On the US GOM Shelf - Testing the “Dancing Dragon” ultra-deep Concept | BRYYY Message Board Posts

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Msg  82582 of 447583  at  11/20/2011 5:04:07 PM  by

amstocks82

The following message was updated on 11/21/2011 12:08:35 PM.

On the US GOM Shelf - Testing the “Dancing Dragon” ultra-deep Concept

From 250 to around 180 million years ago (mya), a “super-continent” called “Pangea” encompassed most of the earth’s landmass. Pangea was formed by the collision of continental plates. A proto-Gulf of Mexico (GOM) began forming around 210 mya in the late Triassic. By 180 mya, as Pangea broke apart the GOM was a growing basin.
 
Between 180 and 163 million years ago, the movement of continental plates and changing ocean water levels caused periods of reduced or restricted ocean water circulation into the GOM. The evaporation of sea water during those periods reduced the water level and resulted in the formation of layers of salt thousands of feet thick. This huge salt mass is referred to as the Louann salt in the Northern GOM and the Campeche salt layer in the Southern part. The Louann salt is as much as 30,000 feet in places. When the salt layers were deposited, it was probably over 5,000 feet thick in most places.
 
 
 
The GOM basin continued to grow in size as the continental plates moved apart. As the GOM basin grew, much of the basin floor thinned and stretched apart causing a continual gradual subsidence as the basin floor cools and sediment is deposited on it. The water level in the deeper part of the GOM averages over 10,000 feet deep.
 
Many of the rivers that drain North America since the Jurassic have flowed into the GOM.  As mountains and highlands formed and eroded away, much of the resultant sediment was carried into the GOM. This moved the shoreline of the GOM gradually south creating hundreds of miles of new land and in the process layers of sediment tens of thousands of feet deep. In the current GOM shelf, the sediment can be well over 40,000 feet thick. 
 
As thousands of feet of sediment settled on top of the Louann Salt, the salt began to flow and move. Sediment is heavier than salt and salt can flow under pressure almost like a liquid except the flow happens in slow motion over many thousands of years. As salt flows, it will tend to flow along weak areas within the layers of sediments moving generally upwards above the heavier sediment. The salt often moves long horizontal distances and may carry with it sand and sediment.
 
Over time, much of the Louann salt was expelled from where it was originally deposited forming vast salt structures.  Some of the structures were salt welds that cover vast areas within the layers of sediment under the GOM - and what was once the GOM but is now dry land. 
 
The layers of salt have kept a lot of secrets below it. Seismic technology has traditionally had difficulty penetrating below the salt. Salt can also be difficult to drill through because it can flow into the well bore during drilling causing drilling problems or it can be washed away by drilling fluid causing other types of problems. But in the last 20 years, seismic and drilling technology has gotten much better.
 
In 1996, a large consortium of oil companies that included Amoco, Mobile, Shell and Texaco drilled the largest remaining structure in North America that had not been drilled. This structure was called "BAHA"  and was located in 7,600 feet of water. They were primarily targeting fractured carbonates which were deposited early during the GOM formation when it was still shallow. The first well the BAHA 1 was unsuccessful due to mechanical problems but it did detect live petroleum. Another well was drilled in 2001 called BAHA 2. The BAHA 2 was still primarily testing fractured carbonates. The BAHA 2 did get to the target depth. The well was not successful in that it didn't’t find commercial amounts of oil. But they did find 12 feet of oil in an “Upper Wilcox” sand and unexpectedly found several thousand feet interval that had contained multiple turbidite sands. Finding a relatively good quality “Upper Wilcox” sand was unexpected in that area. Most had not thought that large amounts of sand could move so far from the coast. The BAHA wells proved that there was live oil and working petroleum systems in the Ultra deep. It also proved that sands had moved all the way from the shelf over 250 miles to the deep water areas.
 
The next major well to be drilled was the Trident well. The Trident well also found thick Wilcox sands that they could correlate with those in the BAHA wells. The Trident was soon followed by other discoveries.  So far, all the large structures have had oil or oil shows and most have had commercial amounts of oil. But given the great ocean depths and thick layers of salt, developing the oil fields that were discovered has been a huge challenge.
 
