Joan Lappin, Contributor
I can’t stop hearing that famous Isley Brothers song Shout in my head as I write this post: “A little bit louder now, a little bit LOUDER now, A LITTLE BIT LOUDER NOW.” About a year ago, speaking at a popular oil and gas conference Chevron tipped its hat to McMoRan’s Jim Bob Moffett and his work in the Gulf of Mexico Shallow Water Ultra Deep (SWUD) play that has been ongoing for more than five years. That event was truly noteworthy because major oil companies rarely, if ever, acknowledge a little player like MMR as being out front and leading the wave on any important new geological play. Chevron has recently promoted the Shallow Water Gulf of Mexico to one of its top three areas of geologic focus around the world. And it is becoming more vocal about its involvement.
Chevron is no longer whispering. In fact, there is a crescendo building in what CVX is saying about the Gulf of Mexico and what it is doing itself and with partners, both onshore and offshore. Many MMR watchers know that at 2011 year’s end, Chevron spud a well onshore in Cameron Parish, LA called Lineham Creek. It has a proposed total depth of 29,000 feet targeting the Eocene and Paleocene objectives below the salt weld. This is Chevron’s well in the Rockefeller Preserve, land that was donated to the State of Louisiana years ago. However, the royalty rights on the land were retained and passed to Chevron.
In recent months, Chevron invited MMR to participate in the Lineham well and Moffett agreed as long as his Ultra Deep partners were also included in the project. What’s significant is that giant Chevron wanted MMR to join it in this project as an equal partner. After Moffett made sure his partners were along for the ride: MMR is participating for 36%, EXXI for 9%, and W.A. “Tex” Moncrief for 5%. Why? Because MMR now knows more about the SWUD than any other company. For sure, the view is that perhaps geologically this play extends onshore and not just in the shallow water. This well will explore that concept and is located halfway between (on an east/west axis) Davy Jones and Chevron’s Bear Hump well which has been completed and is now being evaluated. What MMR has mastered over these last few years at Blackbeard West, Blackbeard East, Lafitte, and its Davy Jones’ discoveries is now critical for anyone who is also pursuing bounty in the general area and at the depths below 20,000 feet that have become the new exploration frontier.
During February, Bobby Ryan, Chevron’s VP of Global Exploration, spoke at another oil and gas conference about their enthusiasm for the SWUD and the work they are doing with MMR. On page 15 of its presentation, it describes the UltraDeep Gas Play as new play in a mature basin. Chevron can easily be a player because it already controls major acreage from wells drilled long, long ago and that are still producing to retain the leases. On that same slide, Davy Jones is listed as an exploration discovery. Who knew CVX was a player in DJ?
The transcript contains the following information:
“All eyes are focused on Davy Jones, that McMoRan-operated well, which we’re into a royalty position, is preparing for a test soon, 25,000 pound test equipment. This is a significant environment in the sense of geologically from what we’re typically used to. So we’ll be watching the results of that well. Meanwhile, we’re drilling and just spudded on December 31st, the Lineham Creek well you see onshore Louisiana there. In fact, Bear’s Hump was actually onshore as well.”
If you have ever wondered why the DJ participation percentages never quite added up to 100%, now we know. Chevron does not have a working interest but it does have a royalty interest in DJ. In probing, we also learn that somehow in the negotiations that have gone on this year between CVX and MMR, Chevron has also obtained access to the DJ logs and geological evaluations and interpretations which would not normally be available to a royalty interest holder.
Moffett has told us in no uncertain terms that he intends to bring in a partner with very deep pockets to help develop the Ultra Deep play. He has also told us he plans to follow the model he used for the development of the Grasberg Mine at Freeport Copper and Gold (FCX) years ago. In that case, Rio Tinto came along for the ride after paying FCX $1.5 billion for which it received ZERO participation in anything that had already been discovered up to that point. It then paid up for a half participation of what came after. Perhaps we are in the very early stages in the mating dance between MMR and Chevron. Don’t expect a rush on that. For sure, Jim Bob won’t do anything until he has proved up exactly what he has so the reserve engineers are happy and he is fully paid for all the hard pioneering work of the last several years.
We know that for a long time, the SWUD detractors have said there is nothing to be found in the Ultra Deep. So much has now been found that viewpoint has become ridiculous. Of course, flowing these wells is still to come. Another key in the shallow water is that offshore LA there are existing pipelines to carry these new discoveries to market right away. Billions will not have to be spent over future years to accomplish that part of the equation from the deepwater discoveries. As our country shifts, ever so slowly, away from coal and nuclear power and toward Natural Gas, nearby infrastructure is a very good thing.
The detractors have also said repeatedly, if this is such a great play, then why aren’t any majors involved? Well, clearly now there are! They aren’t just talking about it in whispers any longer. Chevron is starting to SHOUT about it. It’s about time. Or as Jim Bob said on a conference call last year: “Hallelujah, Hallelujah!”
- Gulf of Mexico True Believers on Pins and Needles as McMoRan completes Davy Jones (mb50.wordpress.com)
- Chevron Throws the Brakes on Current and Future Drilling Offshore Brazil (mb50.wordpress.com)
- Australia: Exmouth Plateau Brings Joy to Chevron (mb50.wordpress.com)
- Important McMoRan News Greeted With A Big Yawn (forbes.com)