Hot Offshore Plays

Intro

Recent low commodity prices may have dampened oil and gas exploration, but some spots around the globe remain popular.

Main

In an international industry survey of over 100 petroleum companies conducted before prices rose this spring, Merrill Lynch & C.O. learned that marine seismic expenditures are projected to decline 16%, to US$2 billion in 1999.

The drop in projected spending doesn't mean that oil companies are abandoning their search for new oil fields, however. "International exploration has a different time frame-you can't just stop and start," says Kevin Finn, spokesman for Canadian Occidental. "International exploration has been a major part of our strategy for the last decade."

What it means, say industry experts, is that companies are being a lot more careful where they spend their money. "There's a tremendous amount of refocusing and redefining going on," says Greg Reid, supervisor of sales and marketing for Western Geophysical's Calgary office. "Each exploration company is weeding out the nice-to-have, and focusing on the need-to-have. They're getting rid of fringe plays."

Healthy companies are also looking at future exploration into deepwater plays of 1,200 m or more, where new fields can exceed 500 million barrels. "I've talked to at least two dozen companies in Calgary in the last month," says Reid. "One company that has been very focused on Alberta and never pursued any international plays IS now looking at the total gambit – West Africa, Brazil, the North Sea. They've done a 180-degree turn. They're thinking high risk, high reward."

The Major Offshore Plays

"West Africa is very hot these days," says geologist Heiner Klein, president of HBK International Ltd., an international consulting firm. "Exxon and Elf have had huge success off Angola. All the countries have regular licensing rounds."

The action off the East Coast of South America is just as torrid. "Brazil is opening up exploration to international companies," says Klein. "The first exploration round is being held in June, with 27 areas being offered, four onshore and 24 offshore."

The Gulf of Mexico has also seen intense activity and major discoveries in deeper waters. "It's the only area in the U.S. with upside. Any further resource additions has to come from the Gulf."

Finally, the East Coast of Canada continues to show promise. Hibernia IS onstream, and Terra Nova is being developed," says Klein. "These are big fields in under-explored basins. It's a harsh environment, but it's close to markets, and Canada is stable politically."

West Coast of Africa

One of the world 's most enticing exploration plays lies off the West Coast of Africa, at subsea depths exceeding 1,000 m. The deepwater play extends for over 2,000 km, from Equatorial Guinea in the north, to Namibia in the south.

In a recently published article in the Oil & Gas Journal, British geologist Richard Bray outlined the geological history of the play. According to Bray, the continents of South America and Africa began drifting apart in the latter half of the Mesozoic era, creating two passive margins.

At first, spreading proceeded slowly through the Jurassic and into the Cretaceous, and a rich blend of source rocks and thick salt deposits were laid down in the complex horst and graben structures.

As the spreading progressed, thick fans of clastics from the Niger and Congo Rivers spilled into the basins. Turbidites and other deepwater clastics also began to accumulate further offshore.

Finally, deep salt movements created various trap structures in the overlying sediments.

To date, most of the exploration has been in the shallow water sediments associated with major river systems, such as the Niger Delta. Since 1996, however, several major discoveries have been made in the deeper waters. Elf's Girassol field, in 1,350 m of water off the coast of Angola, is thought to hold as much as 1 billion barrels. The stratigraphically controlled reservoirs were formed by upper Oligocene distal turbidites deposited in submarine channels. Several overlapping sheets of sand extend over a 180 square kilometer area.

Over the last few years, five billion barrels of proven oil have been discovered in deep water offshore West Africa. Insufficient published data makes an ultimate resource estimation for the region difficult, but some experts believe it may run as high as 30 to 40 billion barrels, with the prospect of finding large fields comparatively high.

"West Africa is quite a hot spot," confirms Chuck Ward, manager of marine data sales for Western Geophysical, in Houston. "We're actively involved in offshore Angola, but we've got three or four different areas along the West Coast. We've started work in Equatorial Guinea, building a 2D data base."

CanOxy is one of several Canadian companies interested in the region. "Offshore West Africa is a major component of our international growth strategy," says Finn.

CanOxy's first foray into West Africa paid off when oil began flowing at the Ejulebe field, offshore Nigeria, in September 1999. The Ejulebe field has proven and probable reserves of 11 million barrels of oil equivalent and boasts production rates of 10,000 barrels per day.

CanOxy is currently pursuing a number of other potentially significant drilling opportunities. In 1995, it acquired a 20 per cent interest in two offshore blocks and three onshore blocks adding 2.6 million undeveloped acres to the company's portfolio. In 1999, 1000 square km of 3D seismic will be shot to help delineate Ukot-1 and upgrade the prospect list for this block.

Brazil

Brazil is a geologic mirror image of West Africa, and is just as rich in hydrocarbons, with onshore and offshore reserves for the region estimated at 20-25 billion barrels.

Most of the exploration potential in Brazil lies offshore. The Campos Basin, located in the Atlantic east of Rio de Janeiro, holds an estimated 11.5 billion barrels in Upper Cretaceous and Tertiary stratigraphic reservoirs. Proven reserves in fields located below 1,000 m already amount to 3.5 billion barrels, and half of all new reserves are expected to be found in deeper water. The Marlin field, at 2,000 m water depth, holds 2.1 billion barrels of proven reserves. It currently produces 230,000 bopd, with plans to boost production of the high porosity, high permeability reservoir sands to 500,000 bopd by 2002.

