There was considerable lease activity in the late 1980’s (figure 72). (Note that historic deepwater leasing
shows no clear relation to average oil or gas prices.)
Figure 72. Deepwater lease activity and oil/natural gas prices (prices from U.S. Energy Information Administration: oil through
September 2003 and natural gas through July 2003). (Click the image to enlarge)
Acreage at Auger (Garden Banks Block 426) was
acquired in 1985 as part of this early activity.
The first Auger well was drilled soon after in 1987.
though Auger was leased and drilled early, first production did not begin until 1994, approximately
10 years after the initial lease acquisition.
Acreage at Thunder Horse (Mississippi Canyon Block 778)
was acquired in 1988; however, the discovery was not drilled until 1999, and production is not anticipated
until 2005. This large gap highlights the considerable lag between leasing and first production.
lags are not unusual with complex deepwater developments. In contrast, other deepwater projects,
such as Typhoon (Green Canyon Block 237) and Constitution (Green Canyon Block 680), have achieved
much shorter cycle times.
ChevronTexaco acquired acreage at Typhoon in 1995, drilled the first well in
1998, and began producing the project in 2001. Similarly, acreage at Constitution was acquired in 2001,
the first well was drilled that same year, and production is expected to begin in 2006.
cycle times result from an accessible infrastructure and the use of proven development technologies.
Deepwater leasing activity accelerated in the late 1990’s after Congress enacted the Deep Water Royalty
The 3,000 leases that were issued during the record sales from 1996 to 1998 are nearing the
end of their primary terms and, therefore, operators are facing key decisions about which leases to
relinquish untested. Drilling activities are just beginning to prove the potential of these leases.
There is a significant time period from lease acquisition to first production; however, this interval has
decreased from 10 to less than 7 years.
Figures 73a-c demonstrate average lags associated with
deepwater operations. These figures use data from only productive deepwater leases.
Figure 73a. Lag from leasing to first well for producing deepwater fields. (Click the image to enlarge)
Figure 73a shows
the average number of years it took to drill a well from the time the lease was issued.
Figure 73b shows
the average length of time from lease issue to qualification11 of the lease as productive.
Figure 73b. Lag from leasing to qualifying for producing deepwater fields. (Click the image to enlarge)
illustrates the lags between leasing, qualification, and first production.
There are two lags represented in figures 73a-c.
Figure 73c. Lag from leasing to first production for producing deepwater fields. (Click the image to enlarge)
First, there is a lag between a deepwater discovery and
the operator’s request for lease qualification.
Operators sometimes announce discoveries to the public
long before qualifying the lease as productive with MMS (and thereby being granted field status).
second lag depicted in figures 73a-c is the lag between leasing and subsequent operations (drilling,
qualifying, and production). Note that, since deepwater leases are in effect for 8 or 10 years, the data are
incomplete beyond 1993. The apparent decreasing lags for leases issued after 1993 are explained by the
fact that the lease evaluation process has not yet been completed.
The data show an increase from 1976 to 1987 in the number of years before the first well is drilled
(figure 73a). This is probably a reflection of two factors.
First, the earliest deepwater leases purchased
were of very high interest to the lessees and, therefore, were drilled quickly. Second, increasing lease
inventories during the late 1980’s meant that many leases could not be evaluated early in their lease terms
(increased deepwater leasing in the mid- to late 1980’s was probably related to the introduction of
areawide leasing, the drop in minimum required bid from $150/acre to $25/acre, and the advent of 3-D
During the 1980’s there was a gradual increase in the lag between drilling of the first well and qualifying
the lease (figure 73b).
During most of the 1980’s, it took 10-11 years for the average field to come on
production. It is important to note, however, that the time between drilling the first well and the
beginning of production dropped significantly throughout the 1980’s. That is, operators brought fields
online in about 10 years, despite the fact that the first wells were not drilled, on average, until about the
fourth year of the lease term by the late 1980’s.
The most recent complete data (many leases issued after
1993 are still in their primary terms) indicate that the time from lease to first production has decreased
from over 10 to less than 7 years.
In summary, the latest complete data indicate a three-year average lag between leasing and initial drilling.
There is an additional two-year average lag before the well is qualified, and a total of less than 7 years
from lease issuance until production begins.
Another interesting trend is shown in figure 74.
Figure 74. Year in the lease term in which BOE was discovered and percent of leases were tested, for deepwater leases, 1974-1994.. (Click the image to enlarge)
For any given lease-sale year, almost 50 percent of tested
leases were first drilled within three years of lease acquisition, and 23 percent were drilled in year eight or
Twenty-nine percent of the hydrocarbon volumes were discovered during the first three years of
their lease terms, but 44 percent of the hydrocarbon volumes were discovered in year eight or later. The
data for this analysis include only deepwater leases acquired through 1994, since later leases are still
within their primary terms.
As expected, the majority of wells are drilled in the first half of a lease’s primary term, and the majority
of hydrocarbons are also found during the same period.
What is surprising is the amount of major
discoveries found in the later years of some leases’ terms. Certainly, the discoveries of Thunder Horse,
North Thunder Horse, and Mad Dog, occurring late in their lease terms, have greatly impacted these
volume totals. This demonstrates the difficulty in recognizing the best prospects at the beginning of a
1 An operator may request a “Determination of Well Producibility” from MMS. A successful MMS determination
then “qualifies” the lease as producible. Not all qualified leases ultimately begin production.
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Cover and Title Page
DRILLING AND DEVELOPMENT
RESERVES AND PRODUCTION
SUMMARY AND CONCLUSIONS
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