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FT REPORT – ENERGY IN THE AMERICAS: Search for prospects taps into deep water

By Sheila McNulty in Houston, Financial Times
Published: May 08, 2007

Gulf of Mexico prospects are so valuable these days that the companies exploring and producing them have started offering the rights to name some of them to employees as a special treat.

In the past year, Dawn Marie Yates, who works in information technology for Chevron, won that right by bidding the highest amount of money in an auction to raise money for the United Way charity.

Ms Yates paid $501 to put her name on a prospect for Chevron, one of the largest leaseholders in the deepwater Gulf: “It made me feel a lot closer to the action,” she says.

Indeed, that action has been intensifying in recent years, with an influx of foreign companies to try to get in on gains being made by the traditional Gulf players, such as Shell, BP, Chevron and ExxonMobil.

In the past year, Maersk of Denmark has moved into the area, acquiring a 33.33 per cent interest in 93 exploration leases. In 2005, Statoil bought Encana’s deepwater portfolio, making the Gulf a core area for the Norwegian company. And in 2006, the Spanish-Argentine energy company Repsol boosted its holdings in the Gulf with a 28 per cent stake in the Campo Shenzi oil field.

Wood Mackenzie, the consultancy, called 2006 “an exceptional year for exploration in the deepwater Gulf of Mexico,” noting early estimates suggest total reserves discovered could be in the region of 1.5bn barrels of oil equivalent. That compares with the average oil and gas discovered each year over the last 10 years in the deepwater Gulf of 1.2bn barrels of oil equivalent.

Indeed, Brian Smith, Chevron’s general manager for deepwater projects in the Gulf, says a recent report identified 25 new finds in the deepwater Gulf in 2006 that companies deemed worthy enough to move ahead with.

That said, Zoë Sutherland, Gulf of Mexico analyst for Wood Mackenzie, says some of the finds are in such deep water, where pressures are high and the oil is viscous and must travel far to get to shore, that the companies must make a few advances before they can produce such fields.

“It’s all so new, technology just has to catch up,” Ms Sutherland says.

The oil majors are intent on ensuring technology does just that, given the growing difficulties in finding new global sources of easily accessible oil and the Gulf’s popularity as a resource pool, at a time of increasing nationalism among state-owned oil companies.

Ms Sutherland says the fiscal terms in the Gulf are good, the government take is small, it is in a politically stable country and there is a large market on the doorstep.

“All of these things add up,” she says. Besides, she adds: “The successes of 2006 shows that there is still the potential for big finds to be made in the Gulf of Mexico.”

Renato Bertani, Petrobras’ outgoing US president, says the oil industry is working towards developing the technology and the new ideas necessary to find oil in increasingly difficult places to tap into, such as the Gulf.

“There is a lot of undiscovered oil in the Gulf of Mexico,” he says. “In order to find new resources, you need to take much bigger risks.”

The risk-taking, however, is being constrained by the astronomical rise in costs for increasingly scarce equipment, as the oil majors scramble to tap into resources, and the lack of experienced manpower.

Day rates for some of the deepest drilling rigs are between $400,000 and $500,000, which is double what was seen in the region two years ago.

Staff are so hard to come by that in December EPCglobal, the international engineering staffing company, successfully organised the first speed recruit event for the oil industry in Houston.

“As you can imagine, large US and oil and gas corporations can be a conservative bunch, and I think it helps illustrate how desperate the industry is for skilled, experienced engineers that they would even consider this as a way of recruiting new talent,” says Richard Spragg, communications manager for EPCglobal.

Between 900 and 1,000 candidates turned up – twice what organisers had expected, he said. The industry was so impressed that it encouraged EPCglobal to set up another speed recruiting event for the industry on May 5.

“The market being what it is, people are becoming prepared to try new and different things,” says Mr Spragg. “It’s increasingly common to find oil and gas companies facing a staff shortfall on major projects, which can put delivery in jeopardy.”

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