep-gas play in south-central Louisiana targets the Upper Cretaceous Tuscaloosa group in structural and stratigraphic traps formed along an expanding downdip section. It produces 190 million equivalent per day.


Technology, operations, costs. Advancements in drilling and 3-D seismic have enabled producers to reach downdip fault blocks and deeper sand reservoirs in the region. The Gulf Coast sees many well completions annually due to the short-reserve-life nature of fields.
The majority of the onshore Texas and Louisiana lands are fee, except along the coast where they are owned by the state. Regulatory burdens in Texas are relatively light. State severance taxes are 4.6% for oil and 7.5% for gas, and state ad valorem taxes are 4%.


South Louisiana land-owners are predominately large land-holders, such as timber companies. State severance taxes are 12.5% for oil and $0.373 per thousand cubic feet for gas. State income taxes are 8%. South Louisiana also has stringent environmental requirements.


Operating costs vary significantly throughout the region. Key cost drivers are water production, compression and field maturity. In parts of Texas and Louisiana, the coastlines can be five to 10 feet under water, and this can significantly increase costs. Well costs have soared in the past few years due to increased prices for barge rigs, tugs, insurance and competition.


Transaction activity. Public, small-cap E&Ps have been the primary buyers in the region since 2004, but there has been an emergence since 2006 of private-company-backed acquisitions. Implied reserve metrics for Gulf Coast transactions have increased gradually since 2007, generally tracking the upward trend in commodity prices.


—Shaun Finnie (832-476-6407), David Cecil (713-437-5063) and
Adrian Goodisman (713-437-5050), Scotia Waterous