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Gulf of Mexico recovery accelerates

Confidence is rising amid an uptick in deepwater permits and the proving of potentially transformative technologies

After four years of declining drilling, Gulf of Mexico (GOM) permits are up, rig utilisation is increasing and there is cautious optimism. Although oil price gains have levelled off, cost-cutting initiatives are yielding positive movement in GOM activity, including the first rig count uptick in years.   

Given the limitations of US unconventional plays, operators surveyed in 2018 planned to increase GOM drilling during second-half 2019. The offshore industry is amid a two-year recovery and spending was projected to accelerate during the second-half 2019, according to Evercore ISI senior research analyst James West in the 2019 Global E&P Mid-Year Spending Outlook. Offshore rig utilisation bottomed out in early 2017, for both shallow-water and deepwater segments, with the rebound driven by rig attrition and a rebound in drilling activity. 

According to World Oil’s mid-year survey results and federal officials’ outlook, GOM well counts were set to start recovering during the second half of 2019. World Oil estimated that GOM activity totalled 65 wells in the first half of 2019, with another 74 scheduled to be drilled during second-half 2019. The projected 139-well total will be 25pc higher than 2018’s 111. Despite breakeven costs reduced to a reported $40/bl, the outlook doesn’t foresee a meaningful resurgence in deepwater drilling through early 2020. 

Still, consultancy Wood Mackenzie expects US GOM exploration activity in 2019 to have increased 30pc, led by Shell and Chevron, plus growth from new entrants such as Kosmos Energy, Equinor and Total. WoodMac added that new project sanctions could usher in $10bn investment into the GOM, plus the first-ever Jurassic production. Bureau of Safety and Environmental Enforcement (BSEE) director Scott Angelle says that the 2018 uptick in deepwater drilling permits that his agency issued made him optimistic for 2019 and beyond. 

Outside US waters, there is also room for optimism. In Mexico, concerns over the path that President Andres Manuel Lopez Obrador is taking are offset somewhat by a new production initiative, a shallow-water lease sale, and the arrival of the massive Abkatun platform.   

Healthier numbers

Daily oil production from the US GOM averaged 1.85mn bl/d during the first seven months of 2019 or a 10pc increase compared to the same time period in 2018. A ranking of GOM operators, according to production volume, shows little change, although the number of companies continues to decline. In 2019, BSEE counted 63 producers in the GOM, compared to 65 in 2018. 

Ranked by oil production, the top four are Shell Offshore (99mn bl; 163bn ft³), BP Exploration & Production (60.4mn bl; 45.4bn ft³), Anadarko Petroleum (44.3mn bl; 41bn ft³) and Chevron  (43.1mn bl; 23.9bn ft³). Among the 65 operators in 2018, the top four remained the same.   

A BSEE snapshot of deepwater drilling and workover activity in mid-October identified 38 active facilities, led by Shell with nine active prospects and Anadarko and BP with three apiece. 

Rising permits 

Approved permits for shallow and deepwater wells in the US GOM also totalled 787 year-to-date October 2019. That figure includes 594 in deeper water (>500 ft) and 193 in shallow water (< 500 ft). In 2018, BOEM approved 913 permits, 728 in deeper water and 185 in shallow water, a gain of 128 compared to 2017. The US GOM rig count for August 2019 was 24, up from 18 during August 2018, with most rigs working offshore Louisiana.   

Two GOM lease sales were held in 2019 and another two are planned in 2020. Lease Sale 253, held in August 2019, generated $159.4mn in high bids for 151 tracts covering 835,006 acres in federal waters. Twenty-seven companies participated, submitting $174.9mn in all bids. The sale included 14,585 unleased blocks, located between 3 miles and 231 miles offshore, in water depths ranging from 9 ft to 11,115 ft. 

Lease Sale 252, completed in March 2019, generated $244.3mn in high bids for 227 tracts covering 1.3mn acres in GOM federal waters. Thirty companies participated, submitting $283.8mn in all bids.   

Operator growth 

In July, 80 miles south of New Orleans, Shell’s high-temperature, high-pressure (HTHP) Appomattox programme became the first high-pressure project to receive BSEE approval to begin production. The permitting work for the Appomattox project, which saw first oil in May 2019, helped define and clarify the safety requirements in BSEE’s recently published HPHT-related guidance documents. Appomattox is the first GOM HPHT project to begin production. 

Talos Energy reported two wildcat strikes in its Bulleit and Orlov prospects of Green Canyon, deepwater GOM, offshore Louisiana. The Bulleit prospect encountered 140 ft of net true vertical depth (TVD) oil sand in its shallow target and 110 ft of net TVD oil pay in the deeper MP sand. The well will be completed during first-half 2020 and then tied back to the Talos-owned/operated Green Canyon facility, 10 miles west of Bulleit. Talos also reported its Orlov prospect encountered 100 ft of net oil pay in the main target sand, as well as additional pay sands in shallower zones along the same trap. Initial production from Orlov is expected during first-quarter 2020 and will be tied back to the Fieldwood’s Bullwinkle facility. 

Finally, Pemex received approval from Mexico’s National Hydrocarbon Commission for a $10bn, 25-year investment commitment to develop onshore and offshore exploration opportunities. Pemex will develop 22 new offshore fields in 2019, including 18 in the shallow GOM. Pemex also will invest $330mn for development of its shallow-water Octli field. If successful, the Octli development will add 232,000 bl/d and 790mn ft³ to the company’s production. 

Craig Fleming is technical editor of World Oil

Keep up-to-date with how the predictions in Outlook 2020 are playing out and get a first look at the themes that will shape Outlook 2021, as well as with relevant events such as the Outlook launch party and publishing schedules, by subscribing to Petroleum Economist’s bi-monthly Outlook newsletter.

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