In the wake of the Macondo incident and following a severe slowdown of drilling activity in the years that followed, operators are once again flocking to the US Gulf of Mexico (GoM) after a slew of major deepwater discoveries. As operators venture further offshore into untapped deepwater plays in the Lower Tertiary trend that hold large oil reserves, the region is making a comeback in a big way. Deepwater prizes like Chevron Corp.’s Coronado well, ExxonMobil’s Hadrian discovery, and Anadarko’s Shenandoah prospect will prove useful in ensuring US energy independence as the region’s potential attracts more and more majors.

With the advent of shale gas drilling in the US, resulting low natural gas prices have diverted operators away from more costly deepwater gas finds and have focused their attention on the GoM’s vast oil resources instead. The region boasted a mix of major and independent operators focused on subsea tieback gas projects only five years ago, according to Quest Offshore Resources’ 2012 report, “The Gulf in Transition: 2013 and Beyond.”

“Today, oil dominates the region with offshore gas all but unable to compete in a sub-[US]$4/Mcf gas price environment,” the report said.

With deepwater projects commanding extensive budgets, the report found that many smaller independent operators are choosing to focus on shale initiatives, leaving the deepwater and ultra-deepwater GoM fields to be dominated by the majors. National oil companies and oil majors hold 33% of the GoM deepwater leases and continue to drive deepwater development past its current limits.

Faced with a healthy forecast worldwide for oil prospects, deepwater oil projects – while commanding a large chunk of resources and requiring higher budgets as water depths increase – are expected to remain lucrative. With oil prices expected to hover above the $75/bbl mark, “all but the most marginal deepwater fields are economic despite recent volatility in oil prices,” the report said.

With total spending in the GoM estimated to increase 30% in 2013 to $40 billion overall and a cumulative $167 billion through 2016, the region is set to remain a vibrant hub of productivity.

In an October 2012 press release Wood Mackenzie forecast more than 12 Bboe will be discovered by 2030. “These results are materially surpassed only by Brazil, which has enormous potential in its presalt play,” Julie Wilson, senior analyst for Wood Mackenzie’s exploration service, said in the press release.

Enabling technologies like subsea boosting and pumping and seismic imaging will prove key to developing the deepwater GoM’s production potential in coming years as newer, deeper, and more complex plays are explored and drilled.

Deepwater spending surpassed shallow-water capex and opex in 2012 for the first time, marking a major shift in the GoM demographic of projects. In coming years deepwater projects, too, are expected to change, shifting to fewer standalone developments and larger subsea tiebacks, the Quest report said. Walker Ridge, Keathley Canyon, and Alaminos Canyon have seen the bulk of recent ultra-deepwater GoM projects, with Quest forecasting activity in gas-rich areas like Desoto Canyon and Lloyd Ridge to peter out concurrent with an increased focus on shale gas.

The Bureau of Ocean Energy Management’s (BOEM) Central GoM Lease Sale 227 saw the trend toward deeper water continue, with 209 tracts receiving bids located in water depths greater than 800 m (2,640 ft). The Walker Ridge block received the greatest amount of bids, reflecting the oil and gas industry’s renewed interest in deepwater projects. Top deepwater operators include BP, Shell Oil Co., Anadarko Petroleum, Chevron USA Inc., Exxon-Mobil Corp., ConocoPhillips, Hess Corp., BHP Billiton Petroleum, Cobalt International Energy LP, Statoil, Eni Petroleum US LLC, Petrobras America Inc., Murphy, Maersk Oil, and Noble Energy Inc.

An abundance of opportunities

The industry’s major players are beginning to renew investment in the GoM, with BOEM reporting a combined total of more than $525 million from companies submitting the top 10 single highest bids during Lease Sale 227.

BHP offered a top bid for Green Canyon deepwater Block 564 of $46 million, having already found success with the Shenzi oil and gas field approximately 120 miles (193 km) offshore Louisiana. BHP, operator of the field with a 44% interest, is joined by partners Repsol and Hess, each with a 28% interest. Currently, the Shenzi project produces 100,000 boe/d.

Along with the Shenzi project, Repsol continues to build its exploration position in the deepwater GoM with 114 exploration blocks. The company is a partner on another major deepwater find – the Bucksin project – with a second appraisal well currently under way. The field, operated by Chevron and situated far offshore in the subsalt of the Lower Tertiary trend, has the potential of being a significant oil find.

“The deepwater GoM offers an abundance of opportunities in an oil-rich basin, and the opportunities continue to grow, driven by new advances in drilling and seismic imaging technology,” David Ramos, manager of GoM exploration for Repsol, said in a statement. “We are drilling deeper and have better insight into our targets than ever before. New plays are emerging periodically.

“It’s a very competitive arena, however, as was proven in the last bid round,” he added. “The large number of companies participating also means that there are lots of opportunities for partnering, with clear benefits from the technical risk-managing standpoint. The advantages are tremendous. It’s a proven basin, with significant infrastructure already in place and close proximity to the markets.”

