Chevron makes potentially big oil find in Gulf’s Moccasin play

Chevron has made a new oil discovery in the deep-water Gulf of Mexico.

The San Ramon, Calif.-based oil major said it encounted some 380 feet of net pay in the Lower Tertiary Wilcox Sands about 216 miles off the Louisiana coast in 6,759 feet of water. The Keathley Canyon Block 736 Well No. 1 was drilled to a depth of 31,545 feet.

Chevron started drilling the well in March 2010 but had to stop in June 2010 when the U.S. government imposed a moratorium on deepwater drilling in the Gulf of Mexico following the Deepwater Horizon accident.

In March 2011 it became the first wildcat well in the Gulf to resume drilling after the accident.

The well results are still being evaluated, so the company will need to drill several more wells before it can tell if the field will be a commercially viable, said Gary Luquette, president of Chevron North America Exploration and Production.

“The Moccasin discovery underscores the importance of the deep-water Gulf of Mexico both to Chevron and to the United States,” Luquette said. “Moccasin is an important addition to our queue of high-quality opportunities around the globe.”

Chevron and BP both have a 43.75 percent stake in the well while Samson Offshore has a 12.5 percent stake.

If the play is successful it will most likely be combined with another Chevron development just 15 miles away, known as Buckskin, and will be served by a single floating production platform, Luquette said.

The next step involves analyzing all the data gathered from the well and drilling another appraisal well sometime next year, Luquette said.

The Moccasin project is one of several that represents the $1 million-per-day bet that Chevron is making in the Gulf’s deep water.

It’s part of the Lower Tertiary region that has huge potential but massive technical challenges and high price tags.

Not only are the fields often found in waters 2 miles deep, but oil and gas deposits, buried under think salt layers, are hard to detect in geologic surveys. Also, extreme temperatures and pressures in reservoirs push equipment to their limits.

And being wrong in the deep-water can be costly: each dry hole is estimated to cost at least $100 million.

The discovery sounds similar to another one made by Chevron in 2006, the Jack prospect, located about 40 miles to the East of Moccasin, says David Pursell, managing director of the Houston-based investment bank Tudor, Pickering, Holt & Co.,

Chevron has committed some $7.5 billion to Jack, including plans for a floating production hub over the site, but that came after several more wells were drilled and more assessments.

But that hardly means it’s a sure thing.

When Chevron announced the Jack discovery Pursell said he got a call from a major news magazine saying it was going to use the headline “It’s OK to drive your SUV again,” on its story.

“I said ‘Please don’t write that, because it will be really wrong,’” Pursell said.

Any time a company has a big announcement in the deep Lower Tertiary it’s good news, Pursell said.

“But you have to recognize the cost and time frame involved before you start seeing oil in Houston refineries,” Pursell said.

The Moccasin announcement does highlight Chevron’s strong prospects in the Gulf, however, notes Jeff Dietert, managing director at Simmons & Company International.

The company is drilling an appraisal well at it Buckskin play and a development well at another called Tahiti 2. It’s received a permit for the next exploration well at the Coronado site, approval for a revised exploration plan for Oceanographer and approval for an initial development well at Jack/St. Malo.

“In the short-term, Chevron has the most optimistic outlook among the majors with respect to the pace of activity in the Gulf of Mexico,” Dietert said.