A depressed level of exploration drilling has been evident in the Gulf of Mexico deep water during 2005 with the lowest number of exploration wells since 1996.
As would be expected, the gross volume of reserves discovered in the region during 2005 is less than in previous years. Yet on a barrel-per-well basis the region is continuing to deliver. Also encouraging is the combined commercial and technical success rate which is the highest seen in the region for 10 years.
Historically, the deepwater Gulf of Mexico has proved to be one of the top performing exploration regions globally, delivering a competitive level of value and discovered reserves for both the supermajors and independents, and it seems that this is set to continue.
While the traditional mini-basin play hunting grounds delivered high success rates and modest reserves, the new emerging plays were home to the biggest finds of the year. A third of all exploration wells drilled targeted the Deep Miocene, Mississippi Fan Foldbelt and Lower Tertiary plays, proving up a whopping 85% of reserves added during 2005.
Exploration rates slow
Exploration activity in 2005 has dropped sharply from the 45 exploration wells drilled in 2004 to just 29 wells in 2005. It would seem reasonable to assume that the devastating hurricanes that struck in the third quarter of 2005, Katrina and Rita, had a part to play. While 18 wells were drilled in the first half of the year, only 11 were completed in the second. However, the number of wells drilled prior to the arrival of the hurricanes was almost half that drilled in the same period during 2004 indicating that other factors were also at work.
As the accompanying chart shows, exploration activity in the deepwater Gulf of Mexico during 2005 fell to its lowest level since 1996. Among the main factors influencing this fall are the various constraints on the availability of rigs. An already tight rig market has been further impacted by a jump in the average time taken to drill an exploration well, from a fairly consistent 50 days per well in recent years to almost 80 days per well in 2005. A third of exploration wells drilled during 2005 were targeting deep Miocene or Lower Tertiary objectives. While wells targeting the Lower Tertiary averaged drill times of 100 days, wells targeting the Deep Miocene averaged more than 150 days, meaning that rigs were tied-up on individual prospects for considerable periods of time. The volume of appraisal and development drilling taking place has also restricted the number of rigs available for exploration, with activity at fields such as Shenzi in Green Canyon 654 and Thunder Horse in Mississippi Canyon 778 locking in rigs for up to 6 months at a time.
Success rates are up
Despite the marked drop in exploration, 16 confirmed discoveries were made during 2005 across a range of plays in the region, from the more traditional mini-basins through to the deep Miocene and emerging Lower Tertiary play in Walker Ridge. This yields a combined commercial and technical success rate of 55%, the highest seen in the deepwater Gulf of Mexico since 1996. Additionally, the discovery rate, which is a measure of the volume of reserves discovered in relation to the number of exploration wells drilled, is 33 MMboe/well. This is above our 10-year average for the region of 29 MMboe/ well, showing that potential within the region is not in decline.
Success by play
As in previous years, most exploration activity took place in the traditional mini-basin plays, particularly in the Central Gulf. The relatively small size of these prospects holds little interest for the larger companies, but their lower-risk nature appeals to the smaller independents and provides a key point of entry to the region for new companies such as Stephen's Production and Plains E&P. Almost two-thirds of announced discoveries during 2005 were located in mini-basin plays, but the discovery rates were low. The average mini-basin discovery rate was just 8 MMboe/well.
The supermajors and larger independents operating in the region showed a preference for targeting higher reward prospects. The Mississippi Fan Foldbelt (MFF) play was the only one to deliver a 100% success rate with discoveries at the Chevron-operated Big Foot in Walker Ridge 29 and Bonsai in Atwater Valley 398 and Anadarko's wholly owned Genghis Khan in Green Canyon 652. The Big Foot discovery encountered 300 ft (92 m) of net oil pay and is potentially the second largest made during 2005. It is on trend with a number of significant Foldbelt discoveries to the north in Green Canyon. Anadarko made its Genghis Khan discovery in May 2005 and is currently fast-tracking the development as a subsea tieback to the Marco Polo facility. It is expected to produce from the same reservoir as BHP Billiton's extensively appraised Shenzi field.
The Deep Miocene play threw up a number of disappointments during 2005, with dry holes announced at Wembley in Mississippi Canyon 722, Makalu in Mississippi Canyon 937 and Vrede in Atwater Valley 267. Persistence paid off, with success at Knotty Head in Green Canyon 512, understood to be the biggest discovery made during the year. Reserves for the field have not been announced but are thought to be in line with those at Chevron's giant Tahiti field in Green Canyon 640, putting Knotty Head within the top ten largest fields discovered in the deepwater Gulf of Mexico. Over 600 ft (180 m) net of oil bearing sands were encountered, with 300 ft (92 m) in the Middle Miocene secondary objective and a further 300 ft (92 m) in the Lower Miocene objective.
The emerging Lower Tertiary play, which is home to some of the most exciting discoveries of recent years including St. Malo in Walker Ridge 678, Jack in Walker Ridge 759 and Cascade in Walker Ridge 206, triumphed again during 2005 with a discovery at Stones in Walker Ridge 508. A concerted effort was made during the year to repeat the success of the Lower Tertiary play outside of the Walker Ridge area, but so far to no avail. Both the Mad Dog Deep well in Green Canyon 826 and Shenzi Deep in Green Canyon 653 wells hoped to prove the extension of the play north into Green Canyon. While the BHP Billiton-operated Shenzi Deep test encountered hydrocarbons in the Miocene, the deeper Eocene objective did not deliver. The BP-operated Mad Dog Deep test reached target depth in August 2005 and has since been logged, although details are yet to be released. A third attempt was made by ExxonMobil, this time to test the extension of the play west into Keathley Canyon. Details of Hadrian in Keithley Canyon 919 remain tight, although we understand the well did not reach its main objective.
Only one exploration well was drilled in the Perdido Foldbelt play during 2005, home of Shell's giant Great White field in Alaminos Canyon 857. The Diamondback test in Alaminos Canyon 739 was BP and Amerada Hess' second attempt at the well that was abandoned in 2004 due to seasonal loop currents. This well drew industry attention as the first sub-salt test in the Perdido Foldbelt, but it proved to be dry.
Last year was a relatively successful year for exploration, with 2006 promising to be no different. Further testing of key regional trends and a high commodity environment will ensure the reputation of deepwater exploration remains intact. The Amerada Hess-operated Pony prospect in Green Canyon 468, on trend with the Knotty Head discovery and the BP-operated Kaskida prospect in Keithley Canyon 292, testing the Lower Tertiary in Keathley Canyon, are just two examples of highly anticipated wells in 2006. Will these among others deliver? Industry eyes will be watching.

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