In a recent presentation at the Hart Energy Gulf of Mexico Offshore Executive Conference, Fieldwood Energy LLC chairman, CEO and president Matt McCarroll spoke about his company’s strategy and the four major challenges facing Gulf of Mexico (GoM) producers: regulation, infrastructure, hurricanes, and staff and equipment.

“I think those challenges may be the reason so few of us work in the Gulf today, and why so many people have exited the Gulf over the last 10 years,” McCarroll said.

Regarding regulatory challenges, he lamented the constant changes in the regulatory approval process. Permit and approval delays and uncertainty hamper the industry. Rig inspection fees have gone up substantially, he added, from about $2,000 to $3,000 per rig to about $17,000 to $31,000 per rig, and companies are paying these fees to understaffed and uninformed agencies. In 2010 Fieldwood’s predecessor company paid the federal government $1.2 million in processing fees, and in 2014 it paid $8.6 million.

“Despite increased fees,” he said, “we’re getting substantially less ability to conduct our operations.”

The second major hurdle he addressed was the GoM's aging infrastructure. He pointed to older pipes and devices as one reason for increased downtime. New regulations add expense and downtime, as well. Increasingly, infrastructure owners are resistant to repairing their possessions and as a result producers are having to take ownership of the pipelines and conduct the repairs themselves, McCarroll said.

“Year to date, Fieldwood has experienced 31 pipeline leaks in pipes that we own and that others own that we use. We plugged three pipelines and made 28 repairs, resulting in a shut-in production of almost 2 million barrels of oil equivalent. It’s a big challenge, a big problem, and we’re going to have to work hard to overcome it.”

McCarroll said that new technology that could extend the useful lives of pipelines, such as a poly-flow coiling tubing liner that was tested in Thailand and the North Sea, should be approved as soon as possible.

Hurricanes remain difficult to plan for, and he regretted a lack of a cost-effective and comprehensive risk-transfer solution in the GoM, a situation that has deteriorated since 2005. Additionally, Fieldwood has raised equipment levels, strengthened platforms and removed platforms sooner than in the past.

The final challenge McCarroll spoke about was the availability of trained staff and relevant equipment.

“In the end, this is a people business,” he said. “You can have all the new technology you want, but if you don’t have good people to run the companies and work the operations offshore, you’re not going to be successful.”

It’s a challenge to train and retain workers and to stay up-to-date with equipment. To counter this trend, Fieldwood initiated a preferred contractor program in which it guaranteed utilization and negotiated for better pricing.

“It’s been a huge benefit for us. We’ve seen costs go down substantially, not because we’ve cut costs but because we’ve been more efficient. We’ve been doing our business smarter.”

Another major cost, rig rates, has been softening, he said. He still prefers to spend money on efficient rigs rather than lose days of production to inefficient ones.

Moving forward, McCarroll said the company is 60% to 70% hedged with oil prices at $95 to $100 per barrel for the next 24 months. As a result, Fieldwood hopes to weather lower oil prices. He thought there might be some attractive acquisition opportunities again, just as there were when oil dipped beneath $80 per barrel in 2008 to 2010. It’s also looking to maintain liquidity and pay down its debt, along with taking advantage of more GoM consolidations and acquisitions.

Fieldwood started up in 2013 with minimal staffing, $5 million in invested capital and no properties. It is a portfolio company of New York-based private equity firm Riverstone Holdings LLC, and it has grown to become the largest operator on the GoM Shelf. McCarroll repeatedly touched on two of Fieldwood’s most recent acquisitions, the $3.75 billion purchase of Apache Corp.’s GoM Shelf business and the $750 million gain of SandRidge Energy Inc.’s GoM and Gulf Coast business unit. Fieldwood currently operates 656 platforms, 149 of which are manned. It holds 650 Outer Continental Shelf blocks for a total of 2 million net acres. It produces about 115,000 barrels of oil equivalent per day.

Financially, Fieldwood gains about $7.5 million in net revenue daily, while its gross capital and operating expenditures total about $5.5 million per day. Each barrel of oil equivalent costs the company about $19.14 to produce, which allows it to recognize an EBITDA of $45.31 per barrel, for a margin of about 68%.

Offshore