Posted on 08/17/2003 9:19:10 AM PDT by Dog Gone
A trio of oil companies are planning to drill wells an extraordinary six miles deep, and possibly more, in the shallow waters offshore Louisiana and Texas in search of the ancient geologic layer that has yielded billions of barrels in deep water farther offshore.
Before the year is out drilling is expected to begin on the first well, with a target depth of approximately 32,000 feet.
This spot is in an oft-drilled part of the Gulf where any well over 15,000 feet is considered rare.
Wells that deep are costly and prone to nasty surprises for drillers, but they offer something increasingly rare in the shallower waters of the Gulf -- the chance for a giant discovery.
"We're trying to connect the dots. It's a new frontier," said Steve Campbell, spokesman for Newfield Exploration of Houston.
The chief of exploration for BHP Billiton, the Australian mining company, recently told a group of analysts in Houston that the place to find a new Gulf of Mexico is under the old Gulf of Mexico.
Oil and gas exploration companies are looking ever deeper because the finds at shallower depths can't staunch the decline of the output in fields in the shallower waters of the Continental Shelf.
"It's exciting. They could add another 30 years of life to the Gulf," said Bill Provine, vice president for investor relations at Rowan Companies, a drilling contractor whose equipment is designed for these deep holes.
The plan is to drill within a range starting at 25,000 feet and possibly all the way to 35,000 feet within one of the most heavily-explored places on earth, "the heart of the Gulf play as we know it today," said Campbell. But they are looking, mostly for natural gas, some two miles deeper than the existing production.
Reaching this new frontier will mean setting drilling records.
According to the federal Minerals Management Service, only 7 percent of the wells in the Gulf of Mexico have been drilled below 15,000 feet and only 2 percent below 18,000 feet.
By comparison to these new wells, the deepest well ever drilled in the Gulf of Mexico, not including water depth, is 30,217 feet, according to the MMS.
That was in the Green Canyon area, which is in the deep waters of the Gulf, where many of the big finds have been in the past decade.
Now exploration and production companies are trying to capitalize on what they learned in the deep waters. With these new wells they are chasing the same formations that when located in much deeper water farther from shore, have produced big finds like the billion-barrel Thunder Horse field.
On the Texas side of the Gulf, Australian mining company BHP Billiton has partnered with Newfield to do a deep drilling search using 30 lease blocks acquired in the March lease sale.
"We have targeted the sections that are very deep. We think there are material prospects there. It is a new play for us, and the industry as well," said BPH Billiton spokesman Patrick Cassidy.
At a presentation for financial analysts in Houston, company officials said the industry has been going in two directions in search of new plays.
One direction is into ever-deeper water, into deeper statigraphic layers.
The other direction is the shallow-water shelf, which has to date produced the equivalent of 40 billion barrels of oil, but is virtually untested below 20,000 feet well depth.
On land, the trend seems to be deeper as well. Provine says there are some very deep wells being drilled in South Texas and in the southern part of Louisiana.
Service company Weatherford International recently forecast that deeper drilling will be the factor that pushes the U.S. rig count to 1,200 by the end of next year. Recently, nearly 1,100 rigs have been in operation.
Newfield, BP and BHP think the rich formations may also exist closer to shore. But working in waters measured in the hundreds, rather than thousands of feet, means drilling through an extra 6,000 feet of sediment.
British energy giant BP has agreed to drill the initial test well in what is called the Treasure Island exploration concept, a joint exploration agreement with Newfield, in Louisiana's Eugene Island area in about 250 feet of water. Plans call for the drilling to start before Jan. 1.
They will be looking below a thick layer of salt that typically starts at 18,000 feet, but can start as deep as 22,200 feet.
BP declined to provide specifics. Even after drilling wells, some major oil companies decline to provide information like the depth because it might give away valuable information to competitors.
Rowan has been working with the companies which are planning to drill these record wells, although it has not yet been hired to do the job. They are discussing how to drill four wells with the shallowest being 28,000 feet and the deepest being 32,000 feet, said Provine.
The Gorilla-class rigs owned by Rowan are known for being powerful enough to reach such depths, and the company is building a new Tarzan class which theoretically should be able to drill to 35,000 feet.
