Barring a "severe negative turn" in the global economic outlook, the outlook for oil and gas projects in the U.S. Gulf of Mexico (GOM) appears to be positive with gains across all of the major market sectors, according to Quest Offshore.
"The worldwide financial crisis and subsequent recession, shale gas' implications on U.S. natural gas prices and the aftermath of the Macondo incident, have led to significant changes in the outlook for the region," noted the authors in the firm's latest market report, "Quest Deepwater Review: Gulf of Mexico 2013 and Beyond." However, "despite those overwhelming obstacles, the U.S. GOM's future is bright with a pronounced recovery expected in all major market segments from drilling to subsea, floating production and marine construction."
Beginning in 2013, overall spending in the GOM is forecast to increase significantly to about $40 billion, which would be 30% higher than this year. Total spending is forecast to reach $167 billion in the 2013-2016 period.
This year, for the first time, an "investment shift" occurred, with deepwater capital expenditures and operating expenses "surpassing that in shallow water," noted the authors. "In the under developed ultra-deepwater frontier areas of the region, challenging technical and reservoir conditions will result in increased spending across the board, a trend expected to continue through the foreseeable future."
Producers are shifting to more oil than natural gas production, noted Quest.
"The long-term trend of declining natural gas production in the GOM is expected to accelerate to the point of almost all natural gas production in the Gulf being oil associated gas. Thus, macroeconomic forces are only further reinforcing other trends seen in the industry, of a GOM environment dominated by oil majors and only the select independents willing and able to adapt to a changing economic and regulatory environment."
The region five years ago was a "mix" of majors and independents. However, beginning in 2013 Quest expects to see "more oil dominance with offshore gas waning." To that end, international oil companies "will play a larger role with the execution of standalone (hub) projects with niche-focused independents looking to infrastructure-led drilling around existing hubs and mega-independents continuing to grow their strategic portfolios in select basins."
Leasing activity in the GOM's deepwater "is rightly seen as the furthest leading indicator for prospective oil and gas activity not only in the Gulf but throughout the world." Because of relatively long lead times between leasing, drilling and production, "leasing trends can be expected to provide insight on future activity for years to come."
Oil majors and national oil companies (NOC) now hold about one-third of the active deepwater leases in the GOM, and they should "continue to be the driving force for pushing the boundaries" of development. Excluding Anadarko Petroleum Corp. and ConocoPhillips, "all recent frontier projects" have been undertaken through operatorship by one of the majors or NOCs: BP plc, Chevron Corp., ExxonMobil Corp., Royal Dutch Shell plc, Total SA, Statoil ASA and Petrobras. "We expect this theme to persist moving forward."
From January through September, Quest noted that there had been 78 new exploration drilling permits and 36 new development drilling permits issued for the GOM, with total counts "back to pre-Macondo levels."
"Raw" permit counts are showing positive movement this year, but "the comparison in permits issued per project highlights the underlying cause for such steep increases in the first half of 2012. Multi-well projects (defined as five or more wells) have seen a record permitting pace since late 2011." Examples include Chevron's Jack/St. Malo Project and the Big Foot project, Shell's Mars B Project, Hess Corp.'s Tubular Bells project and most recently BP's Atlantis North development.
"True wildcat exploration permit numbers are still well below levels seen prior to the drilling moratorium," noted the authors.
Notable discoveries of ultra-deepwater fields in the Lower Tertiary Trend "continue to increase the reserve and production expectations for the region. The shift in the Gulf is most apparent in the floating rig market with four operators now possessing 50% of the contracted rig fleet. Ninety-percent of the rigs operating are considered high-spec and rated for ultra-deepwater."
A "robust" outlook for the region should continue, according to Quest. The authors noted that over the past four years, the U.S. GOM had undergone a shift in project development mix from "heavy in small, independent-operated subsea tiebacks to one that is grounded in fewer, larger subsea tiebacks and high-investment standalone developments developed by international oil companies and mega-independents."
The shift toward fewer -- but larger -- subsea tiebacks, along with increased floating production systems (FPS) "will have profound effects on the future of the subsea sector as the hardware installed evolves as a direct result of fewer gas developments and deeper, more challenging fields."
The "next wave" of FPS developments for the most part will be in ultra-deepwater and in more remote areas not currently connected to shallow water or onshore infrastructure, said the report. "These developments will materially impact the pipeline and marine construction markets (SURF) as these production hubs are connected to existing export infrastructure through 2016 and beyond. The subsea tieback potential for these hubs is most likely to be seen in the latter half of this decade and into the following, with these latest hubs laying the foundation for the next generation of deepwater developments in the region."
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