Hess Strikes Exploration Deal With Shell, Chevron

Hess has struck exploration agreements with fellow Gulf of Mexico producers Shell and Chevron as the New York-based company gets back to drilling in one its key deepwater plays.

Both of the separate deals focus on exploration acreage in the Green Canyon (GC) area that Hess had been marketing to potential farm-in partners. The acreage includes more than a dozen blocks surrounding several mature producing fields and associated infrastructure in relatively shallow water depths of just 2,000-3,000 feet.

Hess announced during its earnings call last week that it was preparing to drill a well called Huron on Green Canyon Block 69 after farming out 30% interests to Shell and Chevron. Hess owns the remaining 40%.

Industry insiders say the companies are chasing a subsalt Miocene play made visible by a batch of recently reprocessed seismic data that has unlocked fresh potential beneath the Gulf’s troublesome salt layer, which has long hidden from view untold volumes of potential resources.

Huron is "a large, risky Miocene test,” said one source familiar with the play concept.

Return to Drilling

For Hess, the Huron well marks a return to drilling in the US Gulf after a two-year hiatus. The Gulf serves as one of Hess’s primary “cash engines” used to fund growth projects offshore Guyana, but also has growth potential of its own, the company says.

Its plan in 2022 is to run a “focused” drilling program targeting tiebacks and greenfield “hub” opportunities in order to “maintain production and sustain strong cash flow generation.”

“Over the last five years, we have focused our efforts on getting best-in-class imaging across our acreage position in northern Green Canyon, where we believe there is high potential for multiple, high-return hub-class Miocene opportunities,” Hess COO Greg Hill told analysts last week. “Huron is the first of these opportunities, which attracted interest from multiple parties during the farm-out process.”

Hess produced an average of about 45,000 barrels of oil equivalent per day from the Gulf in 2021 and expects to average around 35,000 boe/d in 2022. That includes flows from a planned Shell-operated tieback at Llano that is expected on line by the year's end; Hess owns 50%.

Shell’s View

Shell has taken interests in 15 Hess-operated blocks in Green Canyon comprising five prospects:

• Huron (30%) — GC 24, 25, 69 and 70
• Vancouver (30%) — GC 243, 286, 287 and 288
• Krypton, Kon Tiki and Endeavor (50%) — GC 27, 28, 71, 72, 115, 116 and 159

Huron is the first well and is due to spud in the first quarter. No timeline has been provided for the other prospects.

In exchange, Shell has granted Hess the option to acquire up to 30% interest in Shell’s Corazon, Luqu, and Tabasco prospects in Green Canyon, Shell told Energy Intelligence. Shell’s Tabasco prospect is different than Beacon Offshore’s discovery of the same name drilled in 2020.

Shell’s role could be critical if any discoveries are made. The company was the original owner and operator of the Brutus tension-leg platform (TLP) in GC 158 but sold it to privately held EnVen Energy in 2016.

Shell is believed to have retained production-handling options for the TLP, which could make any future nearby developments easier to execute. Brutus has a processing capacity of around 145,000 boe/d, according to EnVen.

Chevron Farm-Out

Chevron’s deal with Hess gives the New York company a 50% stake in three Chevron-operated blocks — GC 426, 469 and 470 — that are less than five miles from Hess’ Stampede hub.

Hess will also take a 25% interest in two other blocks, GC 326 and 371, which Chevron acquired in a 2020 lease sale.

It’s not clear when drilling may occur on any of the Chevron-operated blocks.