Gulf departures don't dampen independent spirit

New Orleans CityBusinessJuly 5, 2014 

Gulf Oil Spill Ready Or Not

ASSOCIATED PRESS/2011A rig and supply vessel are shown in the Gulf of Mexico, off the coast of Louisiana. While the onshore shale boom has dominated the U.S. market recently, the energy companies say the Gulf of Mexico remains a lucrative area.

GERALD HERBERT — AP

NEW ORLEANS -- Energy companies have been heading onshore to stake their claims in the domestic shale boom that has dominated the U.S. oil and gas market in recent years.

Still, the Gulf of Mexico remains an important and lucrative playing field, energy companies affirm.

BP, the largest lease holder in the Gulf of Mexico, announced in March it would be splitting off its onshore oil and gas assets into a separate business to better capitalize on the U.S. shale exploration boom. Stone Energy Corp. of Lafayette, sold some of its Gulf shelf properties to Talos Energy of Houston for $200 million on June 30. Last summer, Houston-based Apache Energy Corp. unloaded $3.4 billion of its assets in the shallow waters of the Gulf of Mexico, where it has operated for 30 years, to refocus on onshore efforts. In May, the company sold two deepwater Gulf prospects for $1.4 billion.

The deep Gulf of Mexico remains attractive, but it was important for Apache to restructure its portfolio, Cory Loegering, Apache's regional vice president, told the Louisiana Energy Conference in New Orleans in June. Since 2010, the company has focused onshore, where it said it expects to achieve attractive rates of return.

"As we look across the country, we want to out balance longer cycle projects with onshore. It's more predictable. The production in the Permian (Texas) region is like a factory," Loegering said. "With offshore, it's a high-risk, high-reward and we're trying to reach a better balance."

New drilling technologies have contributed to exponential production gains for onshore oil and natural gas in the United States. Oil field services company Baker Hughes said most of the new wells started in 2013 were in the Eagle Ford shale play in south Texas and Permian basin spanning west Texas and New Mexico. Apache is one of the largest operators in the Permian basin with more than 12,000 wells in service.

Apache's Gulf departure means there's more room for other companies. Covington-based LLOG Exploration Co. maintains the deepwater Gulf is an incredibly attractive place to invest, but innovations in seismic technology are revealing untapped potential in the shallower areas that has the company equally excited.

The main barrier to exploiting the deepwater Gulf for independents such as LLOG has been the expensive technology needed to ensure a return on investment, along with the cost of regulatory compliance. To save money, they are streamlining development processes, cutting the time needed to get a commercially viable discovery into production.

"If we identify assets that we think would be commercial, we do the design and engineering before the first well is drilled," said Eric Zimmerman, vice president of geology for LLOG. "If we can eliminate months and shorten the cycle time, we can create tremendous value."

Stone Energy used a similar streamlined approach for its recently discovered Cardona prospect near the mouth of the Mississippi River.

"With Cardona, we did a lot of development work on the front end," said Ken Beer, Stone's chief financial officer. "We're hoping to have that into production by January 2015. The sense is that with planning, we're able to eliminate major delays."

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