From Houston (MT): A gathering of the Gulf of Mexico’s (GoM) great and the good is always bound to produce the full gamut of views, and Hart Energy’s second GoM Offshore Executive Conference (OEC) proved to be a rich source of varying opinions.

But there was throughout a real acknowledgement and understanding of the industry’s current plight as well as the likely path that it will take on the long road to recovery. This was perhaps not so surprising, as the vast majority of the audience were mostly individuals who have previously experienced at least two or three similar downcycles.

Kicking off the event as opening speaker was Noble Energy’s CEO Dave Stover, who stressed that the key for his company in the GoM is maintaining a high exploration success rate, having competitive economics and an inventory that contains “a prize worth chasing.” Dire market conditions might have caused some to consider halting investment offshore, especially given the strong shale presence onshore.

But in the U.S. Gulf, according to Stover, “the resource visibility has probably never been greater.” Technology improvements that paved the way for deeper drilling and seismic advances have given improved visibility to the region’s resource potential, and Noble sees the opportunity. “We see an opportunity this year to get into some low-cost entry positions on things that probably wouldn’t have been available in other years,” he said.

Developments offshore might have taken the backseat to headline-grabbing onshore unconventional plays in the U.S. But the resurrection of the GoM quietly continues due in part to the region’s low above-ground risk, favourable fiscal terms and low breakevens. Investment research by Goldman Sachs of 420 oil projects revealed the breakeven for the GoM was as low as $40/bbl, but that was, admittedly, as of May 2015.

“One of the keys that has continued to drive our involvement has been our track record of success and our exploration and discovery rate,” Stover said. “We’re bringing on about 20,000 bbl/d net in new projects. It’s going to give us great momentum as we end this year and into next.”

Since entering the U.S. Gulf in 1968 when it acquired a single block, Noble has grown its portfolio to 524,000 acres, now holding about 42 MMboe in proved reserves as of year-end 2014. It’s eight producing fields flowed more than 18,000 boe/d in 2014, but that recently increased when production—mostly oil—started at its operated Big Bend (SEN, 32/16) and Dantzler deepwater projects. Stover turned to the projects’ short cycle times and prolific rates, providing an example of how offshore projects can compete economically with new unconventional plays.

The two fields in the Mississippi Canyon area, both subsea tiebacks to the Thunder Hawk (32/16) platform, are expected to add more than 40,000 boe/d, half of which is net to Noble. Big Bend went from discovery to production within three years, while Dantzler moved even quicker, moving from discovery to production in just two years. “That’s how you compete economically,” Stover said.

“You can still have very good margins in the Gulf compared to some other areas,” he commented, adding that “the resource prize has to be there. … There has to be a prize worth going for.”

Recent data from Wood Mackenzie showed that production continues to grow in the deepwater GoM despite falling rig counts. Liquids production rose from about 1.4 MMbbl/d of oil in 2014 to about 1.5 MMbbl/d by August 2015, while the average rig count dropped 32% since 2014.

According to Stover, the 10-year deepwater commercial success rate for the industry is 20%, while Noble’s is 55%.

In 2016, the company’s focus will be on exploration and appraisal in the GoM, he added. “We’ll hit the ground running at the beginning of the year on a new exploration well, followed by our Katmai appraisal well later in the year.”

Noble also hopes to have operations at its Gunflint discovery, also in the Mississippi Canyon area, up and running by mid-2016. The subsalt Miocene find also will be a subsea tieback, to the Gulfstar One facility. So far, the second development well has been sidetracked and completion operations along with the installation of pipelines and subsea installations have begun.

Stover also said that opportunities for the industry generally in the GoM are represented by areas such as further advances in 20,000-psi technology to drill deeper wells in HP/HT reservoirs, the potential use of high-integrity pressure protection systems, which are prevalent globally but not in the U.S. Gulf, and—of course—standardisation as a path towards reduced costs, cycle times and project delays.

Challenges that it also faces, he added, include post-Macondo regulations, which need more proactive engagement with regulators, and the highly-competitive environment in what is a mature basin.

Costs and collaboration

Costs were the main subject of a panel of speakers at the conference, who all flagged up technical innovation and more collaboration and standardization as part of the solution.

“We’re always looking at technology; it is part of the solution. But you can’t keep doing this the same way as before and then expect to see costs drop,” said Michele McNichol, CEO of Wood Group Mustang (WGM).

Amol Phadke, vice president of asset support, U.S. offshore for Statoil (which has two rigs working in the Gulf of Meixco [GoM] at present), said, “We love technology and we have a significant R&D program going on. But to really understand which technology makes a difference is very important.”

W&T Offshore’s CEO Tracy Krohn added, “Technology has a role, but it has a cost before you can save money with it. You have to make sure it doesn’t cost more than the savings it delivers to you. You’ve got to develop it, buy it, train on it.” Krohn has been operating in the GoM for 30 years but has just one rig running at the moment. “It’s not so much about the price [of oil and gas]; it’s really about your margin. When margins get back to where we need them to be, then we’ll go back to work,” he said.

WGM’s McNichol also noted that the industry has already done the easiest bits of cost cutting through 2015, but that further cuts will be more difficult to attain. “I do think there is still work to be done in the Gulf of Mexico on how to innovate and get these projects scoped appropriately, to continue to get the costs out. That is the hard work that needs to be done in 2016,” McNichol said.

Statoil’s Phadke said he has seen a 20% reduction in drilling costs, but it’s not enough, especially in deep water. He cited the ever-present need to reduce cycle times further. Statoil has been championing more standardized equipment and engineering in offshore facilities instead of each project being customized. “Changes in fit-for-purpose requirements will drive costs lower,” he said.

Ron Neal’s company, Houston Energy, partnered with LLOG Exploration on the Delta House field development, a deepwater floating production system tied back to three fields in Mississippi Canyon. “I know that our group and LLOG are looking at duplication of Delta House and if we can do that with moderate improvements, it’s got to drive down costs,” he said.

The companies are partners in other wells that were drilled by separate groups but are sharing infrastructure, “so collaboration is not only a real situation, but it is about our survival to lower costs. After the lease sale is over, companies can join together—we can be competitors and partners,” he said.

Krohn noted that in the end it is the operators who drive down costs because they are the ones who sanction projects or delay them. “You have to ask for that and speak louder. It’s a simple formula: oil and gas have dropped by 50% so costs have to drop by 50%,” Krohn concluded.