3-D Mapping Plus Incentives Equals Texas-Coast Oil Boom

Last month's news that Iraq would begin pumping oil again was met with little more than a yawn by oil and gas producers in the Gulf of Mexico.

Backed by healthy oil prices and high demand, large and small companies alike are fueling an unprecedented surge in exploration and production in the deep water portions of the Gulf, an area that just a few years ago was termed the "Dead Sea" by some producers.

"The Gulf is the biggest play in the US right now," says Hans Juvkam-Wold, petroleum engineering expert at Texas A&M University in College Station.

An April lease sale by the US Mineral Management Service confirms that assessment. The MMS received a record 1,381 bids on 924 blocks covering some 5,700 acres. In all, the sale added $521 million to federal coffers.

Barney Congdon, a spokesman for MMS, says the Outer Continental Shelf Deep Water Royalty Relief Act, signed by President Clinton last November, was the primary reason for the deluge of bids. Under the law, offshore royalties to the government decrease as oil producers move into deeper water. Thus, companies have an incentive to drill in deep water (areas more than 1,500 feet deep).

Another big reason for growing interest in the Gulf is the use of three-dimensional seismic technology, which gives prospectors a 3-D picture of the area in which they plan to drill. The technology has dramatically increased the probability that a new well will be successful. "A few years ago, you didn't have the computing power to construct these mathematical models," says Steve Campbell, a spokesman for Anadarko Petroleum Corp. in Houston, which has nearly quadrupled its Gulf production since 1991. "What used to take days and days to boot on the computer can now be done in a few minutes."

The 3-D technology played a pivotal role in the decision to drill a well known as the BAHA Prospect. Located 200 miles southeast of Corpus Christi, Texas, the well is being drilled in 7,625 feet of water - the greatest water depth ever for an offshore well. The partners in the project, Shell Oil Company, Amoco Corp., Mobil Corp., and Texaco Inc., spent nearly $250 million analyzing seismic data before deciding to drill.

The trend toward deep-water exploration shows no sign of diminishing. Last month, Amoco and Sonat Offshore Drilling Inc. announced a deal to build a ship able to drill in 10,000 feet of water.

The new ship, expected to cost $250 million, will allow prospecting in areas on the outer continental shelf that even the most optimistic engineers believed impossible just a few years ago.

Further evidence of the Gulf boom came on May 20, when Texaco announced a plan to construct a 130-mile-long natural-gas pipeline that will connect a number of offshore platforms with a new gas-processing facility in Paradis, La. The $300 million project illustrates the importance of the region: more than a quarter of America's natural gas now comes from the Gulf of Mexico.

The same day, Amoco Pipeline Company, CNG Energy Services Corp., and PanEnergy Field Services announced they would build a 64-mile oil pipeline costing $50 million. The new pipelines are needed. Since 1991, production in the Gulf has grown by 17 percent to 345 million barrels of oil last year.

Output will likely jump dramatically over the next few years as several new fields begin production. But the boom in the Gulf could be slowed by shortages of qualified workers and equipment. "Everyone's concerned about it," says one oil company representative.

As for the decision to allow Iraq to re-enter the market, Susan Cunningham, who manages Amoco's deep-water Gulf drilling, says "it was just a matter of time." But she says Amoco and other companies decided that the long-term economics of oil production in the Gulf are favorable.