Independents Find Gulf Opportunities

JUNE 2015

The “Better Business” Publication Serving the Exploration / Drilling / Production Industry Independents Find Gulf Opportunities

By Al Pickett crude oil production, and federal natural in the Gulf.” Special Correspondent gas production in the Gulf accounts for 7 He says the key is good exploration, percent of total U.S. dry gas production. and he credits Houston Energy for de- Deeper drilling and new reservoir dis- • There are more than 3,000 platforms veloping many of the prospects that Red coveries are but two of the reasons why operating in waters up to 650 feet deep, Willow participates in. In fact, Zahradnik the Gulf of Mexico remains an exciting and an increasing number of rigs are says, Red Willow Offshore and Houston area for development and exploration. drilling in ultradeep waters up to 9,000 Energy partnered to submit the largest While the nation’s unconventional shale feet deep. Additionally, there are more single bid of $52 million for Walker plays seemingly have garnered much of than 25,000 miles of oil and gas pipeline Ridge Block 107 in more than 5,000 feet the attention these days, the Gulf of on the Gulf of Mexico seafloor. of water in Central Gulf Lease Sale 235 Mexico still is enormously important to “We have been in a lot of unconven- in March. the nation’s energy production. tional plays, such as the Bakken and the “It looks like a good prospect,” he Consider a couple GOM facts from Anadarko Basin, as well as coalbed says matter-of-factly. “We believe it is the U.S. Energy Information Adminis- methane,” remarks Bob Zahradnik, op- the last Miocene turtle structure left to tration: erating director for the Southern Ute drill in the Gulf. It is similar to Thunder • Gulf of Mexico federal offshore Growth Fund, which owns Red Willow Horse, only smaller.” oil production (1.8 million barrels a day) Offshore/Red Willow Production. “The The Bureau of Ocean Energy Man- accounts for 23 percent of total U.S. ‘find and develop’ economics are better agement reports that 42 oil and gas companies submitted 195 bids on 169 tracts in Sale 235. Twice as many deepwater blocks received bids as shallow-water blocks, according to the BOEM, indicating the deepwater focus companies are taking in the Gulf. Nonoperating Partner Red Willow may be one of the more unique players in the Gulf of Mexico, suggests Zahradnik, who says he was the company’s first employee when the South- ern Ute Indian Tribe founded Red Willow Red Willow’s first Gulf of Mexico Production Company to operate the tribe’s partnership was a Mississippi energy resources. Canyon project with Houston En- “Red Willow bought hundreds of small ergy in 2003. The company’s leases, many of which were on tribal GOM holdings have since grown land,” he recounts. “In 1994, we bought to interests in six producing deepwater wells, five more that a small gathering company in the northern will begin producing this year, San Juan Basin. We built it until we were and 30 exploration projects. handling 700 million cubic feet a day Here, Technip’s Deep Blue lays from coalbed methane, but we saw the pipe to Red Willow’s first well in Mississippi Canyon 519, oper- peak was coming in 2000, and we needed ated by Noble Energy, while the to reorganize.” Ensco 8501 drills a second well. So the Southern Ute Growth Fund was formed, which has a business plan

Reproduced for Hess Corporation with permission from The American Oil & Gas Reporter www.aogr.com Special Report: Offshore & Subsea Technology

