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When it comes to reserves, Gulf not running on empty

A lot of energy industry coverage is dedicated to what's happening in the Middle East and emerging in Africa. But the United States still gets most of its oil from North and South America. Royal Dutch-Shell Group of Companies recently named Annell Bay as its exploration director for the Americas.

A petroleum geologist by training, Bay's experience has taken her from Texas to Kazakhstan to Australia and back again. She talked with Chronicle reporter Lynn J. Cook recently.

Q: Every few years, analysts proclaim that the Gulf of Mexico is dead. What are your thoughts about the Gulf?

A: Are all the plays gone? Not at all. The potential is always there, and we intend to get more than our fair share of them.

The industry is always developing more and unique ways to unlock the oil and natural gas.

The Gulf of Mexico is rich in hydrocarbons, and we haven't seen that commercial basement yet. Deep water is especially exciting.

For background, you should know that in 2003, Shell had about 23 percent of total production for crude oil coming from within the Americas, which is defined as the entire Western Hemisphere.

Of that, 75 percent came from the U.S., and most of that comes from the Gulf of Mexico.

Q: There is a lot of hype about promising prospects in the Middle East and West Africa. What are the Western Hemisphere hot spots for Shell?

A: Offshore Brazil is a key part of the portfolio. In the last few years we've had several discoveries there.

The Na Kika project in the deep-water Campos Basin just offshore from Rio de Janeiro has been setting records.

Now we're going into new basins — Santos and Espirito Santo. In mid-August we were the high bidder on all six blocks we went after in Brazil.

Q: With oil prices so high, are you taking a second look at reserves that have been off-limits until now?

A: On the exploration front, we see an awful lot of unconventional resources — particularly onshore U.S. and Canada — that we're targeting differently.

We're taking another look at things now that we've never been able to commercialize in the past.

For example, tight gas sands and shale are some of the unconventional gas plays we're looking at. These are accumulations of gas locked in low-permeability reservoirs that extend over a large area.

In the past, because of their extremely low flow rates and low prices, they weren't economical to develop. But advances in drilling and well-completion technologies have dramatically increased production rates while lowering costs.

Sands and shales might have low initial production rates compared to conventional gas plays, but they have long-lived production, and the reserve base is easily predictable once production has been established.

Q: Where do you wish Shell could explore?

A: I'd have to say anywhere currently off-limits should be opened up. That would give us access to more hydrocarbons in North America, which is the largest global energy market and needs a lot of hydrocarbons to feed it.

Q: There's a brewing debate surrounding the "peak oil" theory. The idea is that global oil production will hit its high this decade — maybe even in the next year or two — and begin an irrevocable fall that will leave oil-intensive countries in the lurch. Do you believe oil is peaking?

A: First of all, we in the oil industry have a hard time with predictions — particularly oil prices. There is a debate about peak oil, but the really important issues are the supply-demand balance and the impact crude prices are having on our economy and global economies. Regardless of whether those theories are correct, it highlights the need for exploration. It's important to us to access and assess all the acreage we can.

What do you think? Leave a comment below.

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