Volume 5, issue #2 - Monday, February 07, 2000

Gulf of Mexico deepwater oil production surging

10-11-99 Once considered a distant frontier by U.S. exploration and production companies, the deepwater sector of the Gulf of Mexico has become the industry's most active bit of real estate, thanks to improving technology. Improved drilling methods for oil fields more than 3,500 feet under the ocean and a series of large deepwater reservoir finds have led to potentially dramatic growth in U.S. crude reserves, which in turn could pull up the nation's ailing production numbers, according to a government agency.
"Deepwater activity in the Gulf could be the saviour of the domestic oil program," according to an official at the Minerals Management Service (MMS). "It is improving while reserves and production elsewhere have declined."

Deepwater technology beyond 3,500 feet is relatively new and continues to improve. The most recent deepwater production record in the Gulf of Mexico was set by Shell in the Mississippi Canyon at just under 7,000 feet in1998. The all-time record is held by Petrobras in Campos Basin off Brazil at 8,016 feet, according to Offshore Data Services, an oil services firm.

As deepwater fields become more accessible to producers, the landscape of the U.S. exploration and production industry becomes increasingly saltier. For example, in 1998 the DOE estimated that crude reserves in the Gulf of Mexico totalled some 2.95 bn barrels, or 14 % of the U.S. total.
But a single find by BP Amoco last spring in 6,000 feet of water could increase that figure by a third. The discovery, among several in the past months and believed to be the world's largest, is estimated at 1 bn barrels of crude oil and natural gas.
DOE officials believe that reserves in other parts of the U.S. dwindled in the past year as historically low crude prices forced companies to prioritise their costly exploration efforts. But the officials suggest that strong growth in the amount of oil found in the deepwaters of the Gulf could help stabilise the overall figure.

At the same time, deepwater Gulf oil output is surging to its highest-ever levels, as previous discoveries by companies like Shell, Amerada Hess, Exxon, and Texaco, mature into production. Production in the region has increased 279 % in the past five years, and 47 % between 1997 and 1998 to 159 mm barrels per year, according to the MMS. Crude production in other regions of the U.S., including the Gulf's shallow waters, fell by more than 81 mm barrels, or roughly 4 %, over the same one year period.

The deepwater boom is expected to overshadow, or at least compensate for, lacklustre production performances in other regions of the country still recovering from the historical downturn in crude prices. Prices had fallen below $ 11 a barrel by December 1998, its lowest level, on an inflation-adjusted basis, since the Great Depression.
The historically weak prices pushed many large companies out of onshore exploration projects where finds are generally smaller than in deepwater. But prices have since rebounded to levels around $ 22 a barrel, supported by global production cutbacks orchestrated by OPEC and other oil producing countries.
Since the crude price rebound, total U.S. production has risen roughly 40,000 barrels to 5.95 mm bpd and is expected to reach 6.1 mm bpd by January 2000, led by maturing deepwater projects in the Gulf. "The increase in deepwater oil production from the Gulf of Mexico should more than offset the decline in U.S. onshore production in the second half of 1999," according to a report issued recently by the Petroleum Finance Market Intelligence Service.
Production in the deepwater sector could reach as high as 620,000 bpd by the end of the year 2000, up from the current estimate of 470,000 bpd, according to the MMS, with Shell's large Ursa project, located under 4,000 feet of water, potentially adding 100,000 bpd of crude on its own. In the meantime, several new deepwater projects have been initiated in the Gulf of Mexico in 1999, including four planned fixed platform constructions, eight planned subsea well developments, andat least one planned semi-submersible installation, pointing to further production increases past 2000. The growing deepwater activity is also helping push up the global deepwater rig fleet, which is expected to grow from 61 to 80, or 31 % by mid 2000.

Source: Reuters