The Blackbeard East well is drilling below 33,100 ft in 85 ft of water in the Gulf of Mexico. That is already the record depth for an oil and gas well in the United States, and it’s going deeper.

The Davy Jones No. 1 well is drilled and cased to 29,122 ft. When that well begins production in early 2012, it will set the U.S. depth record for production.

That’s not bad for a company that started out on a strategy of buying mature oil fields in the Gulf of Mexico.

“We’ve been very successful. We actually operate six of the 10 largest fields on the outer continental shelf (OCS) in terms of oil production,” said John Schiller Jr., chairman and chief executive officer, Energy XXI, on Dec. 1 at the Jefferies 2011 Global Energy Conference in Houston.

The shallower, mature fields generate cash flow and fix the balance sheet, he explained. “It lets us do some wildcat exploration in our joint venture with McMoRan.”

And those wildcats are ultradeep wells in shallow water. “Bottomline, the geology picture changed from the mid-1990s when we went out to deepwater. We started finding rock in the Mid- and Lower Miocene. In 2001, we found Eocene and Lower Tertiary. We thought prior to that those rocks would be much younger,” he explained.

“Once we had that data, we brought all these plays back to where we could reach them on the OCS,” he added.

Schiller credited James R. Moffett, co-chairman, president and chief executive officer, McMoRan Exploration, with the idea of going into Blackbeard.

“Davy Jones was kind of the culmination of that. We learned a lot. Davy Jones is a 20,000-acre structure with 200 ft of pay in the Wilcox. We drilled the Davy Jones No. 2 through the Cretaceous.”

The No. 2 well was drilled and cased to 30,731 ft on South Marsh Island Block 234. There was 120 ft of net Wilcox pay logged and 192 ft of potential pay in the Tuscaloosa and Lower Cretaceous.

The companies are on track with the Davy Jones No. 1, which is on SMI Block 230, to begin production once the well is cleaned up. The well has five-inch liner set from 16,000 to 29,000 ft. A 2-7/8-inch workstring is being used to clean out the well.

“We’ve got to clean that out. That is what determines when we have the well on production. Once we get this stuff cleaned out, we go to pretty routine stuff -- perform a scraper trip, displace the fluids, set the bridge plug, run the completion string, set up the perforating gun and perforate,” Schiller said.

Energy XXI is going deeper at Blackbeard East on South Timbalier Block 144. “We’re back to drilling this well. We are drilling at 33,000 ft and continuing to make hole. We’re taking it to 34,000 ft. We believe we’re already in the top of the Wilcox. We drilled in the Frio and found two sands with great porosity below 31,000 ft. We also logged the Lower Miocene with 171 ft of net pay,” he emphasized.

“This is a big structure with a lot of gas in place. There is a huge potential with 15 prospects with 100 Tcf of potential reserves,” he added. “You’re not going to have guaranteed sands everywhere you go. But, when you find them, you have great sands with great reservoir potential.

While these wells provide a measure of excitement for Energy XXI, the company’s bread-and-butter plays are mature fields in shallow waters. The firm bought Pogo Producing Co.’s properties in 2007 and ExxonMobil assets in 2010. With its efforts to boost production, Energy XX1 is now the third largest oil producer in the Gulf of Mexico, following Chevron and Apache.

The company has a multi-year drilling inventory that includes exploration wells and recompletions.

The largest complex is the Main Pass Complex the company got in the POGO deal. One example of Energy XXI’s strategy is the Onyx field on MP Block 72.

“We have had fantastic results. Year-to-date, we’re averaging about three months payout on our capital employed. How can you do that?” he asked. “The Onyx field has made 2,000 barrels per day (b/d) for the sixth straight month. The well paid out in about six weeks. We started drilling more wells on MP Block 61. We’ve had great recovery there.

“There are a lot of workovers and recompletions involved in this. If we spend more money in any given year, we’re able to generate more cash flow,” Schiller explained.

The company now has nine rigs working in the Gulf of Mexico. “We have 25% of the jackup market in the Gulf of Mexico right now.”

South Pass Block 89 is part of the ExxonMobil assets. The field was producing about 1,000 b/d when Energy XXI took over. Now, production is nearly 6,000 b/d. “We spend $20 million getting that done.”

The company looks for opportunities to boost production in all of its assets. On Grand Isle Blocks 16 and 18, production has more than doubled. In the J-21 sand, the company recompleted the well, thinking it was a gas zone. Instead, the zone is now producing 1,200 b/d.

The first well Energy XXI drilled from the ExxonMobil assets was the Sunny prospect on GI Block 16. The well was sidetracked to test the B2, B4, C2 and C4 sands. The original target was the C-2 sand. However, the well logged 225 ft of net pay. The well is a dual completion that is being cleaned up. The well tested 1,000 b/d from the B-2 sand and 1,000 b/d from the C-4 sand. The company hasn’t gotten to the C-2 sand yet.

It’s that kind of success over and over again that has allowed the company to venture into those ultradeep wildcats.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

Offshore