May 2000 Vol. 221 No. 5  Offshore

Robert E. Snyder,  Editor

U.S. Gulf lease sales, Grand Banks activity, gas survey

The U.S. Department of the Interior’s Minerals Management Service (MMS) in New Orleans, Louisiana, held a sale of offshore oil / gas leases in the Gulf of Mexico on March 15, attracting $300,567,675 in high bids from 63 companies. Sale 175 is the ninth lease sale held subject to the provisions of the Deep Water Royalty Relief Act, passed in 1995. Of 4,203 tracts offered, comprising about 22.3 million acres offshore Alabama, Louisiana and Mississippi, MMS received 469 bids on 344 tracts for a total $454,929,870.

The highest bid was $23 million submitted by Exxon Asset Management Co. for Mississippi Canyon Block 555. About 34% of the tracts are in deep water – more than 800 m (2,624 ft). The deepest tract was Walker Ridge Block 812 in 3,379 m (11,083 ft). Some 60% of the bidding (202 of 344 tracts) was for relatively shallower water, with heavy activity from independents. MMS says each high bid on a block will go through an evaluation process to ensure the public receives fair market value.

On April 7, MMS said it is making available the Proposed Notice of Sale for Western Gulf of Mexico Sale 177, scheduled for August 23, 2000, in New Orleans. Sale 177 encompasses 3,779 blocks, about 20.57 million acres, in the Western GOM OCS Planning Area offshore Texas and in deeper waters offshore Louisiana. The blocks are located from 9 to 200 miles offshore in water depths to more than 3,000 m (9,840 ft), with 2,152 blocks in water depths of 200 m (656 ft) or more.

The Proposed Notice of Sale offers all blocks in water depths of less than 800 m for a minimum bid of $25 per acre. The Notice will be posted on the MMS web site at: http://www.mms.gov.

Frigg to be abandoned. Grand Banks growing. As reported in the March 13 Offshore International Newsletter, the three concrete platforms at Elf’s soon-to-be-abandoned Frigg field in the North Sea may be left standing on the border between the UK and Norway. Valves will be shut permanently in 2002, but Elf must present a plan by year-end for disposing of the platforms. Removal will probably start in 2005 and may take as long as three years, OIN says.

Sixty percent of the field is located in Norway; 40% in the UK. All topsides, as well as all 110,000 t of steel substructures will be taken ashore. However, the concrete substructures, with a combined weight of more than 440,000 t, present the project group with a special problem. The Ospar Treaty, which regulates environmental issues in the North Sea, demands complete removal. However, exceptions may be made for structures that weigh more than 10,000 t.

Meanwhile, Canada’s Husky Oil Ltd. said it would use an FPSO system to produce White Rose field off the east coast of Newfoundland, if the project is deemed commercially viable. The FPSO concept is similar to the production system to be deployed at nearby Terra Nova, and is less expensive than the gravity-base structure in use at Hibernia, also located in the Jeanne d’Arc basin in the North Atlantic.

Husky discovered and operates White Rose, on the Grand Banks, about 350 km (210 mi) off the coast – it holds a 72.5% interest; Petro-Canada owns the rest. If the project is approved by regulators, production of the field’s estimated 250 MMbbl of oil could begin by 2004.

And partners in a fourth, big Grand Banks project, Hebron-Ben Nevis field, have selected Chevron Canada Resources Ltd. to lead the venture. Engineering work on Hebron, estimated to hold more than 600 MMbbl of oil, could begin early next year. Partners include Petro-Canada, Norsk Hydro and Mobil Oil Canada Ltd.

Natural gas industry survey. Ziff Energy Group’s 2nd Annual Gas Industry Outlook Survey finds the North American gas industry optimistic about gas prices, supply and demand during 2000. Respondents expect prices to finish the year strong. The survey included 124 companies (144 respondents) in the U.S. and Canada, up from 79 companies in 1999. Ziff says, "The survey is designed to provide an integrated description of the North American gas industry, from wellhead to burner tip."

For the supply outlook, slightly more than half of U.S. producers expect to produce at least 5% more at year-end 2000, while 19% expect production increases exceeding 15%. More than 70% of Canadian respondents expect to increase production by 5% or more, and a quarter expect production to increase by more than 15%. Almost half expect net Canadian exports to grow by up to 700 MMcfd in 2001, and a third expect exports to increase by 700 to 900 MMcfd.

On the demand side, respondents expect U.S. gas sales to grow moderately in 2000 and somewhat more in 2001; 70% responded in the 1–3% range for both years, favoring the higher end for 2001. Expectations for Canadian growth are slightly more modest (more in the 1–2% range for each year). Almost all respondents believe gas sales for electricity generation will grow at least 2% per year (40% expect at least 4% growth per year).

For prices, virtually all (94%) expect NYMEX prices to close out the year above $2.73 – 40% say above $3.13. Few expect prices to decline, but most are less concerned than last year that higher prices may put gas sales at risk.

Most producers (75%) plan to increase investments more than 5%, and almost one-third (28%) plan to increase spending by more than 15%. Ten percent of Canadian respondents, however, expect their spending to decline, as Canadian gas well completions hit an all-time record in 1999. And respondents believe the most likely obstacle to increased production is a return to low gas prices. The complete Gas Survey Report can be seen on Ziff’s web site, www.ziffenergy.com. The company’s Houston number is 713 627 8282.

Missing cover-photo credit. The outstanding photograph of Verolme Botlek’s Rotterdam yard on the cover of "Technology from Europe," page 69, April World Oil was not credited. We apologize for the omission and thank them for the use of this unique aerial view of 10 offshore rigs.