Davidson: Deepwater the play of the future

Gulf Coast Texas District Meeting

Deepwater, say some, holds about a third of the world’s remaining undiscovered oil and gas reserves.

 Chairman and CEO of Noble Energy, Chuck Davidson, is aggressively going after his company’s share, upping their capital campaign by 85 percent. He discussed Noble’s take on deepwater as well as overall trends in deepwater plays. 

Deepwater Trends

 Davidson says that an excellent barometer for deepwater is the Goldman Sachs 280, a report that looks at 280 biggest global projects for oil and gas. It covers 430 billion barrels of oil equivalent—many are deepwater projects—and represents about 40 percent of the majors’ capital program. Noble has two projects on the list.

 “Providing deepwater services is a high growth area—there are large inventories of projects in the queue,” he says. “By 2015, the industry will invest in these 280 projects at about $200 billion a year, and by 2020, they will produce about one-third of the world’s hydrocarbon supplies.”

 Davidson then focused on the Gulf of Mexico (GOM) deepwater, which is maturing and progressively becoming more difficult to produce. Deepwater production in the GOM represents almost 60 percent of the GOM production, and current projections say that production will surpass 2001’s peak by 2013.

 “The water depth problem is solved, now we’re moving to issues with reservoir depth,” he says. “The wells are deeper and more complicated—one well has a measured depth of 34,000 feet, but only in 4,000 feet of water. These are challenging wells.”

 Of the three types of plays in the GOM—amplitude, subsalt Miocene, and the lower tertiary—most activity is going into the latter two.

 “The amplitude plays are getting old—they tend to be easier to work and above salt,” he says. “Over the last 15 years, some 75 percent of discoveries have been amplitudes. We find a lot of the little stuff, usually around a 30 million barrel average, but it’s almost not worth it due to the costs involved.”

 Noble has moved to a heavy focus in the subsalt Miocene.

 “We don’t know where this play is in terms of its evolution, but the prospects are good,” he says. “Drill depths are in the 20,000 to 30,000 feet range, are typically subsalt, and take a massive amount of computer horsepower. Our inventory suggests that some of the things we’re drilling hold 100 to 200 million barrels.”

 The lower tertiary holds even greater potential reward with estimates of up to 300 million barrel fields.

 “There is still much testing to be done in terms of reading the reservoir, and those who are completing these wells have their hands full. We’re still waiting on the first long-term production test—we’ll see how they prove out.” 

 Noble’s Plans

 Ten years ago, Noble was focused on amplitude plays as they afforded lower risks and relatively short production ramp-ups of three to four years. Now, Davidson says the amplitudes are withering away and the company shifted focus to subsalt Miocene.

 “We generated a lot of prospects in lease sales, built inventory, and added international programs in West Africa and Israel.” Though, he points out, the international plays actually are new amplitudes, since the areas were unexplored.

 The company has been successful in exploration recently, which Davidson says will require a lot of money to get it on production.

 “We’re bringing several major projects online and boosting capital to $2.5 billion, which is 85 percent above last year,” he says. “About 60 percent is deepwater, and 40 percent is for project development, particularly in West Africa, GOM Santa Cruz, and Tamar in Israel.”

 Exploration will continue—their target is 700 million barrels of net unrisked resources. In field development, Noble has five deepwater rigs in the GOM, two in West Africa, and one in Israel.

 “Israel is the biggest discovery we’ve made in our company—it’s eye popping and stretches from Israel to Cyprus,” he says. “We’ve drilled two wells and the largest was just over a billion barrels equivalent at 6.3 tcf and we’re going back this year with more seismic to develop Tamar and continue exploration.”

 In West Africa amplitudes, Noble made 11 discoveries out of 12. In the GOM, he says the portfolio is rich, with a little over 30 prospects in inventory and average size is around 150 million barrels—most are subsalt.

 “Looking at the portfolio either from the US side or global, deepwater is going to remain extremely active,” he says. “It’s an oil based play in most areas and the value will support further development. While some, like the GOM amplitude plays, are declining, it’s clearly not over when you still have companies making multi-hundred-million-barrel discoveries. It’s technology driven and more technology will open more opportunities.”