U.S. Department of the Interior Minerals Management Service Office of Public Affairs

NEWS RELEASE

Expanding Deepwater Frontier Is Focus of New Report

The latest edition of the biennial publication Deepwater Gulf of Mexico 2004: America’s Expanding Frontier (OCS Report MMS 2004-021) has been released by the Minerals Management Service (MMS), Gulf of Mexico OCS Region, MMS Director Johnnie Burton announced today at the Offshore Technology Conference in Houston.  The report details the extraordinary growth of oil and gas industry activity in the deepwater (1,000 ft of water or more) Gulf over the past twelve years.

The report examines the technology of deepwater oil and gas exploration and production, including state-of-the-art floating platforms and seafloor installations.  It looks at the process and history of oil and gas leasing, unconventional resources such as gas hydrates, ocean current monitoring, and regulation of seismic operations to mitigate potential impacts on the whale population.  The section devoted to reserves and production discusses recent finds, estimates of recoverable petroleum hydrocarbons in the deepwater Gulf, and deepwater production from various companies.

“The deepwater Gulf of Mexico continues to be an expanding frontier,” said Ms. Burton.  She points to the 90 deepwater projects on production at the end of last year, a 48 percent increase in the past two years.  Production from the deepwater frontier grew to an estimated 959,000 barrels of oil per day and 3.6 billion cubic feet of natural gas per day by the end of 2002.  Deepwater oil production accounted for approximately 61 percent of the Gulf’s oil production in 2002.  Significantly, in the last three years, there have been eleven industry-announced discoveries in water depths greater than 7,000 ft (2,134 m), and these ultra-deep discoveries have the promise of opening up entirely new geologic frontiers.

“Production from spars is one of the newest trends,” noted Burton, “eight of which were on production at the end of 2003 and three more are scheduled to begin production in 2004.”   The report examines classic spars, truss spars, and the first cell spar (scheduled by Kerr McGee for installation in 2004).  In addition, a few years ago, there were no mini-tension leg platforms in the Gulf of Mexico, whereas now the SeaStar and the MOSES have arrived.  Subsea production has expanded from a water depth of 1,462 ft (446 m) with Placid Oil Company’s Green Canyon Block 29 project in 1988, to 5,318 ft (1,621 m) with Shell's Mensa in 1997, and to 7,216 ft (2,199 m) with Marathon’s Camden Hills in 2002.  Shell and BP’s Coulomb/Na Kika project, scheduled this year, will establish subsea production in 7,591 ft (2,314 m) of water.

The report concludes by looking towards the future— the expected continuing increases in production, anticipated new field developments based on recent discoveries, predictions of future deepwater discoveries, the decrease in time between leasing and production, and the difficulties of evaluating thousands of deepwater leases before their terms expire, given the limited number of offshore deepwater rigs. 

Copies of this new report can be obtained from MMS, Gulf of Mexico OCS Region, free of charge, either in paper copies or on a single compact disc, by visiting the Public Information Office at Regional headquarters, 1201 Elmwood Park Blvd., New Orleans, Louisiana 70123, or by telephoning 1-800-200-GULF (736-2519 local). Ask for OCS Report MMS 2004-021, Deepwater Gulf of Mexico 2004: America’s Expanding Frontier. The entire report can be found on MMS website: http://www.gomr.mms.gov/homepg/whatsnew/techann/2004-021.pdf.

The Minerals Management Service is the federal agency in the U.S. Department of the Interior that manages the nation’s oil, natural gas, and other mineral resources on the Outer Continental Shelf in Federal offshore waters.  The agency also collects, accounts for, and disburses mineral revenues from Federal and American Indian lands.  MMS disbursed more than $8 billion in FY 2003 and more than $135 billion since the agency was created in 1982.  Nearly $1 billion from those revenues go into the Land and Water Conservation Fund annually for the acquisition and development of state and Federal park and recreation lands.