Even as many companies were rushing to develop the large structures in the ultra-deep water, the large structures below the salt on the GOM shelf were mostly ignored by the large companies. It was widely believed that any productive drilling targets would be located too deep to be drilled or developed. And even if they could be drilled, most believed that the pressure and temperature would be too great.
 
The first attempt to test whether hydrocarbons could be produced below the salt on the shelf was the "Blackbeard West" well. It almost succeeded in proving what many believed – that the temperatures and pressures below the salt were too great. The well was drilled to 30,067 feet and abandoned by Exxon and a consortium of partners that included Newfield, BP, Petrobras, Dominion Exploration and BHP Billiton Petroleum. The reason it was abandoned is that the pressure and temperature in the well was almost too high for the equipment that they had and the pressure and temperature was also increasing faster than expected. Many of the consortium partners apparently believed that the increasing pressure and temperature trend or gradient would continue to get higher as they drilled deeper. If it did, that would cause great difficulties in drilling deeper even with new equipment designed for higher pressures.  After abandoning the well, Newfield sold the leases that contained Blackbeard West to McMoRan (ticker MMR). Those leases were part of what was called the “Treasure Island” concept or leases.
 
Along with Newfield’s property, McMoRan also received Newfield’s data and some of their technical and operational staff. Most importantly, McMoRan received geoscientists Glen Denyer, Randol Haworth and Jay Menard who Jim Bob has called, “The Three Musketeers” of the ultra-deep shelf because they had been proponents of the drilling concept for over a decade.  (James Moffett is McMoRan’s co-CEO who everyone calls “Jim Bob”. He is also the co-CEO of Copper and Gold producer Freeport McMoRan (FCX). FCX is the largest publicly traded US based copper and gold producer. Jim Bob is the major force behind drilling the Treasure Island leases.)
 
After purchasing the Treasure Island leases, McMoRan began putting together their own consortium of partners to share the cost of developing the leases. The principle partners were Energy XXI (ticker EXXI), Plains Exploration (ticker PXP), Nippon Oil and Tex Moncrief Jr. However, subsequently, McMoRan purchased Plains explorations’ interest in the leases for cash and shares in McMoRan. 
 
With new partners, McMoRan went back to Blackbeard West intent on drilling it deeper. They brought better equipment and a different viewpoint. Jim Bob believed that the pressure and temperature gradient would decease after drilling below the salt and disturbed zone beneath it. That meant that the well could safely be drilled deeper. Blackbeard West was subsequently drilled to 32,997 feet and they did find the pressure gradient decreased as Jim Bob expected. This was a very important finding for the entire sub-salt ultra deep program on the shelf. It meant that it was technically possible to drill and complete ultra deep wells on the GOM shelf. Blackbeard West did succeed in discovering sands which are possibly commercial. However, so far, those sands have not been tested. Instead, McMoRan has gone on to drill other sub-salt structures that are generally shallower and at lower pressures. Meaning it is less expensive to complete them. The partnership has also purchased additional leases and property in the ultra-deep to add to those they acquired from Newfield.
 
Jim Bob is famous for his long discussions on McMoRan CCs about the geology of the GOM shelf where they are drilling their wells. He often uses unconventional methods and terms to describe their progress and findings. The cost of drilling these wells on the shelf is tremendous. Wells can cost $100 to $200 million dollars. Therefore, I think it is necessary to have someone who is not only good at explaining the geology but also a big fan of the drilling concept or else it would have been impossible to get partners to drill the wells or to get the large amount of money McMoRan has gotten from investors to fund the drilling program.
 
Part of the reason for the earlier discussion of the Louann salt is due to its importance to the geology of the GOM and more importantly to the ultra-deep shelf geology. Not only the fact that the salt existed but also the location of the salt going from the shore towards the center of the GOM is very important.
 
