Deepwater drilling nears record level

Deepwater drilling activity is nearing its historic high in the Gulf of Mexico in terms of the number of active deepwater rigs, according to the Minerals Management Service (MMS). 

At the Offshore Technology Conference held in Houston in May, Chris Oynes, regional director for the MMS Gulf of Mexico OCS region, said 46 rigs were currently drilling deepwater wells (1,000’ and greater), compared with the record high number of 47 deepwater rigs.

Oynes said that deepwater drilling activity is proceeding at a “brisk” pace, with 119 deepwater wells (92 exploratory and 27 development wells) drilled in 2005 compared with 90 exploratory wells during 2004.  There were also 59 deepwater development wells drilled during 2004.

“I would not have thought that there would be more deepwater [exploratory]wells drilled in 2005 due to hurricane activity,” Oynes said.

The high level of deepwater drilling activity is paying off in terms of discoveries. The industry announced 143 deepwater discoveries between 1975 and 1999, an average of 5.7 per year. From 2000 to 2003, 44 deepwater discoveries were posted by the industry, an average of 11 per year. However, in just the past two years, the industry recorded 32 deepwater discoveries — 16 per year.

The continued high interest in deepwater was evident in March, with nearly half of the blocks receiving bids in OCS Lease Sale 198 in deepwater areas.

The volume and value of bidding activity also indicates a high level of interest. Oynes noted that Sale 198 included a bid of $42 million by Anadarko for a block in the deepwater Green Canyon area, the highest single block bid during the past 20 years. The particular block, Green Canyon Block 287, received multiple bids.

Oynes said that lease terms of approximately 2,270 deepwater blocks would expire in 2006 and 2007, with about 90 percent expected to be returned to the government. Most have not been drilled. These blocks carried 10-year lease terms. Another 1,600 deepwater blocks will expire in 2008-2009. However, he said that many of the blocks returned to the government would likely be bid up in subsequent lease sales, so the industry will still have a high inventory of potential prospects.

“A high portion of the blocks will be examined,” Oynes said, “but geological potential and [commodity]prices will affect the bidding. I still expect strong competition for deepwater leases.”

Much of the competition could be from independent oil-and-gas companies. Seven of the 10 announced deepwater discoveries during 2005 were made by non-majors, according to MMS.                    

                           — Jerry Greenburg 

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