Byron Energy mobilized the Hercules 205 jackup drilling rig to the SM 6 #2 well location in the Gulf of Mexico last week, and expects to spud the well this week.
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Hercules 205. Image from Hercules Offshore. |
Once on location, the rig will install new 30in conductor guides on the existing 72in caisson, drive 30in conductor pipe and then commence drilling the SM 6 #2 well.
The SM6 #2 well is the first well to be drilled as part of Byron’s farm-out to Otto Energy announced on 11 December 2015.
SM 6 #2 will be drilled in water depth of approximately 65ft (20m), with a planned total measured depth of approximately 9516ft (2900m) and total vertical depth of 9138ft (2785m). It is anticipated that the well will take approximately 40 days to drill and evaluate. The well will be drilled on a prospect in the southwest corner of a major salt dome in SM 6, located offshore Louisiana, 216km southwest of New Orleans, Louisiana. The SM 6 #2 well will be drilled to only test the un-pressured (shallow) section of the South West Prospect. The primary target is the G 20 Sand, not penetrated by the SM 6 #1 BP 02 well drilled in mid-2014.
The SM 6 #1 BP 02 well encountered two hydrocarbon bearing sands with combined net pay of 82ft (25m) in the F40 Sand and several thin hydrocarbon bearing sands with combined net pay of 17ft (5m) in the F30 Sand; was cased and suspended inside a caisson in July 2014; and was completed for future production in July 2015; the Hercules 205 drilling rig was used to reenter the well and perforated the lower of the two hydrocarbon bearing sand lobes in the F40 Sand.
The SM 6 #2 will target undeveloped 3P gross reserves of 3.2 MMbbl and 2.5 Bcf (2.6 MMbbl and 2.0 Bcf net to Byron pre the Otto earn-in) in the G 20 Sand, based on an independent reserves estimate for prepared by Collarini Associates, based in Houston, Texas.
Collarini attributed total undeveloped 3P reserves of 4.3 MMbbl and 13.3 Bcf (net to Byron pre the Otto earn-in) to the SM 6 block. In addition, Collarini attributed a total prospective resource of 7.2 MMbbl and 118.4 Bcf to the SM 6 block (net to Byron pre the Otto earn-in).
Byron’s Chief Executive Officer, Maynard Smith said: “The SM 6 #2 well can be drilled and, if successful, brought on production within the next year under the production handling agreement (PHA) Byron has executed with the offset operator, Fieldwood. The PHA, which substantially reduces development costs of the SM 6 project, combined with the relatively low lease operating expenses in the shallow waters of the Gulf of Mexico (GOM) result in attractive project returns, even in the current oil price environment. SM 6, as a conventional GOM shallow water project, is expected to have higher initial production rates as well as lower production decline rates, on a per well basis, compared to a typical shale oil project, thus providing greater leverage to a rising oil price.”
In addition, Smith said, “We hope success with SM 6 #2 cements the relationship between Byron and Otto, with Otto going on to exercise its option to drill SM 71 #1. In addition to its commitment to drill SM 6 #2, Otto has an option to earn a 50% working interest in Byron's South Marsh 70/71 blocks (“SM 70/71”) by paying a disproportionate 66.67% share of drilling costs of the SM 71 #1 well and reimbursing a portion of Byron’s SM 70/71 past costs.”
In order to earn a 50% working interest (equal to a 40.625% net revenue interest) in the South Marsh Island block (SM 6), Otto will contribute 66.67% of the total estimated costs of the SM 6 #2 well of US$8 million ($5.3 million Otto and $2.7 million Byron). Any costs above $8 million in respect of the SM 6 #2 well and all future expenditure in SM 6 will be in accordance with Byron’s and Otto’s respective working interest (Byron 50% / Otto 50%).
Byron, through its wholly owned subsidiary Byron Energy Inc. (the operator), currently has a 100% working interest and an 81.25% net revenue interest in SM 6. Otto will earn a 50% working interest in SM 6 by paying a disproportionate 66.67% share of drilling costs of the SM 6 #2 well, plus reimbursing a portion of Byron’s past costs. If Otto earns an interest in the SM 6 block, Byron’s working and net revenue interests will be reduced by 50% at the earn-in point, to 50% and 40.625% respectively.
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