In the early history of the GOM, the greatest amount of sediment settled earliest on the farthest north part of the GOM when the ocean shoreline was hundreds of miles further north. Over time, sediment built up creating land and moving the shoreline ever farther South. The sediment over the Louann salt became thick enough to cause it to began flowing earlier in time the farther north it is. Therefore, the location of the salt with respect to the various layers of sediment varies from onshore to the deep water. Onshore, the salt weld is below the older Cretaceous (144 to 65 mya). But from onshore to the shelf, it goes from the Cretaceous, through the Oligocene (23.03 to 33.9 mya) to bisecting the Miocene (23.8 to 5.3 mya) and is usually below the Middle Miocene on the shelf. Then going from the shelf to deepwater, the salt weld generally moves above the Middle Miocene and eventually above the Upper Miocene except in some of the ultra-deep areas where the salt layer has not moved.
 
The location of the salt and how it has formed salt welds, canopies and other structures within the sediment has been called “The Dancing Dragon” by Jim Bob. I’m not sure how he came to call it the “Dancing Dragon” but it is one of Jim Bob’s more colorful descriptions. With some imagination, the location of the salt weld moving from onshore to the deep water does resemble somewhat a cartoon showing the location of the layers.
 
The Dancing Dragon – From onshore to Deep Water

 
In the Ultra deep water GOM, large 3-way and 4-way structures have been found containing billions of barrels of oil. When the initial discoveries were made, they unexpectedly found good quality sand that had porosity to support the production of large amounts of oil and gas.
 
In the shallow water shelf, McMoRan and partners have also found good sands at great depths. The sands that they are finding are unexpectedly “clean” with porosity and permeability that would make them commercially producible even at lower pressures. Some of the sands have porosities over 20% at 26,000 feet below the mudline. That in itself is remarkable. But the other remarkable thing that they are discovering is that some of the same structures and sands that are commercially produced onshore are also present below the salt. McMoRan has so far found hydrocarbons in the Upper, Middle and Lower Miocene, the Oligocene Frio, the Eocene Yegua/Sparta and Wilcox formations, and lastly, the Cretaceous Tuscaloosa and lower Cretaceous. And they are finding that those formations still have good quality sands that can be commercially produced.
 
McMoRan has just begun to unlock the secrets below the salt on the shelf but already, they have made some major discoveries. The first major discovery was made at the Davy Jones prospect. Davy Jones is a 4-way closure that covers over 20,000 acres. The first well was drilled part way through the Wilcox formation and found 200 net feet of pay. The second Davy Jones well was a confirmation well that confirmed that most of the sands seen at Davy Jones 1 were present in the second well. Davy Jones II was also drilled deeper to test the Cretaceous sands. Davy Jones II was on the back side of the Davy Jones structure (from a depositional point of view and 1,200 feet higher up stratigraphically on the structure). They found 120 net feet of Wilcox pay and about 200 net feet of potential pay in the Tuscaloosa and lower Cretaceous. The Tuscaloosa and lower Cretaceous have never been produced in the vicinity so will require a test in order to determine if that potential pay is in fact pay. However, much of it appears to have good reservoir quality from logs.
 
Blackbeard East is the second ultra-deep structure that they have drilled. They found 178 net feet of hydrocarbon sands in the Miocene. They have also found potential pay in the Oligocene and in the Frio section. However, they have had issues testing the Frio with stuck pipe issues and costly fishing and finally having to drill a sidetrack around stuck pipe. They should be on track for reporting news on this by the end of the year.
 
The third ultra-deep structure is called Lafitte. The Lafitte has so far about 171 net feet of hydrocarbon sands. They had 115 net feet in sands at the 26,000 feet depth and then another 56 net feet in the lower Miocene “Cris-R” sand. The Cris-R is a well known prolific sand in South Louisiana. It was good news to find it at this location in the ultra-deep. It adds another drilling target to those that have been found in the Ultra-deep shelf.
 
McMoRan plans to begin drilling Ship Shoal Block 188 soon before year end. Ship Shoal 188 will allow them to evaluate some of the hydrocarbon bearing sands that they saw at Lafitte but at a higher location. The Ship Shoal Block 188 well will be a shallower test with a proposed TD of 26,000 feet.  McMoRan will soon have 4 of the 15 primary large structures in the GOM drilled. However, there are also a lot of smaller structures and substructures that they have not drilled or in many cases even thought about drilling. There are many secrets left from McMoRan and partners to learn in the ultra-deep sub-salt play.
 