that Zahradnik says separates the tribes’ economics are still good, even at today’s toil’s drilling efficiency with Yeti was business activities from its governmental prices.” among the best of any well drilled in activities. Noting that the growth fund Walker Ridge, achieving a penetration was authorized to begin investing off the Yeti Discovery rate of 400 feet a day. The rig now is reservation, he adds, “We buy and operate Another heretofore nonoperating part - drilling Statoil’s Thorvald prospect in properties, including real estate from San ner in the Gulf is headed in the direction Mississippi Canyon Block 814. Diego to Baltimore. It is a multibillion- of taking the reins. “When we entered the Gulf 10 years dollar fund.” Statoil has four main producing fields ago,” Averty relates, “we did so because Included in those holdings, Red Willow in its Gulf of Mexico portfolio: Caesar it fit our core strengths: deepwater pro - has an active role as a nonoperator in the Tonga, which is operated by Anadarko duction and complex fields that with the Gulf of Mexico. Petroleum; and St. Malo, Jack and Tahiti right investment in technology can become “We formed a partnership with Houston operated by Chevron Corp. Statoil’s pro - long-lasting producers.” Energy in 2003,” Zahradnik relates. “Red duction is 40,000 barrels of oil a day, The downward pressure on industry Willow and Helis (later replaced by Ridge - which the company hopes to increase to margins, which Averty contends started wood Energy) each had 47.5 percent of more than 100,000 bbl/d by 2020, ac - long before the collapse in oil prices, and that initial project in Mississippi Canyon. cording to a spokesman Jim Schwartz, then the fall in oil price are forcing a Houston Energy had a 5.0 percent working who notes that would make Statoil the change in focus toward lower-cost solutions interest and developed it. Helis has a fourth largest producer in the Gulf. and lasting efficiency gains to improve good staff and does a great job.” Statoil has ownership in five other profitability and robustness. Averty says He says Red Willow Offshore had the fields–Julia, Stampede, Vito, Heidelberg Statoil’s “heritage as an innovative problem high bid on eight blocks in the March and Big Foot–that either have been sanc - solver makes it well placed to do just that.” Central Gulf lease sale totaling $59 tioned or expect to be soon, Schwartz million. LLOG Bluewater Holdings, Red adds. Stampede Willow and Ridgewood Energy also had The Chevron-operated Big Foot Field Jeff Wirth, asset director for the Gulf the combined high bid of $17 million for (Statoil has a 27.5 percent share) is ex - of Mexico at Hess Corporation, has 20 Mississippi Canyon Block 769, he adds. pected to begin producing later this year, years of experience both on- and offshore. “Our group bids on leases and then Schwartz continues. Statoil also has work - “Before rejoining the Gulf with Hess in we work a deal with an operator,” Zahrad - ing interests in the Royal Dutch Shell- 2013, I spent four years in North Dakota nik explains. “Noble Energy operated the operated Vito Field, the Hess Corpora - (in the Bakken Shale),” he reveals. “That first two wells we drilled. We have drilled tion-operated Stampede Field, the Exxon - was a great opportunity, but the Gulf is a number of wells with LLOG Exploration Mobil-operated Julia Field, and the Hei - just as exciting. Hess is producing 80,000 Co., and we have an 18 percent working delberg Field, all of which are expecting barrels of oil equivalent a day net from interest in the Delta House reserves. We startup over the next several years. 11 fields. It is an exciting portfolio and a have interests in six deepwater wells that On the exploration side, Statoil made key area for us. We have been active in are on production, five more that will some news with a discovery in Yeti in the Gulf for 25 years.” begin producing this year, and 30 explo - the Gulf of Mexico, comments Jez Averty, A big difference between onshore and ration projects. Six of those will be drilled senior vice president of exploration for offshore is cycle time. As an example, this year. North America. He says assessments are Wirth says Hess’ deepwater Stampede oil “We typically have a 20-30 percent under way to determine its commercial and gas field was discovered in 2005, 115 working interest,” he adds. potential. Yeti is a subsalt Miocene play miles south of Fourchon, La., in Green He says Red Willow’s nonoperating that Averty says could become the com - Canyon Blocks 468, 511 and 512, but it partnerships have been a huge success pany’s first operated GOM field. wasn’t sanctioned until fourth quarter 2014. for the Southern Ute Growth Fund, and “The Yeti discovery expands the proven “We expect to have a rig on location he credits Houston Energy, LLOG, Noble, subsalt Miocene play farther south and in 2016 and first production in 2018,” he Deep Gulf Energy and Ridgewood Energy west of Big Foot,” he points out. “We are calculates. “We have contracted 85 percent as just several of the “wonderful partners” analyzing data to determine the size of of the services: drilling rig, engineering Red Willow has worked with in Mississippi the discovery and to agree on appraisal and fabrication. We have been able to Canyon and Green Canyon projects. options.” take advantage of lower prices.” Zahradnik says Red Willow has inter - The Yeti discovery was made in Walker The field is located in 3,500 feet of ests in more than 1,800 wells in many of Ridge Block 160, which is located nine water and has a reservoir depth of 28,000- the major basins across the United States, miles south of the Big Foot Field and 31,000 feet. Wirth says production facilities including the Gulf of Mexico. Investing seven miles from the Cascade Field. will consist of subsea production and in - in the Gulf is a good fit for the Southern Averty says all the blocks comprising jection wells tied back to a single tension Ute Indian Tribe, he insists. Yeti were accessed by their owners in re - leg platform. Gross topsides processing “The tribe is looking for long-term cent years. Statoil is the operator with a capacity for the project is 80,000 bbl/d investments,” he details. “Corporations 50 percent working interest. Its partners oil and 100,000 bbl/d of water injection. think in terms of what they can do in the are Anadarko (37.5 percent) and Samson “We will have the deepest application next quarter. Native Americans think in Oil and Gas (12.5 percent). gas lift yet,” he projects. “Eventually, Stam - generational terms: What are they leaving Averty says Yeti was drilled with the pede will have six producers and four their children and grandchildren? The re - Maersk Developer drilling rig, a sixth- water injection wells to recover 300 mil - wards in the Gulf are enormous. The generation semisubmersible. He says Sta - lion-350 million barrels of oil equivalent.” Special Report: Offshore & Subsea Technology

