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Gulf of Mexico to reach new equilibrium after Macondo spill

High levels of investment and good exploration prospects will drive the area forward

The deep-water Gulf of Mexico (GoM) is well on its way to reaching a “new equilibrium” as it recovers from the worst oil spill in US history, according Wood Mackenzie’s latest upstream outlook.

Momentum built in the 10 years before the 2010 Macondo blowout has slowed, but not diminished, the UK consultancy said. The outlook is being defined by high levels of investment, a wide range of exploration opportunities and a large number of players that are returning to the deep water two years after the Deepwater Horizon disaster.

Wood Mackenzie said the moratorium and exodus of offshore drilling rigs sharply hindered drilling activity through 2011, but it has rebounded in 2012. Though regulation will be more stringent going forward, “the most important thing is that a lot of the uncertainty is going away”, upstream analyst Norm Pokutylowicz said in an interview.

Wood Mackenzie estimates $20 billion will be spent drilling development wells through 2015. Subsea and facility spending will become bigger drivers as new projects like Jack/St Malo and Hadrian move forward in development, bringing the combined total outlay to $27bn in the same period.

Wood Mackenzie noted production has suffered in part because low drilling levels in 2010-11 could not mitigate natural declines. But it now expects Gulf output to exceed the 2009 peak of 2 million barrels of oil equivalent per day (boe/d) by 2019.

For explorers, the deep water remains an attractive long-term opportunity. Wood Mackenzie expects more than $70bn to be spent on exploration by 2030, more than all the other key deep-water provinces around the globe combined.

From that investment, Wood Mackenzie expects over 12bn boe of new reserves to be found by 2030, creating around $30bn of value. “These results are materially surpassed only by Brazil, which has enormous potential in its pre-salt play,” added senior exploration analyst Julie Wilson.

What sets the Gulf apart from other regions of the world is the wide range of opportunities and the large number of explorers, according to Wood Mackenzie’s analysis. There are 46 operators in the GoM deep-water , compared to just 15 in Angola/Brazil.

Opportunities range from small, low-risk prospects to giant targets in extreme conditions, which allows participation from a wider range of large and smaller players. “That’s what makes it attractive,” said Pokutylowicz. “There are entry points for different-sized companies, from smaller companies to the international majors.”

Helping this wide array of operators is an above-ground environment that is still considered to be the most attractive in the world, despite a tightening of regulation.

Meanwhile, ample unused processing capacity in deep-water GoM plays could create significant value for hub owners and satellite operators alike if the right terms can be agreed.

According to Wood Mackenzie, 2bn boe of reserves are expected to be produced by subsea tie-backs from fields under development, probable developments and those yet to be discovered by 2017. By then, new third-party tiebacks are also expected to generate an extra $200m in tariffs on an annual basis.

Nonetheless, Wood Mackenzie notes that there are still obstacles to achieving its optimistic outlook: capital, equipment, and personnel constraints in GoM and globally will affect project prioritisation.

The lack of exploration drilling over the past two years will affect long-term reserves replacement.

On top of this, the high-profile Paleogene play – also known as the Lower Tertiary - still faces substantial technological risks. “That being said, we are well on our way to achieving a ‘new operational normal’ after 201,3” said Pokutylowicz.

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