FEATURE-Little ``easy'' U.S. oil and gas left up for grabs

January 28, 2001 2:02pm Source: Reuters

By Andrew Kelly

HOUSTON (Reuters) - Oilmen have always been fond of telling the rest of us that all the easy oil and gas was found long ago and that it takes increasing amounts of cunning and hard work to persuade the Earth to give up additional hydrocarbons.

It's a truism perhaps nowhere more evident than in the United States, where the industry has been scouring the landscape for a century and a half in search of profitable drilling prospects.

Despite the incentive of historically high oil and natural gas prices, a shortage of readily drillable targets has constrained U.S. domestic oil and gas production and left it increasingly reliant on foreign supply.

Waning domestic supply has spurred the new Bush administration to push for opening federal lands, including the northern coastal plain of the Arctic National Wildlife Refuge (ANWR), to eager oil drillers.

Simmons & Co. energy analyst Mark Meyer notes that U.S. oil production by 21 of the biggest publicly traded companies fell more than 5 percent in the first nine months of 2000 while the same companies' U.S. gas production fell 0.7 percent.

``There's not a lot of sweetspot easy-gets any more,'' Meyer said.

Jeff Kieburtz, an analyst with Salomon Smith Barney, says the aging of the world's oil and gas reservoirs is pushing global exploration efforts into more remote areas, especially deepwater offshore plays such as the Gulf of Mexico.

``Most of the land and shallow-water basins in this country are fairly well understood, so that new drilling prospects tend to be step-out type of drilling ideas rather than entirely new structures,'' Kieburtz said.

``Deepwater is where the real pure exploration activity is going on in this country,'' he said.

SQUEEZING MORE OUT OF OLD FIELDS

The U.S. Minerals Management Service recently reported that the number of rigs drilling in water depths of 1,000 feet or greater in the Gulf of Mexico rose to a record 40 at the end of last year from 26 a year earlier.

That total included seven rigs working in ``ultradeep water'' of 5,000 feet or more and three that were pushing the frontiers of offshore exploration in more than 7,500 feet of water.

Back on land, so-called enhanced recovery techniques are being used to squeeze more oil and gas out of mature fields.

Marathon Oil Co. and Kinder Morgan Energy Partners recently formed a joint venture that will inject carbon dioxide deep into the ground to boost production from the historic Yates field in West Texas that was discovered in 1926.

Meyer said relatively complex enhanced recovery technology was even being deployed from the startup of Phillips Petroleum Co's Alpine field in Alaska, the biggest U.S. onshore oil discovery in more than a decade.

Alpine, discovered in 1994, contains estimated recoverable reserves of 429 million barrels of oil. Production began in November, using a mixture of gas and liquids to extract oil from the rock that holds it.

Meyer contrasted Alpine with the big discoveries of the past which first underwent a long phase of primary production, making use of the field's natural pressure. Later, they were flooded with water to prolong production and only toward the end of their life would more complex ``tertiary'' recovery techniques be deployed.

Phillips is also taking pains to protect Alaska's delicate tundra and wildlife, minimizing environmental impact by cramming surface production facilities for the 40,000-acre field into just 94 acres and using temporary ice roads and air transportation to move people and supplies, rather than building a new road.

DRILLING DEEPER WELLS

In North Texas, Mitchell Energy & Development Corp. has boosted its production of natural gas from a field that it has been working since the 1950s by pumping in a mixture of sand and water to crack open the tough Barnett Shale formation.

Meyer said that in the near to middle term deeper wells will have to meet growing U.S. demand for natural gas. Deeper wells hold out the prospect of much bigger reserves, but they are more expensive to drill and the risk of failure is much higher.

This month Burlington Resources Inc. completed a well in Wyoming that it drilled to 25,855 feet. It is currently conducting tests to determine if it contains sufficient reserves to warrant development and production.

By contrast, wells drilled in Texas in recent years have had an average depth of just over 6,600 feet.

With the new administration of President Bush taking over in Washington, the U.S. oil and gas industry is hoping for a more sympathetic response to its calls to open up more federal land to exploration drilling.

Conoco Inc.'s top exploration and production executive, Rob McKee, has noted that the Rocky Mountains alone are estimated to contain 137 trillion cubic feet of natural gas, equivalent to six times current U.S. annual consumption.

Meyer said the change of administration could help the industry but that he did not anticipate a swift breakthrough in the political tug-of-war between economic and environmental interests when it came to opening up public lands to drilling.

In the meantime, as the major oil companies and larger independents shift their investment focus toward international and deepwater prospects, technologies such as time-lapsed 3D seismic surveying can enable smaller independents to prolong the life of mature fields and earn money as they do so.

``From a public policy point of view, it won't cut dependence on imported oil, but for individual companies it makes sense,'' Kieburtz of Salomon Smith Barney said. ^ REUTERS@

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-- Martin Thompson (mthom1927@aol.com), January 28, 2001