McMoRan, a mid sized independent oil company out of New Orleans led a partnership of investors to a significant quantities of natural gas in a 5-mile-deep well it drilled in about 20 feet of water at McMoRan’s Davy Jones prospect just 10 miles off the Louisiana coast.

For those not watching the close up to shore part of the Gulf of Mexico, its been thought of as pretty well drilled out for decades.  But now at depth past 25,000 feet estimates for the size of the discovery range from 2 trillion to 6 trillion cubic feet of natural gas, rivaling the largest gas finds ever made in the Gulf.  The region is the major supplier of U.S. natural gas. The company is saying it will have to do further drilling to confirm the resource potential.  But the early snapshot drilling is confirming the pre drilling research.

The drill site is called Davy Jones.  The other newsworthy point is it’s a very deep drilling effort.  The Davy Jones well went to 28,263 ft measured depth in 20 ft of water on South Marsh Island Block 230. Pipe-conveyed wireline logs went as deep as 28,134 ft. Wireline log results indicate a combined 135 net ft of hydrocarbon-bearing sands in four zones in Eocene-Paleocene Wilcox. All four zones are full to base, and two contained a combined 90 net feet of sands. The Wilcox suite logged below 27,300 ft “appears to be of exceptional quality,” McMoRan said.  That’s sands folks, not rock.

McMoRan will deepen the well to 29,000 ft to test other objectives.Of note, this well is similar to many deep water drilling efforts that must pass through layers of salt seen in the Gulf and the huge discoveries off the coast of Brazil.

The discovery points out the potential for yet another frontier for oil and gas development in an area of the Gulf of Mexico called the Outer Continental Shelf that has been drilled extensively for nearly a century.  The difference is the depth and the quality of the pre drilling seismic studies.  The studies plus the newly drilled well suggest the same rock and sand layers that in recent years yielded major oil and gas discoveries several hundred miles out in the Gulf may be equally rich with oil and gas in shallow water areas, where exploration and production is much easier and cheaper.  There might be a groan heard from those deep water investors if oil prices plummet someday.  For U.S. refiners and consumers this is great news.

It’s sure to draw investment back to shallower water depths.  This will be another energy stimulus program run by private citizens.  There is even some challenge, current drilling and production technology will be tested by the extreme temperatures and pressures found in miles-deep wells required to reach the resources, and development costs could be high.  Compared to land based development, maybe so, yet much is already known from the way out in the Gulf, deep-water efforts that are in hot high-pressure reservoirs that are economically viable even at under $60 oil.

McMoRan Co-Chairman James R. Moffett said in a conference call discussion on Monday it would take at least 10 wells at a cost of $150 million to $175 million each to bring the 20,000-acre field into production.  Moffett believes if development drilling confirms what the first well has shown, “this is going to be a huge reserve.”

The U.S. Minerals Management Service, the bureaucracy with oversight for offshore oil and gas production in federal waters, describes “deep water” as any oil and gas development in depths of 1,000 feet or more. The outer continental shelf comprises shallow water closer to shore.

The major independent oil companies like Chevron, ExxonMobil and Shell have left the Gulf of Mexico Shelf in recent decades, drawn to the though of much larger and more profitable fields in the deep water, as well as federal royalty relief programs meant to spur development farther offshore. They sold their offshore leases on the continental shelf to smaller firms with lower operating costs that could still turn profits on the smaller fields.

Tyler Priest, director of Global Studies at the Bauer College of Business at the University of Houston, who has written about the history of offshore oil and gas development in the Gulf of Mexico said, “This is a real breakthrough.”

The mid sized oil industry has been plotting to get investment into close continental shelf leases for years.  The wait for high enough oil prices to cover investments has ended.  For the rest of us something significant is also now apparent, the idea that the best production from the Gulf of Mexico is over isn’t.  Priest says, “It’s the goose that keeps on giving, apparently.”

The results also point up the potential of the rest of the U.S. coast and continental shelf.  There is a lot of Gulf of Mexico still not available, as well as the entire east and west coasts.  There is also the huge area around Alaska.  None of these would come cheap, but $80 per barrel oil is tolerable if it keeps the $150 a barrel price way off into the future.

The ultra-deep sub-salt reservoirs in the Gulf of Mexico have huge potential. The fact that they have discovered hydrocarbons in reservoir quality rock at that depth is very big news.

$80 oil is also very solid ground for the best ideas in alternative fuels, too. The fossil fuel powerdown to new technologies powerup is going to take decades even if a miracle occurs tonight.  The U.S. and the entire consuming world needs more supply to get the time for the economy to adjust to changes.  With the majors in deep water, the mid sized firms in shallower water and lots of ground to yet cover, the issue could be the resources to keep up.  But the throttle is on from government intervention.

As one commenter JReynolds, to the breaking story at the Houston Chronicle puts it, “Did Congress help find this? Did Obama help find this? Not just no. But you can bet Congress and Obama will now confront this partnership gun-in-hand, demanding their skim from the profits.”  Now that’s something to worry about.


8 Comments so far

  1. Matt Musson on January 13, 2010 9:04 AM

    This is significant because – they are redrilling already drilled properties – so the Federal Government won’t stop them!

    If this were virgin territory – a coalition of the unwilling would form to stall and hinder and even attack these drillers.

    Immense technological challenges of deep drilling pale in comparison to the regulatory obsticals of wildcatting new areas.

  2. Matt Musson on January 13, 2010 9:05 AM

    When people ask where the 99 cent gas went, you can tell them is went down the rathole of federal regulation.

  3. MD on January 13, 2010 2:55 PM

    The shale gas revolution in North America, due to state of the art technological advances, has sparked great interest in Europe as well. Learn about Realm Energy at

  4. george schwalke on January 19, 2010 12:23 AM

    get that chant going all across the country drill baby drill drill baby drill

  5. minority scholarships on November 8, 2010 8:34 AM

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  6. don on December 19, 2011 6:14 PM

    drill baby drill will never happen as long as we have whos in control now. never happen.

  7. george schwalke on December 19, 2011 7:24 PM

    isay to keep that chant going drill baby drill

  8. george schwalke on December 19, 2011 7:28 PM

    yea lets keep it going it might bring gas prices down some drill baby drill drill baby drill drill baby drill

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