U.S. independent producer McMoRan Exploration Co. believes it has confirmed through a major discovery what much larger, better financed explorers have suspected and salivated over for years -- the presence of an extremely deep, massive and potentially lucrative natural gas play thought to underlie a significant portion of the U.S. Gulf of Mexico’s Outer Continental Shelf.
In characterizing the recently disclosed Davy Jones discovery, McMoRan Co-Chairman James “Jim Bob” Moffett declared in a Jan. 11 conference call with financial analysts: “The whole landscape of the subsurface geology of the shelf is being reshaped.”
Davy Jones itself, which could prove to be the largest gas discovery on the shelf in decades, appears to be but a small slice of a very big pie, known as the Wilcox sands.
Moreover, on McMoRan’s 150,000-acre “ultra-deep” shelf position alone, the company said it has a dozen more drill-ready prospects based on seismic studies and initial data recovered from Davy Jones and an earlier McMoRan ultra-deep well, Blackbeard. McMoRan now plans to deepen the Blackbeard discovery well thousands of feet into the Wilcox, in light of successful drilling at Davy Jones, located in just 20 feet of water on South Marsh Island Block 230.
To keep McMoRan’s ambitious exploration and development programs on track, the company is considering adding a third jack-up rig to its current drilling fleet, to join the Rowan Mississippi and the Ralph Coffman. McMoRan believes that the prospects on its ultra-deep acreage contain multiple trillions of cubic feet of reserve potential. A discovery with at least 1 trillion cubic feet of confirmed reserves is generally considered to be a world-class field.
“We’re now very confident about not just the Davy Jones and Blackbeard prospects, but all the other prospects that we tied together on this 3D seismic data base is just spot on,” Moffett said.
After announcing the Davy Jones discovery at 28,263 feet with pipe-conveyed wirelogs to 28,234 feet, McMoRan planned to deepen the well to 29,000 feet to search for additional Wilcox sands. Blackbeard, located on South Timbalier Block 168 southeast and downdip of Davy Jones, would be extended down into the Wilcox below 34,000 feet, rivaling some of the deepest wells ever drilled on Planet Earth.
Rights to the Blackbeard prospect, drilled to 30,067 feet but abandoned in 2006 by then operator ExxonMobil because of problems with the high temperatures and pressures, were acquired by McMoRan from Newfield Exploration in Aug. 2007, as part of a $1.1 billion property acquisition package that included other U.S. Gulf shelf properties. McMoRan then deepened the Blackbeard well to around 33,000 feet, short of the Wilcox. Still, Moffett said in Oct. 2008 that the prospect could hold several billion barrels of oil equivalent.
The wireline log results from Davy Jones indicated a total of 135 net feet of hydrocarbon bearing sands in four zones in the Wilcox section of the Eocene-Paleocene. All of the zones were full to base with two of the zones containing a combined 90 net feet, McMoRan said, noting that the Eocene-Paleocene (Wilcox) suite of sands logged below 27,300 feet “appears to be of exceptional quality.”
“The results from this well will be incorporated into our models as we continue to define the potential of this promising new exploration frontier,” Moffett said of its other Wilcox prospects.
Because of chemical changes that affect hydrocarbons under extreme heat and pressure, most of the Wilcox sands on McMoRan ultra-deep acreage is expected to produce dry gas, the company said.
In spite of McMoRan’s obvious confidence, the areal extent of the Davy Jones discovery and its ability to commercially produce has yet to be determined. This will require a flow test, plus the drilling of at least one “confirmation” well some distance from the initial well to “prove up” the discovery.
“That first confirmation well is going to be so dang gum important to us,” Moffett emphasized.
Nevertheless, McMoRan has begun laying the ground work for an aggressive development at Davy Jones, one that could see an initial 10 production wells to begin draining a massive reservoir on the 20,000-acre prospect. The gas would be fed via flowlines from the wells to a central production facility on the shelf capable of processing at least 1 billion cubic feet, based on McMoRan’s roughly 100 million cubic feet per day of estimated output per well.
This means Davy Jones could surpass the daily production and equal the facility capacity of the “ultra-deepwater” Independence Hub, currently the largest natural gas producer in the U.S. Gulf at around 700 million cubic feet per day and 1 billion cubic feet of facility capacity.
Davy Jones development will carry a hefty price tag. Moffett estimates that each well would cost around $100 million to drill and from $50 million to $75 million to complete, meaning the initial well package, not including additional wells, materials, equipment and production facility, alone would cost between $1.5 billion and $1.75 billion. Fortunately, money to finance development is generally much easier to round up than for more risky exploration drilling.
“But my guess is that we will see a lot of presentations from the financial community that are willing to get involved in the development of this,” Moffett said. “We’re going to get these wells on production in the next year (to) a year and a half.”
McMoRan operates the Davy Jones prospect and is financing 25.7% of the exploratory costs and holds a 32.7% working interest and 25.9% net revenue interest. Other working interests owners in Davy Jones are Plains Exploration & Production Co. with 27.7%, Energy XXI with 15.8%, Nippon Oil Exploration USA Ltd. with 12%, W.A. “Tex” Moncrief, Jr. with 8.8%, and an unidentified private investor with 3%.