Touted as breakthrough GoM discovery
In what could be the biggest domestic breakthrough since the discovery of oil at Prudhoe Bay in Alaska, Chevron Corp. and its partners, Devon Energy and Statoil, have completed a successful deepwater exploration well in the US Gulf of Mexico that could prove to be the largest domestic petroleum find in nearly 40 years.
The Jack #2 test well at Walker Ridge Block 758 was completed and tested in 7,000 feet of water and more than 20,000 feet under the sea floor, breaking Chevron’s 2004 Tahiti well test record as the deepest successful well test in the Gulf of Mexico. The Jack #2 well was drilled to a total depth of 28,175 feet.
The well, located 270 miles southwest of New Orleans, is in a 300-square-mile region that Chevron believes could yield somewhere between 3 billion and 15 billion barrels of oil equivalent, according to a Chevron spokesman who stressed that these are merely estimates.
Significance
The full significance of Chevron’s Sept. 5 announcement of the successful test is yet to be determined, but many analysts are cautiously optimistic. However, industry observers cautioned that even if the find turns out to be as large as estimates have been, it will be 5 to 7 years before full production can begin, and the costs will amount to tens of billions of dollars.
The test, conducted in the second quarter of 2006, was designed to evaluate a portion of the total pay interval. During the test, the well sustained a flow rate of more than 6,000 barrels of crude oil per day with the test representing about 40% of the total net pay measured in the Jack #2 well. Chevron and its co-owners plan an additional appraisal well in 2007.
More than a half dozen world records for test equipment pressure, depth, and duration in deepwater were set during the Jack well test, said a Chevron official. For example, the perforating guns were fired at world record depths and pressures. Additionally, the test tree and other drill stem test tools set world records, helping Chevron and its co-owners conduct the deepest extended drill stem test in deepwater Gulf of Mexico history.
Some skepticism
Randy Kirk, a senior financial analyst at Private Wealth Partners in San Francisco, noted that the total reserve estimates are “highly speculative.” He said that these fields are more challenging because of the extreme depths and that very little is known with certainty about the potential reserves from a geological standpoint.
Kirk also noted that, because the wells are located in deep water and will not be served by underground pipelines, the oil would have to be pumped directly to tankers. Since pipelines are faster and more efficient, using tankers will put a higher price on the crude and will limit the amount of oil pumped out.
Finally, Kirk said that the wells are most likely mainly natural gas because of their depth. As a result, the discovery is likely to impact natural gas markets, not oil, if the gas exists in meaningful quantities.
US oil and gas reserves at present are about 29 billion barrels of oil equivalent (boe), according to the Department of Energy’s Energy Information Administration. The country currently imports about 60% of its oil needs and is highly dependent on oil imports because of its high consumption rate.
Kirk and others have speculated that there are political motivations behind the timing of the announcement by Chevron, as Congress is currently considering allowing more offshore drilling in federally-controlled waters. The oil industry has been urging measures that would ease restrictions on drilling in the Gulf of Mexico and hopes to open up both the Atlantic and Pacific coasts to drilling and exploration.
The US Department of the Interior estimates that areas now closed to drilling in the Gulf could yield nearly 86 billion barrels of oil and up to 420 trillion cubic feet of natural gas. The industry is especially interested opening up about 8.3 million acres in the eastern Gulf off the Florida coast. That state’s lawmakers have vigorously opposed drilling off its coastline for fear of a negative impact on its vitally important tourist industry.
Beneficiaries of project
Exploration projects at this great depth are incredibly expensive and the costs would have been prohibitive if it weren’t for today’s historically high oil prices, said one analyst. Without these high prices, the oil companies would not have dared rolling the dice on this kind of risk, he added.
Photo courtesy of Chevron Corp.
San Ramon, Calif.-based Chevron has a 50% stake in the Jack prospect, while partners Devon Energy Corp. of Oklahoma City and Statoil ASA of Norway own 25% each. Devon, the smallest of the three partners, is expected to benefit most from the find. Its stock rose more than 10%, to $70.39 a share, following the Sept. 5 announcement.
Chevron is the largest lease holder in the deepwater Gulf of Mexico and is currently developing the $3.5 billion Tahiti project located in Green Canyon Block 640. The project is scheduled to commence production in 2008.
Other companies - including Exxon Mobil Corp., BP PLC, and Anadarko Petroleum Corp. - have their own deepwater projects in progress in the lower tertiary, a rock formation that is 24 million to 65 million years old. The apparent success of Jack #2 may benefit their exploration programs as well.
ExxonMobil begins exporting oil from its Sakhalin-1 project in Russia
Exxon Neftegas Limited, a subsidiary of Exxon Mobil Corp., has begun to export crude oil from its multiphase Sakhalin-1 project on Russia’s northeast Pacific coast. The project used an integrated suite of technologies to drill and complete complex extended-reach wells, including a land-based rig that can reach more than five miles offshore (see February 2005 issue of OGFJ, p. 22).
The Sept. 7 announcement by ExxonMobil brings to 8 the total of ExxonMobil startups within the last 12 months. These major projects - located in the North Sea, Malaysia, Qatar, and in West Africa - are expected to deliver peak gross rates in excess of 1 million barrels a day of oil and more than 1.5 billion cubic feet of gas daily to world energy markets.
In addition, ExxonMobil and partners started construction in August on a new LNG terminal on the Texas Gulf Coast that will help meet growing US natural gas demand.
The first oil for Sakhalin-1 began flowing into the export system on Aug. 29, and the first tanker was due to begin loading at the newly-constructed DeKastri terminal late in September. Oil production should ramp up to an estimated peak rate of 250,000 barrels per day by the end of 2006, following completion of the offshore processing facility, said an ExxonMobil spokesman.
In addition to the terminal, the export project includes a 24-inch, 140-mile pipeline and a tanker loading facility designed for year-round crude oil transport.
ExxonMobil has increased daily oil and gas production during the second quarter 2006 by 6% compared to the same period last year. This additional supply is from developments such as Kizomba B, offshore Angola; Yoho, Erha, and the Additional Oil Recovery project, offshore Nigeria; Ras Gas Train 4 and the Al Khaleej Gas project in Qatar; the Arthur project in the UK sector of the North Sea; the Guntong Hub in Malaysia; as well as others in which the company holds interest.
In August, ExxonMobil and its co-venture partners, Qatar Petroleum and ConocoPhillips, began construction of the Gold Pass Liquefied Natural Gas terminal in Sabine Pass, Tex., on the upper Texas coast. This billion-dollar construction project will serve US markets and is expected to import 2 billion cubic feet of natural gas a day by 2009.
ExxonMobil is also constructing LNG terminals in the United Kingdom and offshore Italy, with additional facilities under consideration.
