A resurgence in deepwater Gulf of Mexico (GoM) exploration and production activity is predicted by 2013, nearly three years after the Macondo well blowout and massive oil spill off the Louisiana coast forced a slowdown in activity and new regulations.

Wood Mackenzie anticipates the deepwater GoM region will reach a new peak production of 2 MMboe/d in 2019. The forecast came as operators focus on improving existing production levels while striving to bring new projects onstream. The research consulting company presented the upstream outlook Oct. 3, showcasing reasons why the GoM remains attractive to operators as well as the region’s potential for continued development.

“By the end of this year, 2012, we expect the number of active floating rigs in the region to be about 37, which is a five-year high,” said Lauren Payne, a deepwater GoM analyst for Wood Mackenzie. “It’s important to remember these rigs are not distributed evenly among the different rig operators. The rig market has been very tight over the last 18 months or so.”

Turning to overall activity, the region is expected to rebound from a lack of activity since 2011, seeing fewer wells being spudded in conventional plays such as the Plio-Pleistocene and strong activity in newer, larger plays such as the Subsalt Miocene and Paleogene. The latter two will be long-term drivers for activity in the GoM, Payne said.

Figures presented by Julie Wilson, senior exploration analyst for Wood Mackenzie, showed the Subsalt Miocene play is predicted to reach 4.3 Bboe by 2030 with the Paleogene play is expected to hit 5.2 Bboe by the same year. Value created for the two plays are expected to surpass US $14 billion and $6 billion for the Subsalt Miocene and Paleogene, respectively.

Although these newer, larger plays have attracted operators – 37 large and small companies for the Paleogene alone – Wilson said the entire GoM region holds opportunities for operators. Plays range from mature ones that have been exploited for a while to the newer ones that are in remote, deeper waters and potentially hold giant prospects. “This range of plays offers a variety of opportunities to a wide range of different types of operators. Subsalt emerging plays do offer large volumes, but the shallower more conventional plays still generate value.”

By 2030, Wood Mackenzie anticipates $70 billion will be invested in deepwater GoM, an amount that combined tops other deepwater basins in the world, she explained. “We expect over 12.5 Bboe to be found from that investment, and the value to be created is around $30 billion.” Only Brazil is expected to surpass the volume and value creation anticipated in the GoM, mainly because of huge undiscovered presalt volumes there.

Despite that, the GoM is still seen as a vibrant, global hub of exploration activity. Currently, there are 46 operators in the region. One of the latest entries into the region was Plains Exploration and Production, which announced in September it would buy BP-operated Marlin, Dorado, King, Horn Mountain, and Holstein fields, and the non-operated Diana-Hoover and Ram Powell fields.

Why so much interest and the reason behind the substantial dollars invested in the GoM? Wilson offered up five reasons:

  • Access to markets: the region is close to refineries, unlike some other countries that require substantial distance to transport product;
  • Access to acreage: licensing sales are open to more participants; whereas, in other countries, Angola for example, these are by invitation only. Small blocks of only 23 sq km (9 sq miles) give operators opportunities to access smaller chunks of land;
  • Level of existing infrastructure: many pipelines exist on the GoM shelf along with a large network of deepwater pipelines;
  • Fiscal terms: the fiscal terms are attractive; and
  • Local content: This has been an issue in Brazil and is becoming a more important issue in Africa.

And most of the processing capacity in the GoM is unused, said Norm Pokutylowicz, deepwater GoM analyst for Wood Mackenzie. “There is some value lying dormant there,” later noting roughly 25% of existing processing capacity is being used, excluding what operators have set aside for the future. The unused capacity could create value for hub owners and satellite operators if the right terms can be reached.

“By 2017, up to 70% of deepwater GoM processing capacity will remain unused, although the available amount will be small due to technical and operational reasons,” according to Pokutylowicz. “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 tiebacks.”

Such tiebacks could bring an additional $200 million per year in tariffs, he added.

Notwithstanding the advantages, several challenges remain for GoM operations. These include: changed regulatory environment, high costs, and rig constraints. Some operators may face technical and platform challenges.

The consultancy’s outlook also depends on overcoming certain obstacles, including capital, equipment, personnel shortage constraints, and the technological risk of deep frontier plays. However, the outlook remains positive.

“We will be reaching a new operational normal in 2013. That does not mean going back to pre-Macondo business as usual,” Payne said. “Our view is that, in 2013, we will get to a place where the operational environment is stable, predictable, and moving in a positive direction.”

Contact the author, Velda Addison, at vaddison@hartenergy.com.

Offshore