US Oil Exploration Hopes Lifted by Huge Shell Find

THE discovery of a "potentially large" oil field in the Gulf of Mexico is welcome news in the United States. "It comes at a very good time for our country," says Barney Congdon, a spokesman for the federal government's Minerals Management Service (MMS).

It's also news that groups involved in a tug of war over offshore exploration will try to turn to their respective advantages.

Shell Oil Company announced last week that its Mars prospect could hold in excess of several hundred million barrels of oil. Unattributed estimates of 1 billion bbl were published in the British press, where the find was simultaneously announced by Shell's parent company, Royal Dutch/Shell, and by British Petroleum, which has a one-third interest in the find.

A Shell spokeswoman in Houston, however, called that figure "pure speculation on the part of analysts.... It's too early to begin guesstimating on volumes."

Shell did say that the thickness of the oil-bearing rock totaled 440 feet, compared to 250 feet for Auger, a 220-million-barrel field 400 miles west of Mars.

"That's one of the yardsticks we're using," the spokeswoman said. But a Shell geologist cautioned against assuming a direct correlation to reserves size, since the area enclosed by the structure and other factors come into play.

More wells needed

Frank Richardson, Shell's president, said that further engineering studies are necessary and more wells may be needed to estimate the Mars discovery's size.

To the oil industry, the discovery confirms the wisdom of exploring the nation's few petroleum frontiers left. The US is the most intensively explored of any country, with more than 600,000 producing wells at the start of last year. Hundreds of small independent companies still scour the picked-over onshore areas of the "lower 48" states.

Industry observers say the Mars discovery has the potential to boost interest in the Gulf of Mexico.

The industry has been active there for decades, and produced 269 million bbl of oil last year. But, because of the high cost and technological challenge, few companies have ventured into "deep water" - more than 1,500 feet. Mars lies under 3,100 feet of water.

Hungry for large discoveries which they believe can only be found in frontier areas, major oil companies and large independents clamor for access to the Alaska National Wildlife Refuge and the areas offshore the West, East, and Florida coasts. Environmentalists have persuaded the government to keep those places off limits to almost all oil activity. They question the potential for discovery and emphasize the risk of ecological damage. And they argue that the western and central Gulf of Mexico, as the of fshore areas thought to hold the greatest potential, are adequate arenas for oil exploration.

Mars is one of the most important finds in the US in years. Even the cautious size estimate Shell has released is substantial for the Gulf of Mexico, where 3 billion bbl of oil remain to be produced out of the 10.3 billion discovered.

The Shell geologist remarks that the US consumes as much oil as the Mars prospect may contain in a matter of a few months. Just because Mars was found in the Gulf, "you shouldn't conclude that we don't need to drill elsewhere," he says. "It takes a tremendous amount of hydrocarbons to quench our thirst for oil."

New leases under review

Shell's announcement comes at an interesting moment for the MMS. Mars is in the central Gulf of Mexico, 130 miles southeast of New Orleans. In March the MMS held one of its periodic lease sales in that part of the Gulf. A lease sale is a sealed-bid auction of exploration rights. Ninety companies participated, with high bids totaling $260 million for acreage not already under lease.

The MMS is still in the 90-day period for deciding to accept or reject the bids based on whether they match the resource potential of the area. The agency estimated beforehand that the auction would result in development of 130 million bbl of oil and 1.21 trillion cubic feet of natural gas. Mr. Congdon declined to say whether the MMS might be influenced by Shell's discovery.

The two lease blocks where Shell discovered Mars cost the company only $2.4 million in a 1985 auction. In 1973, Exxon and its partners paid $222 million - still the Gulf of Mexico record - for a block called Destin Dome 162. It was dry.

Washington has done well over the years from offshore exploration, reaping through fees and royalties $93 billion as of 1989. On a cumulative basis, its percentage take of the resource value amounts to 41 percent.

Shell said production from Mars could commence within five years of a decision to proceed with development. That decision will require another year or two of study, the spokeswoman said.

Shell has repeatedly broken its own world records for wells drilled and development platforms erected in deep water, establishing itself as the oil industry's leader in that environment.

Auger will set the record for production from the greatest water depth, at 2,860 feet, when it comes on stream in 1993. The field will cost $1.3 billion to develop and will produce 40,000 barrels per day of oil and 150 million cubic feet per day of gas at peak. Shell holds 35 percent of the deep-water acreage in the Gulf of Mexico, more than anyone else, and 15 percent overall.

Shell currently produces about 30 percent of its total output in the Gulf of Mexico.