While there are plenty of jack-up rigs capable of drilling in shallow waters, only about 30 in the Gulf are capable drilling really deep wells, according to Friedman, Billings, Ramsey & Co.
Provine says it takes a rig with three mud pumps, because of the high pressures needed to turn the mud motor which drives the drill bit.
At this point, they are not even sure that a well can be drilled that deep, said Campbell of Newfield.
The drillers don't know how hot the earth will be at those depths, or how high the pressures will be.
"It's a tremendous challenge we are tackling," said Campbell.
On the plus side, if they find what they're looking for, the maze of pipelines in the shallow Gulf could make it easier to put these wells into production.
There are also serious doubts about whether they'll find what they're looking for down below.
Such wells are considered high risk in part because of the difficulty seeing clearly with seismic imaging in that part of the Gulf, according to a deep shelf study by Friedman, Billings, Ramsey & Co.
A seismic survey uses sound waves to compare the density of the sediments below to draw a picture of the subsurface, with most of the loosely packed Gulf sediments readily lending themselves to the technique.
However, the more densely-packed sediments closer to shore make it harder to tell sand from shale, and gas sands from so-called wet sands. Also it is harder to measure the speed at which sound travels through the deep sediments, causing errors in conversions, thus allowing pay zones to "walk."
The statistics are daunting.
Even the less extreme so-called deep-shelf wells take three or four months to drill, cost about $20 million, and have another $20 million to $30 million per well in completion costs if there's a discovery, according to Friedman, Billings, Ramsey. Its study assumes a 20 percent success rate, although Newfield says it has been hitting 60 percent.
The six-mile well that is planned is hunting for the lower portion of Miocene era, and some even older geologic age formations below that.
"Those new plays are going to inherently carry more risk, but the Gulf of Mexico is an attractive place because we have material targets remaining. ... I don't want to diminish the potential for luck, but you make your own luck, and in many cases if you miss one target, you've got another target that you can continue to drill through," said BHP in the presentation.
Eager to encourage this type of drilling, the federal government has proposed royalty relief on the first 15 billion cubic feet of natural gas for wells drilled between 15,000 feet and 17,999 feet, and the first 25 billion cubic feet from wells drilled below 18,000 feet.
But these will only be marginal in stimulating more drilling, according to David Khani of Friedman, Billings, Ramsey.
The company's study values deep shelf royalty relief at about $12.5 million per successful well, which is small compared to existing deep water relief, which can be as much as $160 million per successful well.
I just bought some Lone Star Tech.(LSS)
The reason for this press release with as much detail as it has is to attract investors. Looks like it worked. 'Buy on rumor, sell on news.'
I agree, but Newfield doesn't have deep enough pockets to take on a project of this magnitude.
Since the advent of high temp oil muds, what has always been the limiting factor in depths of wells is the tensile strength and the connection strengths of the tubulars when exposed to downhole temperatures in excess of 400*.
Aside from that there's the surface problems associated with the string weight.
They're planning to utilize a mud motor which will alleviate the stress on the tool joints, but coming off bottom at 30,000' will see a hook load in excess of 500,000 pounds, even with a tapered string.
Three and a half, S-135 drill pipe has a tensile strength of around 450,000 pounds.
I'd be willing to bet that Weatherford or Quail is working on a special string of drill pipe to be able to do this.
This won't be a matter of having enough horsepower and pumps to handle surface pressures of 5,000 psi or so, that's easy; it will be a proving ground for a new tubular design.
Somehow, I doubt it.
You're wrong on this Right.
I'm a seasoned investor who jumps when opportunity knocks.
The steel tariffs will be relaxed soon adding profit to the bottom line.
I've made lots of money trading in LSS.
Bought both times it hit 10.
Made cumulative 5X in 2 years.
Here.......plug this in and see for yourself
http://stockcharts.com/def/servlet/SC.web?c=LSS,uu[m,a]daclyyay[df][pb50!b200!f][vc60][iUb14!La12,26,9]&pref=G
"Tight hole" means that the waitress down at the local coffee shop misses your correct depth by ten feet.
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