OTC: MMS says Gulf of Mexico deepwater key to US production future

By the OGJ Editors

HOUSTON; WASHINGTON, DC, May 8 --The deepwater Gulf of Mexico is an expanding frontier that will be of increasing importance to US energy supplies, according to a new report by the Department of Interior's Minerals Management Service.

"The large volume of active deepwater leases, the increased drilling program, and the growing deepwater infrastructure all indicate that the deepwater GOM will increase in importance as an integral part of this nation's energy supply and will remain one of the world's premier oil and gas basins," the MMS report said.

The new publication, "Deepwater Gulf of Mexico 2002: America's Expanding Frontier," was released at the Offshore Technology Conference in Houston this week.

Extraordinary growth
The report details what MMS calls the "extraordinary" growth of oil and gas industry activity in the deepwater (1,000 ft of water or more) gulf over the past 7 years.
MMS officials said that 59% of all oil production in the gulf now comes from deep water.

And even in the short time since MMS's last report in 2000, several "remarkable" achievements have been made, the agency said.
For example:
-- The number of drilling rigs working in deepwater has increased from 28 to 43.
-- The number of ultradeepwater-capable rigs has increased from 18 to 26, and the number of ultradeepwater wells drilled has increased from 37 to 59.
-- There was a 59% increase in the number of producing deepwater fields.
-- Deepwater oil production is rapidly approaching the all-time shallow-water oil production record established in 1971.
-- New deepwater drilling has added over 4 billion boe, a 49% increase, to the gulf oil and gas inventory.
-- Several deepwater discoveries were made in very lightly tested plays. MMS noted the Trident well as an example of the first significant discovery in the Perdido foldbelt play.

Continued deepwater growth
US officials say they anticipate continued growth, although some fields are maturing.
Chris Oynes, regional director, MMS Gulf of Mexico OCS Region, said that 51 deepwater projects were on production at the end of last year, more than triple the level of 4 years ago. "In fact, a record 14 deepwater projects began production last year, and another 13 are expected to begin this year."

One of the newest and most remarkable trends MMS sees is the increasing practice of using subsea completions. There are now 82 subsea completions in the deepwater gulf, with 30 of the 51 deepwater projects relying solely on a subsea completion tied back to some other facility, the report found. "This is the wave of the future," Oynes said.

Technology important
The report also examines the technology of deepwater oil and gas exploration and production, including floating platforms and seafloor installations.
It looks at the process and history of oil and gas leasing, including recent mergers and the roles of smaller companies, and environmental protection.
There also is a section devoted to reserves and recent finds, estimates of recoverable petroleum hydrocarbons in the deepwater gulf, and deepwater production from various companies.

Industry reaction
Offshore industry representatives said the new MMS report highlights the need for policy-makers to continue with rules that offer incentives to explore in technically challenging deepwater areas.
"The MMS report tells a tremendous story that industry can draw some interesting messages from," said a spokesman for the National Ocean Industries Association. "The first is that the Deepwater Royalty Relief Act of 1995 (DWRRA) was an astonishingly successful program that needs to be continued. The explosion in leasing and production activity throughout the deepwater frontier has reversed declining production trends and refocused the world's attention on the Gulf of Mexico as one of the most promising basins in the world."
NOIA said that the rewards of deepwater development are tremendous, but so are the financial risks. "The DWRRA mitigated some of the up-front financial risks faced by companies in these extreme depths. But that up-front mitigation has resulted in much greater domestic production of oil and natural gas and ultimately, therefore, much greater royalty revenue accruing to the federal treasury."

But industry cautioned that while the very potent combination of technology royalty reforms has helped boost production in the gulf, producers need access to areas now off-limits to drilling, if the US really wants a strong national energy policy.
"It's true that technology has revolutionized the offshore domestic industry. This transformation has, for the moment, staved off inevitable production declines from this very mature producing region. However, no matter how impressive, technology cannot change geology. We need to increase access to other promising offshore regions in order to continue to bring the nation the oil and natural gas we need to keep the economy going strong," NOIA said.

MMS said there is strong evidence to suggest that large undiscovered fields remain in the gulf, including in areas not available to industry, such as portion of the eastern Gulf of Mexico. President George W. Bush last year dramatically pared back Lease Sale 181 in deference to concerns raised by his brother, Florida Gov. Jeb Bush (R.) and members of the Florida congressional delegation (OGJ Online, Oct. 26, 2001).

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