Houston Chronicle: Big gamble can yield bigger payoff: ENERGY

Kristen Hays, Houston Chronicle
Published: Sep 02, 2007

ABOARD THE DISCOVERER DEEP SEAS — Even with all the science involved in finding oil below the seabed, drilling in the ocean’s deep waters is a pricey gamble.

But it’s worth the risk for companies betting on big rewards.

“Everything we drill, we’re going at it because we think there’s something there,” said Kevin Koen, a drilling engineer for Chevron Corp. aboard Transocean’s Discoverer Deep Seas, a state-of-the-art drillship under contract to the San Ramon, Calif.-based oil major.

The vessel is drilling a third exploratory well about 130 miles southeast of New Orleans, looking for oil in Chevron’s Bob North field under more than a mile of water.

The first two wells didn’t find oil, but discoveries by other companies surrounding the field, as well as Chevron’s own scientific data, indicate something’s there. They just have to pick the right spot.

Exploratory wells, known in the industry as “wildcat” wells, assess whether oil exists in a field. Subsequent appraisal wells help gauge how much.

Exploratory wells take several months to drill, and 65 percent or more fail. Koen projects a 1-in-12 chance of success in the Bob North field probe.

Chevron spends $500,000 to $850,000 a day to lease the Discoverer Deep Seas. The daily cost depends on how much hardware, what type of work, and how many people are needed on a given day.

The well will cost about $100 million, regardless of whether it produces oil.

“We’re not going to drill a hole just to drill a hole. But believe me, I’ve drilled more than one well when we’ve sat there with all the pre-drill data in the world and said, ‘Dude, this thing is great!’ and you get down there and it ain’t nothing but salt water,” Koen said.

But nearby producing fields in the Gulf area known as Mississippi Canyon, including Shell’s Ursa and Eni’s Devil’s Tower, as well as Hess Corp.’s Tubular Bells prospect, showed a longtime target-rich environment deserving more exploration.

The Interior Department’s Minerals Management Service, which oversees activity in the Gulf, estimates that 50 billion barrels of undiscovered oil lie beneath layers of sediment, rock and thick, undulating salt.

Companies around the world are pushing to tap that potential.

Leasing bids Last week, 47 companies submitted bids in the Minerals Management Service’s latest lease sale, in which the highest bids were accepted for blocks amid 18 million acres south of Texas. Each block is 5,000 acres, and once leased, companies study the oil potential and weigh the risks of drilling.

Norway’s state-owned Statoil far outbid the other companies, committing $139 million — nearly half of the total $289 million in high bids — for 36 blocks. London-based BP, already a major player in the Gulf, came in second with $31 million for 91 blocks. Brazil’s state-owned Petrobras was third, followed by Oklahoma City-based Devon Energy and Houston-based ConocoPhillips.

Chevron leads the Gulf pack in terms of leased acreage. The company has interests in 973 blocks, 587 of which are in depths greater than 1,000 feet.

Scottish consulting firm Wood Mackenzie projects that Gulf oil production will reach 1.8 million barrels a day by 2010. Current oil production is about 1.3 million barrels a day, according to the Minerals Management Service.

Julie Wilson, lead Gulf analyst for Wood Mackenzie, said the basin attracts producers largely because it already has extensive infrastructure in place, including undersea pipelines to transport oil and gas to shore, and Gulf Coast refineries to process it. Other hot areas, such as offshore West Africa, don’t have that infrastructure.

“And in terms of attractiveness, there are still significant barrels to be found,” she said.

The Discoverer Deep Seas is looking. It’s what the industry calls a “fifth-generation” drillship, meaning it is among the most advanced in operation, Transocean spokesman Guy Cantwell said.

First of its kind Second- and third-generation drillships were built more than 20 years ago, long before companies ventured into thousands of feet of water.

The 835-foot-long Deep Seas became the first rig to explore for oil in more than 10,000 feet of water when it drilled a Gulf well for Chevron in 2003. It can drill wells up to 35,000 feet deep with a drill that descends through the bottom of the ship.

Essentially a floating town, the Deep Seas has seven floors and can house up to 200 workers. Unlike an oil platform with multiple open decks, most of its levels are enclosed. Workers can move from level to level in a roomy elevator, unlike platform workers who typically go up and down stairs.

The noise never stops on the top deck where the 226-foot-tall derrick surrounds the drill. Workers wear earplugs, hard hats and steel-toed boots.

Chevron workers wear polo shirts with the company’s logo, while workers for oil services companies helping with the operation — such as Halliburton — wear red coveralls with their logo. Transocean workers wear blue and their logo as well.

The work is continuous. Employees put in 12-hour shifts for 14 days straight, then go ashore for 14 days while a fresh crew takes over.

At night, huge lights “make it look like the middle of the day here,” Koen said in the control room next to the drill, where the floor was slippery with grease tracked in from the deck.

From that room, engineers see the drill through windows and on computer screens, and control it with joysticks.

Viewing the drill where it enters the water, known as a “moon pool,” is similar to the view out of a glass-bottom boat without the glass.

Reflections off the ship’s inner walls give the water a brilliant royal blue hue, in which sharks and schools of other fish are visible.

The ship is designed to work in moderate environments, such as the Gulf, offshore Brazil, India and Southeast Asia, Cantwell said. It can’t work in harsher environments, such as offshore Norway, which are more suitable for semisubmersible rigs moored to the seafloor.

But a moderate environment doesn’t mean moderate drilling. While exploratory wells tend to have fairly simple paths, production wells can make twists and turns to hit reservoirs, Koen said. Also, drilling mechanisms must withstand extreme temperatures and pressures.

Sometimes the drill doesn’t make it past the salt layer because top layers of sediment cave in, “like digging a hole in the beach,” Koen said.

Also, the sides of the hole must be shored up as drilling progresses or the well will collapse, Koen said. After a certain length has been drilled, that operation is suspended to place pipe, or casing, into the open hole to stabilize it.

Koen said the casing in a finished deepwater well can weigh more than a million pounds.

“Everything out here is supersized from what you would see somewhere else,” he said.

The next frontier Technological advances also allow companies to assess what they’re drilling through in real time.

While the Mississippi Canyon area has been drilled extensively, another deeper system in the Gulf known as the Lower Tertiary is the basin’s next frontier. Chevron is the largest leaseholder in that region, with Devon coming in second.

Last year Chevron conducted a well test in an exploratory well in its Jack field that indicated the entire region could hold up to 15 billion barrels of oil. That would be the biggest find in North America since the Alaska North Slope in the 1960s.

The Deep Seas drilled that exploratory well, and another Transocean drillship, the Cajun Express, conducted the record-setting test in 7,000 feet of water and more than 20,000 feet under the seabed. The Cajun Express is now drilling an appraisal well in the Jack field to further evaluate its potential, Chevron spokesman Mickey Driver said.

Devon, a minority partner in the Jack field, is drilling its first exploratory well in its Chuck field about 30 miles away. Diamond Offshore’s Ocean Endeavor, a renovated semisubmersible rig, is doing the drilling.

While Chevron and Devon have snapped up acreage in the Lower Tertiary, one-fourth or less of that area likely will present drillable prospects, said Tony Vaughn, vice president and general manager of Devon’s Gulf division.

Having a lot of area to study increases chances of finding the right spot, he said.

“When you think about the investment with the rigs and the drillbit,” he said, “that makes you want to high-grade your inventory to drill only what you think has the best chance of being successful.”

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