WoodMac: Deepwater Gulf of Mexico E&P to surge in 2013

Wood Mackenzie Ltd. anticipates a strong medium- to long-term resurgence of exploration and production activity for the deepwater Gulf of Mexico following the 2010 Macondo well blowout and resulting massive oil spill offshore Louisiana, which stalled gulf activities for a while.

Gulf production is expected to reach 2 million boe/d in 2018-19, analysts said during an Oct. 3 media briefing at the WoodMac office in Houston.

The Macondo incident and resulting more-stringent US drilling regulations delayed some E&P plans. But WoodMac’s analysts emphasized the gulf is being defined by high investments, a wide range of opportunities, and the large number of companies. Currently 46 operators work in the gulf in more than 400 m of water.

Analysts said the gulf still represents one of the most attractive E&P regions worldwide despite changing US drilling and environmental regulations that pose some uncertainties for oil and gas companies.

“The moratorium and exodus of several mobile offshore drilling units from deepwater gulf in 2010 sharply hindered drilling activity through 2011, but it has rebounded very well in 2012,” said Lauren Payne, WoodMac gulf analyst for upstream research. “We expect this trend to continue, driven primarily by development drilling as operators seek to boost production levels and bring new projects on stream,” she said.

WoodMac forecast that more than $20 billion will be spent drilling development wells alone through 2015. Subsea spending will grow as new projects like Jack-St. Malo development and Hadrian move forward. Together, drilling and subsea spending are estimated at $27 billion through 2015.

Chevron is the operator of the Jack-St. Malo development and has a 50% interest in Jack (Walker Ridge Blocks 714, 715, 758, 759, and a portion of Blocks 802 and 803) and a 51% interest in St. Malo (Walker Ridge Blocks 673, 674, 677, and 678).

Production is expected to start in 2014, and the Lower Tertiary reservoir is in 26,500 ft of water. The combined fields may contain more than 500 million bbl of potentially recoverable oil (OGJ Online, Sept. 7, 2010).

Julie Wiilson, WoodMac senior analyst for exploration service, expects more than $70 billion will be spent on exploration in the deepwater gulf during 2013-30, which would be more than WoodMac anticipates for all the other key deepwater provinces worldwide combined.

“Opportunities in this region range from small, low-risk prospects to giant targets in extreme conditions,” Wilson said. “Abundant infrastructure and an open, competitive environment allow smaller companies to create value from the more mature plays. Larger companies exploring for giant volumes must contend with remote, ultradeep waters, and reservoirs that are buried to extreme depths below thick salt layers that impede seismic imaging.”

Ample processing capacity

Ample unused processing capacity in the deepwater gulf could create significant value for hub owners and satellite operators alike, if the right terms can be agreed upon.

“By 2017, up to 70% of deepwater gulf processing capacity will remain unused, although the available amount will be smaller due to technical and operational reasons,” said Norm Pokutylowicz, WoodMac analyst for upstream research.

“Demand for it will come in the form of infill development and tiebacks, while value will be derived either by operators monetizing their discovered resources or in the form of tariffs from third-party tie-backs,” Pokutylowicz said.

WoodMac forecast an additional 2 billion boe will be produced by subsea tiebacks 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 each year an extra $200 million in tariffs.

Potential obstacles to gulf activities include capital, equipment, and personnel constraints in the gulf and worldwide that could affect project prioritization.

“The recent lack of exploration drilling will impact long-term reserves replacement,” Payne said. “In addition, the high-profile Paleogene play still faces substantial technological risks, in an ultradeepwater environment with very poor reservoir qualities. That being said, we are well on our way to achieving this new equilibrium in the gulf in 2013 and the future of the gulf from there is very bright,” she said.

Contact Paula Dittrick at paulad@ogjonline.com.

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