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Forecast: calmer waters (Part 2)

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World Pipelines,


Challenges

Low commodity prices have drastically cut exploration and development budgets around the world. 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

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

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.

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 stated: “Technology will win the day. It’s up to us to deliver.”

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, which is in 5180 ft of water and at a depth of 33 750 ft.

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 bbls 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.

However, 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.

Written by Gordon Cope and edited from published article by Stephanie Roker

To read the full version of this article, please download a copy of the January 2016 issue of World Pipelines.

Read the article online at: https://www.worldpipelines.com/special-reports/28032016/forecast-calmer-waters-part-2/


 

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