In the USA Gulf of Mexico, Gulfsands owns interests in 39 blocks comprising approximately 130,717 gross acres in shallow water offshore Texas and Louisiana, which include 27 oil and gas fields that are capable of production. All of these fields are operated by third parties. The Group also has an interest in one onshore oil field in Texas.
The dominating events of 2008 were the Hurricanes Gustav and Ike in late August and early September. The damage they caused, primarily to third party pipeline infrastructure, led to severely reduced production levels from September 2008 and well into 2009. Production from the Eugene Island 57 and Eugene Island 58 Fields is expected to re-commence shortly after the completion of repairs to the gas pipeline servicing the area.
The total net cost of hurricane-related repairs due to Hurricanes Gustav and Ike is currently estimated at in excess of $5 million, with the majority of these costs concentrated on two properties (Eugene Island 32 and Vermillion 315/332). Gulfsands is currently working with the insurance adjusters on progressing the claims for hurricane repairs. Damages to third party facilities, such as pipelines, are not a direct cost but have a significant impact due to shut-in production. Third party infrastructure repairs have continued throughout much of 2009.
Planned activities in late 2009 and into 2010 include re-completions, work-overs and new drilling in areas of higher potential value and company interest, such as Eugene Island 32 as well as asset decommissioning as required.
Portfolio rationalization continued in 2009, with the sale of the Galveston Island 215 and South Marsh Island 234/235 properties as well as the relinquishment of the Galveston Island 186/249/250 property.
A new reserves assessment as at 31 December 2008 was undertaken by Netherland, Sewell & Associates, Inc. This showed proven and probable reserves of 5.1 mmboe on a working interest basis and 3.9 mmboe on a net revenue interest basis: a reduction, compared with the equivalent report a year earlier, of 3.8 mmboe (working interest) and 2.9 mmboe (net revenue interest). The greater part of this reduction was to proven reserves, and arose mainly from a sharp increase in water production at certain producing wells. Proven and probable net revenue interest reserves at year-end comprised 1.8 mmbbl of oil and 12.7 bcf of gas.