The TLP hull will support a topsides deck with two levels. Subsea production wells will be drilled from two drill centers, according to Wirth, with piggable flowlines tying the wells back to the platform. Hess will operate Stampede with a 25 percent working interest. Chevron U.S.A. Inc. subsidiary Union Oil Company of California, Statoil Gulf of Mexico LLC and Nexen Petroleum Offshore USA Inc. each has a 25 percent working interest. Increasing Rig Activity When Hess, which has interests in 11 Gulf of Mexico fields, brings in its first of two rigs to drill Stampede next year, it The Tubular Bells deepwater oil will have three rigs operating in the Gulf. and gas field was discovered in 2003 in 4,300 feet of water in Besides the rig drilling its Tubular Bells Mississippi Canyon Block 724. project, Wirth says Hess will bring in a Jeff Wirth, Gulf of Mexico asset rig to drill its legacy fields. director for Hess Corporation, “Penn State and Conger have produced reports first production from Tu - four times their sanctioned volumes, and bular Bells came on in fourth quarter 2014, and net production we are adding more drilling locations,” is forecast to average 30,000- he lauds. 35,000 barrels of oil equivalent He says the Tubular Bells deepwater by year-end. oil and gas field, which was discovered in 2003, has been a tremendous success tree system in the world. to improve safety by making problems for Hess. It lies in 4,300 feet of water, The initial subsea development ar - visible with data and ensuring simple vi - 135 miles southeast of New Orleans, pri - chitecture has two drill centers connected sual standards are in place. “This reduced marily in Mississippi Canyon Block 724. to three production wells, a midfield in- the number of Hess’ lifting and hoisting “The project was sanctioned in 2011, line sled for a fourth production well incidents in the Gulf of Mexico by 40 one year after Hess took over as operator,” and two water injection wells. Two eight- percent in 2014,” Wirth proclaims. “A Wirth recounts. “We brought it on line inch subsea production flowlines and safe operation also is efficient. It goes safely, on budget, and on time.” one eight-inch water injection line tie hand-in-hand.” Tubular Bells had first production in back to the Tubular Bells floating pro - fourth quarter 2014, and Wirth says net duction system. Oil and gas are trans - Who Dat production is forecast to average 30,000- ported to shore through two 12-inch LLOG Exploration Company LLC has 35,000 boe/d this year. Hess is the operator export lines. been one of the most active operators in with a 57 percent working interest. Chevron Wirth says Hess is planning further the Gulf of Mexico, and possesses a 70 owns the other 43 percent. Hess has three exploration, too, mentioning it was the percent success rate on nearly 200 ex - wells on production in Tubular Bells, and high bidder on four blocks in the March ploration wells drilled in the past 10 Wirth says a fourth well has been com - lease sale. years. It has 35 wells on line in the Gulf pleted and should come on line by midyear. of Mexico and has interests in more than “We have the capability of executing Lean Thinking 135 blocks, states President and Chief highly complex deepwater projects,” he Like efforts to become more efficient Executive Officer Scott Gutterman, who emphasizes. “Our co-owners have confi - in onshore unconventional resource plays, says his company is continuing to focus dence that we are able to execute these Hess is trying to use what Wirth describes on exploration in 2015. deepwater projects.” as “lean thinking” to become more efficient Gutterman notes that LLOG is winding Tubular Bells’ reservoir targets are in the Gulf as well. down initial development of Who Dat, approximately 24,000 feet below the sur - “It is step innovation,” he describes. located in Mississippi Canyon, 130 miles face and under 10,000 feet of salt. Full “How do we innovate and then improve south of New Orleans. The discovery field development is expected to include on it? In the Bakken, we cut drilling days well was drilled in 2007. four or five producing wells and one or in half. The same capability is being ap - “We are drilling the G-3 well, which two water injection wells. plied in deep water. For example, how will be the last well we drill in Who Dat The production facilities consist of a do you cut in half the time it takes to for the next year or so,” he said in late subsea wet tree infrastructure tied to a three- change subsea chokes? In the deep water, May. “After completing the G-1 well, we level topside structure that has living quarters it is all about reducing cycle time.” have nine wells producing about 32,000 accommodating 50 persons, supported by a One of the other keys to Hess’ GOM barrels of oil and 45 million cubic feet of classic-design spar anchored by nine mooring operations, according to Wirth, is operating natural gas a day. Who Dat was a game- lines. Wirth says the facility utilizes the safely. He uses lifting and hoisting as changer for us. It was the first floating most advanced, high-tech, vertical production one example where Hess has made efforts production facility we commissioned. It Special Report: Offshore & Subsea Technology

