Phobos-phobia on Anadarko ultra-deepwater find seems unmerited

— After hopeful talk for much of the past year about its Phobos prospect in the ultra-deep waters of the Gulf of Mexico, Anadarko Petroleum finally revealed an oil discovery there this week.

And even though much-watched Phobos--sited in in 8,553 feet of water near the marine border with Mexico--turned up a respectable 250 net feet of high-quality oil pay in the Gulf's emerging Lower Tertiary trend, Wall Street appeared crestfallen that the pay size wasn't bigger.

Instead, the headline of the day on Phobos, a solid discovery in the Gulf's most remote area to date, was that the find might not raise the current $6.9 billion price in cash and stock that Freeport-McMoRan is set to pay for its acquisition of 50% Phobos partner Plains Exploration.  Analysts' higher expectations of a greater price tag may have come from Plains, which reportedly had talked up the prospect as holding gross potential of up to 1.2 billion barrels of oil equivalent.  Instead, analysts said Anadarko had earlier indicated 150 million boe.

It's worth noting that Phobos, drilled to a depth of 28,675 feet, is sited 11 miles south of Anadarko's Lucius discovery now under development.  That fact alone bodes well for an economic discovery in a potential tie-back scenario, although Anadarko will need further appraisal work to know how much oil the reservoir ultimately contains.

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Apart from the professional drubbing given to Phobos--its name in Greek means "fear"--the find also brings a number of important benefits. It was, after all, a discovery which is always something to shout about in the oil exploration biz. Phobos was the first well drilled in the US Gulf's extremely remote Sigsbee Escarpment area, and as such was the Gulf's southernmost well ever drilled. So it's a good bet that it will attract new exploration to that small but completely untapped area. And Phobos confirms the Lower Tertiary trend out to Sigsbee, which may signal good news for Mexican exploration and for any potential joint projects with the US south of the marine border, should they ever happen.

So on balance, this glass is really half-full.  Also, recall that Lucius, when it was announced, had uncovered a "mere" 200 feet of pay...and then a subsequent appraisal well found more than 650 feet of pay.  As a result, Lucius is estimated to hold more than 300 million barrels of oil equivalent, prompting Anadarko's justifiable pride in its work there.

Also, the initial discovery well at Shenandoah -- another Anadarko-operated discovery--encountered net oil pay shy of a respectable but not scream-provoking 300 feet of pay.   But then earlier this year, the Shenandoah-2 appraisal well unearthed more than 1,000 net feet of oil pay, prompting the operator to deem it a potentially "giant" find.

The lesson? The final story on Phobos has yet to be written.  The discovery is located in an emerging and potentially very productive region of the Gulf:  ExxonMobil's big Hadrian  discovery is about nine miles to the north, and the major is a 20% Phobos partner.  And while remote, the Lucius development, set to come onstream next year, is opening the doors to potential further activity in the marine wilderness about 250 miles off the Louisiana coast.

In exploration terms, it ain't over until it's appraised.  And once that happens, it just may well be sanctioned, developed and produced.

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