Gulf of Mexico forecast 2016, part 2

Part 1 of this article is available here.

Challenges

Low commodity prices have drastically cut exploration and development budgets around the world, including the Gulf of Mexico. Oslo-based oil consultancy Rystad Energy said that infill drilling dropped by 60% in three major offshore basins: the Gulf of Mexico, Southeast Asia and Brazil. In the Gulf of Mexico alone, infill drilling on mature fields dropped from 149 wells between January and July 2014 to a total of 61 wells during the same period this year. There has been attrition in the number of Gulf floating rigs, dropping from 96 in 2009, to 36 in 2014.

Bidding for offshore leases has also been tepid. In August, the Bureau of Ocean Energy Management (BOEM) held Lease Sale 248, the eighth offshore sale under the Outer Continental Shelf programme for 2012 - 2017. Only five companies bid on 33 tracts in the Gulf, for a total of US$22.67 million. In contrast, Lease Sale 235 in 2014 drew US$539 million. “While disappointing, the results of this lease sale are not surprising and accurately reflect the current environment of low commodity prices and increasing regulatory changes and uncertainty,” said Randall Luthi, President of the National Ocean Industries Association (NOIA). “The entire oil and natural gas industry, particularly the offshore segment, is understandably being very cautious about spending money.”

Long-standing participants in the Gulf are reconsidering their holdings. Freeport-McMoRan Inc., which pioneered the exploration of ultradeep gas reservoirs in the region, is considering divesting its oil and gas assets. The Phoenix-based company has substantial holdings in the deepwater Gulf, California and Louisiana. Enterprise Products Partners is selling its Gulf offshore assets to Genesis Energy, including over 1100 miles of crude pipelines, 1200 miles of gas pipelines, and portions of six platforms. Genesis will pay US$1.5 billion in cash.

Positives

Not all is doom and gloom; every cloud has its silver lining. According to the Society of Petroleum Engineers (SPE), day rates for offshore rigs have dropped from their peak levels of US$600 000/d in 2013 to approximately US$300 000/d; a significant saving for cash-strapped operators. The SPE predicts that the rock-bottom rates should hold throughout 2016, and only begin to rise when the fourth and fifth generation of floating rigs begin to enter service later in the decade.

BP has been under legal worries since the 2010 Macondo Deepwater Horizon tragedy that saw 11 workers killed, and fouled 1300 miles of coastline with three million barrels of crude. In late 2015, the company finally settled the majority of claims against it. It recently paid more than US$20 billion in fines, as well as tens of billions more set aside for cleanup costs. All told, the British firm has amassed almost US$53 billion in pre-tax charges.

Although drilling has dropped drastically in offshore basins, this is expected to have a positive effect on commodity prices. Rystad Energy estimates that mature offshore fields currently account for 15 million bpd of worldwide production. A slowdown in offshore infill drilling will result in production declines of 1.5 million bpd, to 13.5 million bpd by latter 2016. This represents a significant readjustment in the supply/demand equation.

As prices slowly recover into the US$70 range, a raft of initiatives become economically viable. At a recent SPE conference, chairman Ivor Ellul noted that the 25 largest reservoirs in the Gulf of Mexico – which account for 50% of all regional reserves – have only been depleted by 21%. Newly enhanced oil recovery technologies, such as thermal, non-thermal and miscible floods, as well as traditional water injection, have the ability to significantly increase recoveries. “Technology will win the day,” said Ellul. “It’s up to us to deliver.”The 2015 hurricane season was remarkably calm, with very few weather-related disruptions compared to previous calamitous years, including 2005 (Hurricane Katrina), and 2008 (Hurricane Gustav). In fact, the last five years have seen little in the way of curtailed production. Few operators are resting on their laurels, however; the 2015 season saw the largest hurricane to ever make landfall in North America, Hurricane Patricia, which struck a largely uninhabited part of Mexico’s Pacific Coast. Hurricane preparedness continues, with upgraded design standards for platforms and rigs, stronger moorings, and the burying of pipelines and rerouting away from mudslide-prone regions.

New offshore discoveries

New discoveries continue to load the field development pipeline for the coming decade. Recently, Statoil proved up a substantial subsalt Miocene deposit near the Big Foot and Cascade fields in the Walker Ridge region. Although the Norwegian company has yet to determine the size of the discovery, it is confident that the find will allow it to expand the Miocene play further south and west of current proven assets.

Chevron publicly confirmed that its Anchor prospect in the Green Canyon region, 140 miles offshore Louisiana, has a combined hydrocarbon column of at least 1800 ft in the Lower Tertiary. The prospect, which is in 5180 ft of water and at a depth of 33 750 ft, is located between its Big Foot discovery and the Jack/St. Malo field.

In addition, Mexico, which has long been off limits to international exploration, has recently reversed its constitutional ban on foreign ownership and is inviting international firms to participate in its energy future. The USGS estimates that the Mexican portion of the Gulf of Mexico could hold up to 15 billion bbl of undiscovered, recoverable reserves. The government has been holding bidding for offshore oil explorations rights. The auctions have met with mixed success, but the process is evolving to make the land more attractive, and exploration is expected to eventually help reverse Mexico’s declining production.

Naturally, nothing can be taken for granted. Opposition to pipelines in general is growing. The price outlook for both oil and gas in the short term is considered dire, and will undoubtedly cause many participants to leave the region.

Regardless of the challenges, the Gulf Coast region has been a traditional powerhouse in the US oil and gas sector. It is incessantly adapting to take advantage of the evolving energy mix, both within the US and around the world. As such, it will continue to attract investments from midstream companies’ intent on servicing the needs of field operators, refineries and petrochemical plants.“All of these assets require a wide range of supporting energy infrastructure, and when you expand your thinking beyond what this means to our pipeline network, you realise that assets in this region should be very resilient to a range of market conditions over the long-term,” said Enbridge’s Jarvis. “We also see the current and growing import and export capability in this region positioning the US Gulf Coast as one of North America’s main export points.”

Read part 1 here.

Written by Gordon Cope and edited by Elizabeth Corner 

Read the article online at: https://www.worldpipelines.com/project-news/12022016/gulf-of-mexico-forecast-2016-part-2/