New Tools Expand Potential of Mexican Gulf

NEW technology is guiding the petroleum industry to oil deposits where only natural gas was suspected to exist - under the continental slope in the Gulf of Mexico.The results have geologists revising their theories and oil companies rushing to buy drilling rights at Interior Department lease sales. And a five-year-old government prediction that the Gulf contains 8.6 billion barrels of undiscovered oil now looks conservative. The hitch is the water depth on the slope, defined as everything between 200 and 2,500 meters (656 to 8,200 feet). Producing a barrel of oil that's hidden 15,000 feet below sea level is routine enough when water is 100 or even 1,000 feet of the total distance and rock is the rest. Bottom-standing production platforms have been built in 1,700 feet of water. But what if the water is a mile or more deep? "You may know oil is there but it may be so deep [under water] that you literally can't afford to get it," says John Willott, manager of offshore/Alaska exploration for Exxon USA. Placid Oil Ltd., the company that holds the record for deep-water production in the Gulf, doesn't even work offshore anymore. "We bailed out completely" after Placid's Green Canyon 29 field developed problems and the 2,100 foot water depth made remedial action too expensive, says Bing Schwartz, manager of project engineering at the Dallas-based independent. "The future of the Gulf is deep water, real deep water," Mr. Schwartz says. However, "you need real deep pockets." Consider Shell Oil Company. Its Auger project will set a world water depth record of 2,800 feet when it begins production in 1993. But Shell will spend at least $1.3 billion on the 220 million-barrel field. Hydrocarbons have been found in even deeper waters in the Gulf. This spring, oil companies announced three such discoveries: * At a water depth of 2,900 feet, Conoco and Oryx Energy found 80 million to 150 million barrels of oil and its (gas) equivalent (BOE). * At 3,100 feet, Shell and British Petroleum found 200 million to (a rumored) 2 billion BOE. * At 4,350 feet, Exxon Corporation and Conoco found 100 million to 200 million BOE. The high proportion of oil in slope deposits has startled geologists, who thought that hydrocarbon-bearing sediments would be meager and predominantly gas-bearing. Instead, they have found extensive sandstone formations with excellent reservoir characteristics and 70 percent oil in some cases. "We didn't imagine that was possible five years ago," says David Lott, vice president of Chevron USA's eastern exploration. Including onshore and offshore areas, the Gulf of Mexico holds 26 percent of the nation's undiscovered oil, according to estimates by the United States Geological Survey. This compares to 34 percent for Alaska and 14 percent for the Pacific Coast region. Time, temperature, and pressure turn organic deposits into oil. And if those conditions persist and increase, the oil becomes natural gas. Mr. Lott speculates that the oil-generation process got started later on the slope than on the shelf, and that companies are drilling there at just the right moment in geologic time. Meanwhile, Exxon has developed a refinement to the processing of seismic data that allowed it to see accurately below a 3,000-foot-thick, distortion-causing layer of salt and drill its successful well with Conoco. There are many such pancake-like salt formations on the slope, he says. "It's a competitive edge," Willott says of the company's new technique. "A lot of people [at other firms] have been working at it real hard. It's not easily done." Oil exploration is also making greater use of a tool once used only in the development of new fields: 3-D seismic, which uses sound waves to give geophysicists a clear look at underground formations. "We are strongly going in that direction, as is industry," Lott says. "In deep water, we want all the 3-D seismic we can get." It is also helping on the shelf of the Gulf, where four decades of exploration have yielded 8 billion barrels of oil and 87 trillion cubic feet of natural gas. The shelf is "very mature," Willott says. "Nearly every piece has been leased at one time or other." Over the last six years, Lott adds, only eight fields larger than 25 million BOE were found, and they contained natural gas, rather than more-desirable oil. 3-D seismic is helping to get more oil out of old fields. A recent $5 million 3-D survey of Chevron's Bay Marchand field, discovered in 1941, paid for itself by showing that two planned wells would have missed their targets. And it gave Chevron better places to drill, boosting production to 40,000 barrels per day from 18,000 b.p.d. But most of the shelf's remaining potential is gas. Chevron, for instance, is spending $50 million to drill three wells on the shelf to 23,000 feet in search of gas, even though the short-term price outlook is "bleak," Lott says. This year producers at times have received less than a dollar per thousand cubic feet of gas, reflecting competition from Canadian imports and slower-than-expected conversions to gas by industries adjusting to 1990 clean-air rules. In reaction, the number of rigs working in the Gulf plummeted from 102 a year ago to 60 in early August, the fewest since the 1986 price collapse. "There's no market for it, so we're not drilling for it," says Morgan Jones, a drilling manager for Phillips Petroleum Company. Phillips drilled 21 wells in the Gulf in 1990, but will reduce that by half this year. Lott is "very concerned" by gas prices because they affect cash flow to Chevron, and therefore the size of his exploration budget. As far as affecting the viability of deep-water discoveries, though, Willott is unperturbed. None of his slope fields will begin production in this century. "Today's price is interesting, but tell me what the gas price is going to be in 2002, 2005," he says. And the search for oil in deep water continues. Chevron is currently drilling at 2,700 feet, Exxon at 2,900 feet and 3,000 feet. According to the American Association of Petroleum Geologists, 25 companies have paid $753 million to the government for exploration rights in water deeper than 1,000 feet. In 1985 a quarter of the tracts receiving bids were in "deep water." Last year it was 45 percent, the AAPG says. Says Willott: "The slope is one of the few places [left in the US] where we have the opportunity for sizeable reserves."