HOUSTON—Compared to other big hitters in the Gulf of Mexico (GoM), Energy XXI can be considered a youngster. The Houston-based company was formed in 2005 as a special acquisition corporation after successfully raising $300 million during a six-week road trip to parts of Europe and across the U.S. as hurricanes Katrina and Ike barreled through the gulf.

In the years since, Energy XXI has grown to become a major player in the GoM, operating 10 of the largest oil fields on the shelf. Key milestones, as identified by CEO John Schiller during Hart Energy’s inaugural GoM Offshore Executive Conference on Oct. 16, included three major acquisitions from 2006 to 2007, listing on NASDAQ in August 2007, the $1 billion deal with Exxon Mobil for its Grand Isle assets in 2010 and the $2.3 billion acquisition of EPL Oil & Gas.

Energy XXI CEO John Schiller. With its main fields located offshore Louisiana, near the mouth of the Mississippi River, the oil-focused company has continued to build up proved reserves, which have increased 38%, and its reserve replacement ratio, up 510%, with each acquisition—pushing a strategy that centers on developing only the core pieces of acquired portfolios and ditching the rest.

For Energy XXI, the steps to sustaining people, profits and the environment involve “focus on acquiring the right assets [and] finding the right people,” Schiller told hundreds of attendees gathered for the Houston event. “Everybody in this room knows that with offshore technology you have to have the best and brightest working for you. It’s not a place where mistakes can be tolerated.”

Also crucial to achieving success are leadership and implementing the right technologies, which impact the industry’s abilities to tap the estimated 7 Bbbl of new reserves believed to lie belowground in the GoM within the next five years.

As the company produces proved reserves, additional downdip oil and gas booked as 2P and 3P upgrade to 1P and 2P, respectively. “That’s why you see most of us in the gulf having consistently positive revisions on reserves,” Schiller said, after pointing out the company has proved reserves of 246 MMboe, probable reserves of 96 MMboe and currently produces about 59,000 boe/d from its 252 blocks on the GoM shelf.

Schiller spoke about how some technologies and techniques have led to improved E&P efforts in the GoM for the company. Among these are better seismic data, horizontal drilling and dump floods.

In the past, many shallow wells bypassed productive sands, focus was on high-decline gas in a low oil-price environment, 3-D seismic was limited and horizontal drilling technology was not readily applied, according to Schiller. But times have changed as technology drives “better imaging, reduced risk profile and greater drilling and extraction efficiencies” as “big fields get bigger” with “significant resource potential just below field plays.”

Reprocessing of seismic data alone has resulted in better quality, and “the new acquisition data are really changing how we look at these old salt domes,” Schiller said, before noting how work with partner Freeport-McMoRan in ultradeepwater has taught Energy XXI about salt movement and how it is different than was envisioned 20 years ago. Today, there is better definition of salt and greater ability to see seismic amplitudes updip as well as hidden amplitudes underneath overhangs that previously could not be seen.

Using its Main Pass Field model as an example, Schiller described how the redefined salt model generated growth and opportunities for more growth.

“We drilled updip on it. At 4,800 ft [1,463 m] we got into a reservoir and put the well on at 1,200 barrels a day for a year,” he said. “We started studying and realized we had two more downdip wells that had never been completed.” Better seismic data help send production up to 9,000 bbl/d. “It’s [seismic that is] giving us better definition in the existing sands. It has also given us a lot better look at depth.”

Energy XXI claims to have the largest seismic footprint among its GoM peers, having more than 42,476 sq km (16,400 sq miles) of 3-D data and ongoing seismic acquisition.

While better seismic data have proven beneficial on the geological front, horizontal drilling is enhancing oil recovery. The technique has been used in the GoM since the 1990s, Schiller said.

Typically, with vertical drilling, 200 psi drawdown leads to water coning and inefficient sweep with late life recovery rates ranging from 40% to 50%, according to Schiller’s presentation. However, with typical horizontal drilling, 3 psi to 5 psi drawdown leads to stable oil/water contract and enhanced recovery of original oil-in-place. Recovery rates for horizontal wells range from 55% to 65% in the GoM.

“It’s a much easier flow regime on the reservoir,” he said.

Assets acquired from Exxon Mobil in the Grand Isle area provided just what Energy XXI needed to shift through to find what would work best. The area had been used as sort of a “big real-world lab” as Exxon Mobil studied, for example, how it was going to complete wells in West Africa or deal with water control, he said. “So we had pretty much every type of completion you could envision from pre-packed openhole screens to pre-packed screens with slotted liners to regular gravel-packed screens and open hole.”

To date, Energy XXI has drilled 19 horizontal wells, resulting in 16 successful horizontal completions.

“We’re spanning the top of some 10- and 16-ft [3- and 5-m] sands. It’s not easy. You’ve got to stay on top of your game. You’ve got to pay attention as you drill wells,” Schiller said. “West Delta 73 is where we’ve had the most success. … We’ve already drilled 11 wells here. We’re just shy of 10 million barrels of reserves, and we’re averaging on the first 30 days about 400 barrels a day [net per well].”

The horizontal drilling program in the West Delta 73 Field, which has seven platforms and 40 active wells at a water depth of about 67 m (220 ft), has resulted in nearly 33 MMboe of added proved reserves.

“We think we can expand the program in a lot of different ways. We’ve got about a hundred potential locations identified,” Schiller said. These include the East Bay, Eugene Island, Grand Isle, Main Pass, Ship Shoal, South Pass and South Timbalier fields. “It doesn’t work everywhere, but there are a lot of opportunities.”

Other areas of technical focus include dump floods, described by Schiller as a technique in which a wall is perforated in the same reservoir as the producing sand, letting Mother Nature do the flood. “You open both zones, gravel pack both zones and water goes from the water injector into the producer and starts pressuring up that reservoir,” he explained.

The company plans to use the technique at smaller reservoirs at an expected cost of $4.5 million per well.

Technology isn’t the only area of focus for Energy XXI.

Safety and keeping costs in check are other areas. For the first time in the company’s history, Schiller said the company has a procurement group looking into ways to contain costs. Supply chain efficiency is among the areas company officials are keeping watchful eyes on, specifically concerning the use of boats, helicopters, share bases, insurance, marketing and transportation.

In the past, the company’s culture was growth at any cost, Schiller said; now, it’s growth at reasonable cost. At the same time, focus also remains on safety with the latest drive honing in on resolving Safety and Environmental Management System audit findings and identifying risks.

“It’s more than just lip service,” Schiller said of safety. “You have to believe it. You have to preach it. You have to talk about it every day.”

Energy XXI remains positive on the future state of oil and gas E&P in the GoM.

“We think the economics will be good for a long time,” Schiller continued. However, while seismic advances such as wide-azimuth seismic surveying have pushed forward exploration, concerns about regulation and educating young workers remain. “But we live through it.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.