The US should define the Gulf of Mexico Shallow Water Province as a distinct entity to avoid stranding more than $20 billion of its oil and gas resource, the US Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement (BSEE) jointly recommended in a Nov. 19 report.
The GOM Shallow Water Province, comprised of water less than 200 meters deep, is a historically energy-rich area which now produces natural gas, accounting for 33% of the gulf’s gas production and just over 10% of its oil production, the two US Department of the Interior agencies jointly said.
Production and infrastructure investment used to be substantially higher there, but development has moved onshore or to deep water in the last 20 years, they continued. “The number of wells drilled has decreased 89% during the last 10 years, and approximately 100 platforms/year are being removed with no new platforms being installed,” BOEM and BSEE said.
“If this trend continues, the lack of development will potentially strand 179 million bbl of oil and 4,567 bcf of natural gas that have an estimated worth of $20 billion,” they warned in the report, “Gulf of Mexico Data and Analysis/Leasing, Drilling and Production, Gulf of Mexico Shallow Water Potential Stranded Assets”.
The report, which recommends using an updated discounted rate for the area, is a response to three executive orders President Donald J. Trump issued to promote offshore energy infrastructure, independence, and economic growth.
Acting on an obligation
“This research provides critical information that energy development in the Gulf of Mexico should not be managed with a ‘one size fits all’ approach in how we avoid stranding our nation’s valuable energy resources,” BSEE Director Scott M. Angelle said. “Although reversing the natural decline may not be entirely possible, promoting the recovery of the remaining oil and natural gas resources in the Gulf of Mexico Shallow Water Province, while protecting the interests of the American public, is an obligation this administration is taking action on.
“Once the infrastructure is removed, we will not be able to recover these resources,” he continued. “The nation is essentially on a ‘shot clock’ to make sure that does not happen.”
“BOEM estimates that $20 billion in oil and natural gas resources could be stranded in the Gulf of Mexico Shallow Water Province if the current trends continue,” BOEM Acting Director Walter D. Cruickshank said. “To ensure maximum resource recovery, BSEE and BOEM are working together to encourage increased activity consistent with the resource conservation policy established by Congress under the Outer Continental Shelf Lands Act.”
The two agencies said that the research has laid the groundwork for two actions that encourage increased activity in the province:
BOEM’s publication of updated discount rates for the GOM’s deepwater and shallow water province (the deepwater province updated discount rates also applying to all other US Outer Continental Shelf areas that will be used for BSEE’s special case royalty relief evaluations); and
Verification that BSEE has authority to consider applications for royalty relief on a “per project” basis. These projects can include exploratory wells in order to promote development of discovered resources.
The updated discounted rate for the Shallow Water Province will apply to special case royalty relief applications and will only be applicable for new wells and production in the region, BOEM and BSEE said.
The news drew immediate praise from several congressional energy leaders, including Louisiana’s two US senators. “High royalty rates prevent as much as $20 billion in shallow water energy projects,” said Sen. Bill Cassidy (R), who chairs the Energy and Natural Resources Committee’s Energy Subcommittee. “Lowering this barrier encourages production which increases revenue for taxpayers and the number of jobs for Louisiana workers.”
“Drilling in the shallow waters of the Gulf of Mexico has plummeted to the point that $20 billion in oil and gas could be abandoned,” added Sen. John N. Kennedy (R). “This hurts workers across the state, from Houma to Cameron. The research released today will help us develop an attack plan that will increase interest in the shallow waters and protect jobs.”
“Today’s announcement is proof of BSEE’s commitment to the taxpayer and conservation,” said Rep. Paul A. Gosar (R-Ariz.), who chairs the US House of Representatives’ Western Caucus. “With an estimated $20 billion in stranded oil and gas off our coast, it is essential that we have the infrastructure in place to ensure every drop of recoverable energy is extracted. Every barrel of oil produced from existing offshore operations is one less barrel we need to import from foreign nations.”
Addressing unnecessary barriers
Others welcomed BOEM and BSEE’s announcement. Nikki Martin, president of the International Association of Geophysical Contractors in Houston, said that the association’s members play a critical role in enabling access to and development of shallow water resources.
“We appreciate the administration’s efforts to encourage increased activity under [the Outer Continental Shelf Lands Act] in the shallow waters and look forward to seeing reciprocal efforts to remove unnecessary, excessive, and unwarranted restrictions on exploration and development activity that currently exist in these very areas in the impending Gulf of Mexico regulatory frameworks,” she noted.
“Terrebonne Port is situated in the center of the marine fabrication/repair industry directly supporting the oil & gas operations in the US Gulf of Mexico. Our mission statement centers around creating an economic environment that generates long term employment,” said David Rabalais, executive director of the Terrebonne Port Commission in Houma, La.
“This new federal research on Gulf of Mexico shallow water oil and gas operations validates what we have known for years,” he maintained. “The energy industry plays a critical role in the economic stability of this region, and the effects of the effort to sustain oil and gas operations in the shallow water long enough to fully realize the benefits of the remaining resources will have a long-term economic impact in Terrebonne and the surrounding region.”
“Finally, an administration in Washington, D.C., that gets it and has worked to be part of the solution rather than continuing to be an obstacle,” said Cory H. Kief, Business Development Director at Crosby Tugs LLC in Golden Meadow, La.
“We could have used this leadership a decade ago, but I am excited that we have it today. As an industry, we are eager to be included in extending the life of shallow water infrastructure and ensuring energy security for America. For us, the work needs to start now!” he declared.
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.
