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More Independents Expected to Move to Deepwater

Just as they did in the U.S. onshore and in the shallow water of the Gulf of Mexico (GOM), the independents eventually will usurp the majors as the top producers in the deepwater GOM, Noble Energy CEO Chuck Davidson said last week.

Speaking at the Offshore Technology Conference (OTC) in Houston, Davidson said the independents have not been operating in the deepwater as heavily because up to now, the deepest exploration required high risks and high front-end costs. However, deepwater exploration is finally becoming more doable for the independents and smaller producers.

"It's expensive, but you can manage the risks," said Davidson. An "obvious" method, which has been used already by several independents, is to jointly operate a prospect and spread the risks across a portfolio.

To operate in the deepwater GOM, it costs about $50-100 million to drill one well, which is a staggering amount to spend for an independent. However, if companies operate in joint partnerships, the cost comes down as well as the risks. Since 1985, independents have been gaining more GOM deepwater leases. Before 2000, the deepwater was cost prohibitive for independents, but between 2000 and 2004, the Minerals Management Service (MMS) estimates that the smaller producers won about 75% of the leases.

Tim Parker, senior vice president for exploration and production at Dominion, shared an OTC panel with Davidson about the deepwater. He noted that his company was the most active player in the most recent MMS lease sale, and was the apparent high bidder for all or part of 26 blocks. Parker said that Dominion's aggressive move to the deepwater will continue.

"We expect to spend about $400 million per year for as long as we see the kinds of results we do now." He said the company is planning to drill six to eight wildcat wells a year.

According to a study by Wood Mackenzie and Robertson Research, the GOM and the deepwater offshore Mexico rank among the top deepwater locations. The U.S. and Mexican GOM prospects are some of the "best potential globally in terms of deepwater," said Ian Ashcroft, vice president of energy consulting for Wood McKenzie. "Both are ranked within the top five deepwater hot spots in the world."

He said the ultimate reserve potential could be about 50 billion boe -- and only 15 billion boe has been discovered so far.

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