Shelf

The controversy over how to define natural gas gathering in the Outer Continental Shelf (OCS) is likely to ratchet up a few notches at the Federal Energy Regulatory Commission and in the courts in the months ahead.

As of midday Tuesday, the U.S. Department of the Interior’s Minerals Management Service (MMS) Gulf of Mexico Outer Continental Shelf Region had received 407 bids on 335 tracts from 52 companies in its highly anticipated Western Gulf of Mexico Lease Sale 187. The lease sale is scheduled for 9 a.m. CST at the Sheraton New Orleans Hotel in New Orleans. The sale will be webcast through GoGulfTV at www.gogulf.net and through the Offshore Oil Scouts Association at www.oosa.com.

Irving, TX-based Magnum Hunter Resources Inc. is participating in seven new oil and gas discoveries on the Outer Continental Shelf (OCS) of the Gulf of Mexico. The company estimates that initial production rates from these discoveries should be approximately 30 MMcfe/d net when production begins. Magnum Hunter’s current production from the Gulf is approximately 53 MMcfe/d. Once the company completes some onshore divestitures of non-core assets, total company-wide production (including onshore) will be about 210 MMcfe/d. The discoveries include South Timbalier 264, with estimated first production in the third quarter. First production is expected to begin early next year for three other discoveries, West Cameron 347 and 426 and East Cameron 377. Those starting up in mid-2003 are Eugene Island 299 and 355. Eight prospects currently drilling or scheduled to spud by year-end have potential reserves of more than 550 Bcfe gross, or approximately 60 Bcfe net to Magnum Hunter. Since initiating an exploration program in the Gulf in May 1999, Magnum Hunter has developed an inventory of 135 OCS Blocks (634,000 gross acres) and has maintained an 86% drilling success rate with 45 out of 52 wells drilled to date.

“Vast resources” of oil and natural gas may underlie sheets of salt on the outer continental shelf (OCS), the Minerals Management Service (MMS) said in announcing approval of a final rule providing an extension of time for companies who are exploring to locate these resources.

Coming off of a year highlighted by milder than normal weather, El Paso Energy Partners LP. reported a 51% increase in 2001 pro forma cash flow, as measured by adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), of $161.4 million compared with $107.0 million in 2000. Pro forma net income, which also excludes non-recurring items, was $61.8 million ($0.58 per unit) for 2001 — more than triple the $20.5 million (loss of $0.03 per unit) in 2000. The company’s net income was $55.1 million ($0.38 per unit) for 2001 and includes non-recurring charges of $6.7 million ($0.19 per unit) primarily related to asset sales in 2001.

The U.S. Minerals Management Service, expected this week to release its proposed five-year Outer Continental Shelf (OCS) oil and gas leasing program for 2002 through 2007, received comments and suggestions from nine major energy companies and several industry groups.

A federal judge last week effectively blocked new drilling off the California coast, ruling that the state first has to decide whether future drilling would impair the surrounding environment. The ruling comes on the heels of scheduled public hearings in July on the Minerals Management Service’s draft environmental impact statement covering proposed drilling offshore Santa Barbara (see Daily GPI, June 19).

Houston-based Apache Corp. is finding sweet success along the Outer Continental Shelf of the Gulf of Mexico, reporting that it has made five discoveries and 13 successful development wells — moving it up as the fourth ranked OCS producer for the first half of 2001. With the new wells, Apache’s current net production along the OCS is 345 MMcf and 34,000 b/d.

In a meeting late last week, the Interior Department’s Outer Continental Shelf Policy Committee took on an environmental flavor by urging that in order to open up offshore moratoria areas for limited drilling, “congressional funding” for the appropriate environmental studies and monitoring will be necessary.