The deepwater U.S. Gulf of Mexico (GoM) is poised for a comeback in 2018 with production set to hit a record high as breakevens and costs fall and efficiency rises.
This is according to analysis from Wood Mackenzie, which forecasts deepwater oil and gas production in the GoM will hit about 1.9 MMboe/d, eclipsing the previous record set in 2009 by about 10%.
The anticipated growth comes after some challenging years for offshore operators that faced lower commodity prices during the downturn.
Some projects that are taking shape in the GoM have benefitted from “capturing the bottom of the cycle in the supply chain and through the dip we’ve had since 2014,” resulting in lower breakevens, William Turner, senior research analyst for Wood Mackenzie, told Hart Energy. He noted these include the Shell-operated Vito development and the BP-operated Mad Dog.
The breakevens for deepwater GoM projects vary, depending on the type of development. For tiebacks, which don’t require significant infrastructure to be installed, the typical breakeven can be as low as the mid $20/bbl, Turner said, while developments requiring new platforms could carry breakevens ranging from the mid $50s/bbl to mid $60s/bbl. “One example is Hess Stampede project,” he noted. “We expect first oil from that any day now. That one should come online with about a mid$50 breakeven. So they’ll come online in the money.”
Alison Wolters, an upstream research analyst for Wood Mackenzie, added “the projects that are pushing the limits on technology, like any field that would produce from the inboard Lower Tertiary, would be at the higher range of breakevens.”
Subsea tiebacks are playing an integral role in the recent growth trend and keeping costs down.
Five subsea tieback developments—one from Anadarko and four from LLOG—are expected to start production in 2018. All of these are due to come online with a turnaround from discovery to production in less than three years and in one instance 2.5 years, Turner said.
“But still when you’re comparing to the cycle time of onshore, which is six months, two-and-a-half years is still a considerably different investment consideration,” Turner said.
Turner also pointed out that the current production growth is not sustainable with conventional deepwater fields, so more exploration and development targeting HP/HT environments is needed. Policy incentives could aid in this regard.
Some groups are already advocating for targeted incentives for high-pressure development, Turner said. Examples could include extending a lease term longer than 10 years once a reservoir has been established as having a high pressure or relaxing the royalty rate for such developments.
“Those targeted incentives will help to justify funding of the research and development programs in the companies that are required to push this technology along because they technology is not there yet,” Turner said.
Analysts believe that technology will still have a hand in improving efficiencies offshore.
Among the technologies expected to play a greater role as adoption and demand picks up are managed-pressure drilling, which Wood Mackenzie said improves the “competitiveness of ultra-high-pressure developments by increasing drilling efficiency and safety through automation” as well as the use of supercomputers, big data and analytics to improve resolution and processing time for seismic data. Such technologies can enable better well placement and design.
“The potential for advanced digital capabilities to improve deepwater competitiveness and productivity are monumental,” Turner said in a statement. “In 2018, the industry will finally begin to widely embrace and implement buzzwords like internet of things, automation and big data to achieve new and sustainable efficiencies and optimizations that decrease unplanned downtime, improve maintenance processes, extend asset and equipment life and reduce costs.”