MMS: Securing Ocean Energy & Economic Value for America

MMS Main Website:  www.mms.gov
Gulf of Mexico Website:  www.gomr.mms.gov
OCS Connect Website:  www.mms.gov/ommegov

FACT SHEET

Deepwater Gulf of Mexico 2004: America’s Expanding Frontier

Background

The report titled Deepwater Gulf of Mexico 2004: America’s Expanding Frontier (OCS Report MMS 2004-021), is the third version of this bi-annual MMS report. This report has been thoroughly revised from the 2002 edition and contains a wealth of new information.

This report has historically been one of MMS’ most popular publications. In 2000, for example, over 70,000 copies were downloaded from the internet in the first 10 months alone and 4,000 printed copies were distributed. It provides extensive technical information, yet it is written in easily understood language and dominated by graphics. It appeals to a wide range of audiences including oil and gas exploration companies, industry service companies, investment firms, and congressional staff members.

The report is broken into a brief Introduction followed by five main sections. The Background section discusses a variety of general material and new deepwater issues. The Leasing section highlights historical bidding and leasing trends and the huge turnover of untested leases that we anticipate, beginning in 2006. The Drilling and Development section highlights historical and current activity and the Reserves and Production section discusses the size and production characteristics of discovered and undiscovered deepwater fields. The Summary and Conclusions section ties together the previous sections and shows the importance of the deepwater GOM to the Nation’s energy supply.

Key Developments Since 2002 Report

• Deepwater development projects are now producing in water depths greater than 7,000 ft.

• The first exploratory well in over 10,000 ft of water has been drilled (world water-depth record).

• The first deepwater well below 30,000 ft true vertical depth (TVD) has been drilled (U.S. depth record).

• There were 11 discoveries in water depths greater than 7,000 ft over the past few years.

• The first deepwater discoveries in the Eastern GOM have been found.

• There have been significant new discoveries (such as Great White, Trident, Chinook, St. Malo, and Cascade) in the ultra-deep waters of Walker Ridge and Alaminos Canyon. These discoveries open up a whole new geologic play with exciting potential.

• Industry has made great technological achievements in recent years. Examples include polyester mooring, composite risers, cell spars, and 15,000-psi subsea trees.

• There was a 51 percent increase in the number of producing deepwater projects over the past 2 years.

• Deepwater production has risen more than 100,000 barrels of oil per day (BOPD) and over 400 million cubic feet per day (MMCFPD) each year since 1997. (Production volumes were only available through 2002 at the time of writing due to the production data lag.)

• Subsea gas production has increased 90 percent since December 2000.

• Since the start of 2000, new deepwater drilling has added over 4.5 billion barrels of oil equivalent (BOE).

• Nonmajor companies have made more deepwater discoveries and hold more deepwater acreage than the major companies. (For purposes of this report, major companies are defined as Shell, ExxonMobil, ChevronTexaco, and BP – including their subsidiaries.)

Key Hurdles Since 2002 Report

• Loop currents have been recognized as posing significant design challenges for deepwater structures, rigs, and pipelines.

• The average number of operating rigs is down 29 percent and the number of wells drilled is down 37 percent.

• Average bid amounts have stabilized or decreased slightly.

• Lease expirations are projected to be 2,527 GOM leases between the years 2006 – 2007.

The majority of indicators are up, showing that the deepwater area continues to be an expanding frontier. The decrease in deepwater drilling that occurred over the past two years may result from several factors such as:

• Worldwide competition for limited exploration and development budgets and a limited deepwater rig fleet.

• Some long-term, deepwater rig contracts may have expired, allowing new companies to utilize these rigs and potentially take them to other hot exploration basins around the globe.

• As operators focus on drilling in ever deeper waters and to greater total depths, it takes longer to drill individual wells.

The oil industry continues to announce numerous, significant deepwater discoveries. When these announcements are included in our analysis, the data show that there is no decline in exploration rewards. In other words, there does not appear to be any scientific reason for the decline in drilling – the average volume discovered on a newly tested lease remains high.

Historically, operators only drill a small percentage of the leases issued. Of the approximately 3,200 deepwater leases issued from 1996 through 2000, only 6.5 percent have been drilled to date. When the leases issued during the record-setting sales of the mid-1990 reach the end of their primary terms, the vast majority will become available without a single well testing their potential. Beginning in 2006, MMS expects to see a tremendous amount of acreage with excellent potential open up for new leasing.