WoodMac: Deepwater gulf production to reach 1.9 million boe/d in 2016

Nov. 13, 2014
Production in the deepwater Gulf of Mexico is expected to reach a new peak of 1.9 million boe/d in 2016, according to the latest outlook from consultancy group Wood Mackenzie Ltd.

Production in the deepwater Gulf of Mexico is expected to reach a new peak of 1.9 million boe/d in 2016, according to the latest outlook from consultancy group Wood Mackenzie Ltd.

“Driven by new developments and the expansion of older oil fields, this marks the first time production will surpass the previous production peak set in 2009,” WoodMac said.

This year marked the start of “the next significant growth period” in the deepwater gulf, said Imran Khan, WoodMac Gulf of Mexico analyst. Khan added that WoodMac expects production in 2014-16 to increase 18%/year.

Next year, WoodMac forecasts that production will increase 21% from 2014 levels. This impact will intensify in 2016 when fields such as Heidelberg come online and developments like the Jack/St. Malo project ramps up. “These three fields combined will produce 115,000 boe/d in 2016,” WoodMac said.

In addition to new fields coming onstream, redevelopment and extension of older fields will also augment growth. After hitting the new peak in 2016, WoodMac expects production to plateau for the remainder of the decade.

“Due to the depletion from legacy fields and a limited number of new fields coming onstream, a lack of growth is expected,” WoodMac said.

During 2017-20, WoodMac estimates that only eight developments will come online compared with 15 developments during 2014-16.

Khan said that although the number of fields coming onstream during the latter part of the decade is limited, these are important fields that are going to define the long-term success of the region. “Stones, Shenandoah, and North Platte are part of the Lower Tertiary, which has garnered attention because of the potential to find large discoveries,” he said.

“However, the economics are currently challenging because of high costs, technological limitations, and low recovery rates,” Khan said, adding, “Unless these obstacles are overcome, it will be difficult for the region to grow in the next decade.”

Sustained investment

WoodMac’s outlook emphasizes the need for a sustained level of investment to support production increases. “Recent discoveries have been in deeper waters and in emerging plays, which require complex drilling and more advanced technologies that are highly capital intensive,” it said.

“A typical development well in the Lower Tertiary can cost $300 million, as compared to the shallower, more established well-known plays, such as the Upper/Middle Miocene, where development well costs are closer to $100 million,” Khan said.

According to WoodMac, capital spending, consequently, is expected to increase in the coming years, especially in the emerging plays. “In order to meet our 2015 production forecast, $17 billion in capex will be required, which is 30% higher than 2013,” Khan said, adding, “The Lower Tertiary will make up 21% of this capex and its share will increase to 53% of the total in 2021.”

WoodMac’s outlook also underscores that the gulf will continue to see rising global competition as other parts of the world try to attract capital and open their borders, “such as the recent move by Mexico to open up its energy sector to foreign companies.”

Khan concluded, “Unless the technology to improve recovery rates is developed and costs are reduced, the operating environment will only become more challenging and it will be difficult for the region to maintain a long-term production growth trajectory.”