budget comfortably, and potentially consider new opportunities that are often a byproduct of these down cycles.” LLOG is active in a number of other areas as well. Gutterman says much of its activity is related to the Delta House floating production system in Mississippi Canyon, which initiated first production in mid- April of this year (see story page 88). “We have drilled seven wells in the primary fields that feed our Delta House facility, and have two additional near- term development wells planned for 2015,” he observes. “Five of those wells had been brought on line by mid-May. Two LLOG Exploration Company more will see first production by late LLC has two South Timbalier summer, and the two additional develop - wells on line with gas conden - ment wells will be brought into the facility sate pay in its operated Power - ball Field in 226 feet of water, within the next six to eight months. An - 115 miles south of New Orleans. other discovery, Otis, is scheduled to be President and Chief Executive tied back by mid-2016.” Officer Scott Gutterman reports LLOG has continued to see success the wells are producing 1,000 barrels of oil and 40 million outside of the Delta House and Who Dat cubic feet of natural gas a day. developments, Gutterman continues. It has drilled a second well at the Taggart dis - has been fantastic.” budget by deferring one or two develop - covery, which encountered approximately The Who Dat Field produces primarily ments and re-evaluating a couple of 150 feet of net pay, and will be tied back oil, and consists of nine stacked, ampli - smaller projects that are marginal at to the Devil’s Tower spar. LLOG also has tude-supported reservoirs in a salt with - current prices,” he allows. a nonoperated interest in the Kodiak Field, drawal mini-basin. Collectively, Gutterman The company has three deepwater rigs which is expected to begin producing in says, the wells penetrated more than 700 under contract. “We will retain and con - the fourth quarter, Gutterman says. feet of net pay in nine distinct reservoirs tinue working our two new-build, dy - LLOG also brought on line two South that ranged in depth from 12,000 to namically positioned rigs ( Sevan Louisiana Timbalier wells with gas condensate pay 17,000 feet true vertical depth. LLOG and Seadrill West Neptune ) and release in its operated Powerball Field in 226 operates Who Dat with 50.25 percent in - our moored rig ( Noble Amos Runner ) feet of water, 115 miles south of New terest in the project. when it terms out in the fourth quarter,” Orleans. He says those two wells are Gutterman says most of the wells em - Gutterman states. producing 1,000 bbl/d oil and 40 MMcf/d ploy smart completions, which he de - He says one has to think long-term in of natural gas. scribes as sliding sleeves that the company the deepwater Gulf of Mexico. “Typical Gutterman calls OCS Lease Sale 235 can operate mechanically to open and developments in the deep water produce “a light sale, by level of activity.” shut zones. for 10-25 years. While we expect price “We moderated our approach,” he ac - volatility to have some impact on short- knowledges. “We were a bit conservative, Additional Activity term margins, full cycle economics are still but were pleased with the blocks on Although the downturn in commodity very robust. We try not to overreact when which we were high bidder. Some fit prices means lower cash flow, Gutterman commodity prices drop,” he explains. “We nicely into our areas of focus, while says LLOG has not modified its budget have worked hard to build a healthy liquidity others are stand-alone blocks, and a couple significantly. “We are managing our cushion that allows us to fund our current are support acreage.” Ì