What has McMoRan and partners learned that has made the ultra-deep shelf drilling program of interest? That is probably a good question for any company interested in drilling in the GOM. My answer to that question would be that they have learned that many of the productive reservoirs that are found onshore are also present under the salt in the GOM. Second, there are good quality sands with high porosity located below the salt. Given the fact that good quality reservoir sands exist in the ultra-deep and that they have so far found hydrocarbons in every well they have drilled below the salt, this tends to indicate that it will be a very prolific trend.
 
The major problem with the shelf ultra-deep program gaining credibility is getting a flow test done. So far, McMoRan and partners have been drilling very expensive wildcat type wells but have not been producing any hydrocarbons. There are no other companies producing hydrocarbons from the same sands in the area - which means that they don’t have enough information to book reserves.  Without production and reserves, it is hard to gain credibility for the play.
 
Until there is a flow test in the ultra-deep, there will remain skepticism about whether or not the wells will even flow. There will remain skepticism about how much hydrocarbons can be produced from the wells. And they won’t be able to book reserves. Also, each well will have high costs associated with it and therefore will need to produce a large amount of hydrocarbon to be commercial.
 
Another problem for McMoRan has been the technical considerations. Given the extreme pressures involved in these wells – which are expected to have flowing pressures of 20,000+ PSI, they need to have new specialized tubing, down hole safety valves, production tree and BOP’s built that can withstand pressures of 25,000 PSI. There was some skepticism that they could get that equipment build on time. They even needed specialized explosives and tools for perforating the casing that would reliably work at the temperature and pressure of the wells on the ultra-deep shelf.  Those tools and explosives have been developed and are ready to use on the Davy Jones I well. In fact, all the equipment has now all been built and is ready for the flow test. The completion rig is on site and the BOP which is the last component needed before perforating and flow testing the well is on the way to the well. By now, much of the preparatory work that needed to be done prior to the flow test should have been done.
 
The actual flow testing of Davy Jones should occur by no later than mid to late December. If everything works better than originally expected, the flow test might happen somewhat earlier. When they begin to flow the well for the first time, they will be flaring the initial gas from a test barge constructed for flow testing at very high pressures. That flow of gas will be at various volumes as they test the well. At high volumes, the flare should be very large as it shoots out over the waters of the GOM.
 
The potential of the structures that McMoRan and partners have on the shelf and in the GOM is huge. The partners have put the number at over 100 TCF of gas. The hydrocarbons may contain some condensate and will probably have significant amounts of natural gas liquids but production is expected to be mainly dry natural gas. The break even cost of producing the hydrocarbons is currently estimated at approximately $2.50 per mcf. However, the cost could decrease quite a bit if drilling and completion costs decline in the future as they drill more wells. The break even costs could also decline if the amount of hydrocarbons on the structures is higher than current estimates. On the Davy Jones structure, they have not yet drilled far enough down the flanks of the structure to determine a gas/water contact or even how much the sands thicken on the flank of the structure – which could reduce costs. Another potentially positive factor is that they have located some sands below the salt that are at shallow enough depths to be produced using conventional equipment and much less expensive wells.
 
For investors in McMoRan, Plains Exploration, Energy XXI, Nippon Oil – I think we all have hopes that when the flow test happens, it will be as if Jim Bob’s Dancing Dragon has finally spoke and breathed fire.
 
Note: This post/blog whatever it is has largely been pieced together from information I posted previously on the MMR board. However, I thought a larger audience might be interested in it on a Sunday. 


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Msg # Subject Author Recs Date Posted
82583 Re: On the US GOM Shelf - Testing the “Dancing Dragon” ultra-deep Concept bigargo 0 11/20/2011 6:25:59 PM
82593 Re: On the US GOM Shelf - Testing the “Dancing Dragon” ultra-deep Concept mdwitte 3 11/21/2011 8:12:28 AM
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