Production in the deepwater Gulf of Mexico (GoM) is expected to reach a new peak of 1.9 million barrels of oil equivalent per day in 2016, according to Wood Mackenzie’s latest outlook. Driven by new developments and the expansion of older oil fields, this marks the first time production will surpass the previous production peak set in 2009.
“2014 is the start of the next significant growth period in deepwater GoM,” explains Imran Khan, GoM analyst at Wood Mackenzie. “We expect production from 2014 to 2016 to grow 18% annually.”
In 2015, Wood Mackenzie forecasts production to increase 21% from the 2014 level and the impact will intensify in 2016 when the Heidelberg field comes online and the Jack/St. Malo project ramps up. These three fields combined will produce 115,000 barrels of oil equivalent per day in 2016. In addition to new fields coming onstream, redevelopment and extension of older fields will also augment growth.
After hitting the new peak in 2016, Wood Mackenzie anticipates production to plateau for the remainder of the decade. Due to the depletion from legacy fields and a limited number of new fields coming onstream, a lack of growth is expected. Wood Mackenzie estimates that only eight developments will come online from 2017 through 2020, compared to 15 developments from 2014 through 2016. Khan explains that although the number of fields coming onstream during the latter part of the decade is limited, these are important fields that are going to define the long-term success of the region. “Stones, Shenandoah, and North Platte, are part of the Lower Tertiary, which has garnered attention because of the potential to find large discoveries.
However, the economics are currently challenging because of high costs, technological limitations and low recovery rates,” notes Khan. “Unless these obstacles are overcome, it will be difficult for the region to grow in the next decade. Not including yet finding reserves, we forecast that production will start to decline after plateauing out at 1.9 million barrels of oil equivalent per day in 2021.The current slide in oil prices does not help the long-term outlook either, especially if the downward trend continues for a prolonged period.
Wood Mackenzie’s outlook emphasizes the need for a sustained level of investment to support increases in production. Recent discoveries have been in deeper waters and in emerging plays which require complex drilling and more advanced technologies that are highly capital intensive. Khan explains: “A typical development well in the Lower Tertiary can cost US$300 million, as compared to the shallower, more established well-known plays, such as the Upper/Middle Miocene, where development well costs are closer to US$100 million.”
Consequently, capital spending is expected to increase in the coming years, especially in the emerging plays according to Wood Mackenzie. “In order to meet our 2015 production forecast, US$17 billion in capex will be required, which is 30% higher than 2013,” notes Khan. “The Lower Tertiary will make up 21% of this capex and its share will increase to 53% of the total in 2021.”
Furthermore, Wood Mackenzie’s outlook underscores that the GoM will continue to see competition increase globally as regimes around the world try to attract capital and open their borders, such as the recent move by Mexico to open up its energy sector to foreign companies. The competition will also continue to stiffen because of a sustained level of increase in costs in the GoM, which continue to escalate 5-10% annually, despite the recent softening of the rig market. Khan concludes: “Unless the technology to improve recovery rates is developed and costs are reduced, the operating environment will only become more challenging and it will be difficult for the region to maintain a long-term production growth trajectory.”