In Keathley Canyon, ExxonMobil’s Hadrian North prospect in blocks 919 and 918 encountered more than 168 m (550 ft) of net oil pay, and its Hadrian South prospect in Block 964 encountered 61 m (200 ft) of net natural gas pay. At the time of the discovery the company estimated a combined 700 MMboe of recoverable resource between the two prospects, which are located in 2,134 m (7,000 ft) of water. Gas will be processed at Anadarko’s oil-rich Lucius field, which is estimated to have more than 300 MMboe of reserves.

With first production slated for 2014 Lucius will incorporate a truss spar floating production facility. This reflects an overall trend in healthy demand in the floating production market, with Quest Resources predicting awards of FPS units to grow by 56%.

ExxonMobil is the operator of both Hadrian prospects with a 50% working interest and is joined by partners Eni and Petrobras, each with a 25% interest. Anadarko operates the Lucius field with a 35% interest and is joined by co-owners Plains E&P Co with a 23.3% interest, ExxonMobil with a 15% interest, Apache Deepwater with an 11.7% interest, Petrobras with a 9.6% interest, and Eni with a 5.4% interest.

New massive potential reserves

Walker Ridge has become one of the GoM’s most prolific areas for massive offshore oil finds, with two new discoveries recently reported. The Shenandoah-2 well, located in Block 51, encountered considerable oil pay. “The successful Shenandoah-2 well marks one of Anadarko’s largest oil discoveries in the Gulf of Mexico, with more than 1,000 net ft [305 net m] of oil pay and reservoir rock and fluid properties of much higher quality than previously encountered by industry in Lower Tertiary discoveries,” Bob Daniels, Anadarko senior vice president of deepwater and international exploration, said in a press release. Drilled to a total depth of 9,572 m (31,405 ft), the Shenandoah-2 well is situated in a water depth of 1,768 m (5,800 ft).

Anadarko operates the well with a 30% interest and is joined by partners ConocoPhillips with a 30% interest, Cobalt with a 20% interest, Venari Resources LLC with a 10% interest, and Marathon Oil Co. with a 10% interest.

As the second major find in Walker Ridge, Chevron’s Coronado wildcat well located in Block 98 encountered 122 m (400 ft) of net pay. Located in 1,868 m (6,127 ft) of water, the well was drilled to a depth of 9,713 m (31,866 ft). Well results are still being evaluated to determine the resource’s potential. The well is situated 308 km (190 miles) offshore Louisiana in the Lower Tertiary subsalt trend.

As operator, Chevron holds a 40% interest in the prospect, with partners ConocoPhillips (35%), a subsidiary of Anadarko Petroleum Corp. (15%), and Venari Offshore (10%).

“The Coronado discovery continues our string of exploration successes in the Lower Tertiary trend, where Chevron is advancing multiple projects,” Gary Luquette, president of Chevron North America E&P Co., said in a press release. “It also highlights the importance of the deepwater Gulf of Mexico as a source of domestic energy for the United States.”

As the number two lease operator in Walker Ridge, according to Quest Resources, Chevron’s deepwater focus also has included development of the Jack and St. Malo fields located in the Lower Tertiary trend in Walker Ridge Block 678 within 40 km (25 miles) of each other. The company reported oil flow rates at St. Malo exceeding 13,000 b/d.

The project represents one of many multiwell projects in the GoM that have seen a record permitting pace since 2011. Quest Resources attributed the increase in multiwell permits to an increase in large standalone projects and regulatory changes encountered in the GoM.

Chevron has a 51% interest in the St. Malo field and is joined by partners Petrobras with a 25% interest, Statoil with a 21.5% interest, ExxonMobil with a 1.25% interest, and Eni with a 1.25% interest.

Representing another major development in Walker Ridge, the Chinook and Cascade fields are located 257 km (160 miles) offshore Louisiana in the Lower Tertiary trend in a water depth of 2,500 m (8,200 ft). Operated by Petrobras, the two fields are the first in the GoM to produce oil and gas using FPSO vessels and will likely pave the way for other operators to follow suit. “The advantage of being able to remove the production unit from the field is attractive in an area prone to destructive hurricane seasons,” Quest Resources said in its report.

Petrobras owns a 100% interest in the Cascade field and a 66.7% interest in the Chinook field with partner Total Exploration Production USA Inc., which has a 33.3% interest.

Renewed growth

With a period of renewed growth on the horizon in the GoM, the stage is set for a competitive environment as operators venture farther offshore into deeper, more challenging waters where the stakes are high. Due to the discovery of Lower Tertiary trend reserves in deep and ultra-deep water, the playing field has shifted, and the region is attracting more and more majors to the area. Although deepwater drilling activity was hindered by the moratorium in 2010, it has “rebounded very well in 2012,” Lauren Payne, GoM analyst for upstream research at Wood Mackenzie, said in an October 2012 press release.