"Brazil is about 20 times the size of the Gulf of Mexico," says Western's Chuck Ward. "Lease rounds are coming on, and there's a lot of companies interested in the area. We have a permit to shoot 20,000 kilometres of 2D spec in the Santos basin ."

Gulf of Mexico

The Gulf of Mexico has long been a favourite offshore target; with as much as 20 billion barrels of oil awaiting discovery in deep water. The region is also geologically similar to the West Coast of Africa, with fields in deep waters averaging in the 100 million barrel range.

"We've been in the Gulf of Mexico since the late 70's," says CanOxy's Finn. " It has good economics, high success rates and you're within spitting distance of the world's biggest market." CanOxy's wholly owned subsidiary, CXY Energy, of Dallas, currently produces 10,000 bopd and 95 million cubic feet of gas.

In addition, reports CanOxy, CXY has 69 deep-water blocks (up to 1,600 m) under lease and has identified 22 prospects. In 1999, two deep-water wells will be drilled - Kilimanjaro and Nag. These have a reservoir potential of 1.2 billion barrels. In 2000, CXY plans to start drilling wells in ultra deep water - 1,600 m or deeper.

The interest in the Gulf is reinforced by strong seismic activity. "We're continuing to work the Gulf of Mexico-it's the biggest area of activity for us," says Western's Ward, which markets a massive, 140,000 square km 3D package in the region. "There's a lease sale in the eastern Gulf of Mexico in 2001, and we're shooting 400-500 blocks (each block is 23 square km) of 3D spec right now."

East Coast of Canada

With advances in deep-water technology and the advent of production in the region, activity in the Canadian maritime region has increased. "A lot of people worldwide are interested in this area," says Ward. "We have 11 ,8000 km of 2D data shot off the Scotia shelf that's just coming out. We'll also be conducting a proprietary OBC survey this summer."

CGG Geophysics Canada was recently awarded a large, 3D seismic data reprocessing contract from Husky, Petro-Canada, Norsk Hydro and Denison. Shot in the White Rose area of the Grand Banks, the reprocessing will fine tune stratigraphic and structural traps.

The Also Rans

"The North Sea is in a mature stage," says international geologist Heiner Klein. "There are regular, annual license rounds, but some of the companies are lagging behind in their commitments. The last big push was west of the Shetlands. The fiscal terms are attractive, but it's a very harsh environment, and you need huge reserves and attractive terms to make it work."

"The kettle is off the boil in the North Sea," agrees Ward. "Most of what we're seeing is development-type stuff, more 4D. Between 1992, we shot a fair bit west of the Shetlands, almost to Iceland, but it's an extremely hostile environment, and things have tailed off a bit. "

Likewise, exploration has also decreased in Southeast Asia. "Indonesia has cooled down a bit, but then, Southeast Asia has been slow-but-steady for a number of years now," says Ward.

Not everyone is ready to write the region off, however. CanOxy has been involved in Indonesia for a number of ,years and is currently holding two unexplored blocks-Seram and Manna. The 11,000 square km Manna Block straddles the shoreline of Sumatra. The company will initially target medium depth prospects in about 100 metres of water. An offshore well is also planned for the Seram Block, to be drilled in 2000, in about 350 m of water. The block is about 15,000 square km, located off the island of Seram.

Both are high-risk, high-reward plays with the potential to provide quantum growth for the company. "Indonesia is relatively unexplored, and has large prospect size, in the half-billion-barrel range," says Finn. "We're looking at one billion barrels of [current] reserves for our company, so [a new discovery of] 100 million barrels makes a significant difference."

The Caspian Sea, with water depths exceeding 450 m, still shows great promise. "There are three geological provinces in the Caspian," says British geologist Dr. Colin Campbell. "The Baku trend, which is a paleodelta of the Volga River, may have 5-10 billion barrels of new oil. The north province is a Jurassic trend, like the North Sea, and may hold another 5-10 billion barrels of new oil. The third, in the far North, is a Devonian reef at great depth filled with light, sulfurous oil. It may have 8 billion barrels of new oil."

Unfortunately, exporting the production is a big challenge with the region. Some production is moving out through the FSU, but hot spots such as Chechnya make for expensive detours. "No doubt about it; the Caspian Sea has tremendous potential, but how do you get it out?" asks Klein.

Conclusions

Regardless of which deepwater region a company targets, going offshore requires experience. The geology is more complex, the cost of drilling is higher, and the challenges of production are immense. "There are very few players who are familiar with the kinds of conditions encountered," says Klein. "Drilling a well in deepwater is not as expensive as people might think-it's the development costs that are mind-boggling."

Which makes seismic work all the more important for delineating targets and reducing risk. In times of tight budgets, industry experts are seeing an increase in multi-client seismic vs. proprietary work. "There's been a huge shift away from proprietary to shared projects," says Western's Greg Reid, noting that multi-client surveys run 30% of the cost of a proprietary contract shoot. "Offshore spec surveys can bring value."

But even with the recent rise in oil prices, seismic acquisition companies are still seeing a lot of looking, but not a lot of buying. "Most exploration companies are still a little gun shy," says Reid. "They want to see an acceptable price for a sustained period. I think they'll be making their decisions to buy two quarters down the line."

Ward, in the U.S, agrees. "We're very encouraged that prices are up again, but we've seen no sign of rebound from the increased prices yet. The feeling is that things will probably pick up in the latter part of this year."