The coming year appears to be a turnaround for the U.S. Gulf of Mexico (GOM), as drilling increases for the first time in four years and more projects are sanctioned.

“We expect 2019 to be a strong year for the Gulf of Mexico,” Wood Mackenzie senior research analyst William Turner said. “In addition to exciting new project sanctions, which could usher in more than $10 billion of investment into the region, a couple of historic firsts set to occur next year could set the stage for years to come.”

Wood Mackenzie issued its annual outlook about the GOM, noting that after four years of steady decline, exploration activity is poised to increase by 30%.

Royal Dutch Shell plc and Chevron Corp. are expected to lead the way production-wise, while exploration activity would be from operators that include Equinor SA, whose predecessor company Statoil SA was a big GOM player. In addition, more exploration is expected by offshore pure-play Fieldwood Energy LLC, Kosmos Energy Ltd., Murphy Oil Corp. and Total SA.

The new year also marks a “crucial” point for the offshore industry, with Chevron Corp.’s Anchor project in Green Canyon Block 807 likely to move forward. Total and Venari Resources LLC are partners in the field, which is about 140 miles offshore Louisiana in waters 5,183 feet.

Anchor, with an operating pressure of 20-kilo pounds/square inch (ksi), would be the first ultra-high-pressure project in the world to reach FID, according to Wood Mackenzie.

An FID at Anchor “would be the culmination of more than a decade of multiple joint industry research and development projects to design kit that can safely produce at 20-ksi.” The current limit is 15-ksi.

“Anchor will be an important one to watch,” Turner said. “The sanction of Anchor will be a significant milestone for Chevron, Total and Venari, but also mark a crucial point for the offshore industry as it enters the final frontier in deepwater development.”

Success at Anchor could lead to the next wave of mega-investment in the GOM, as several 20-ksi projects are waiting to follow its lead. Wood Mackenzie analysts said if Anchor were to go forward, more than U$10 billion of investment could flow into the region.

“Proof of concept at Anchor, and more certainty around facilities to serve as hosts, will surely increase interest in discovered fields,” Turner said. “We expect it will also invite more exploration for ultra-high-pressure targets over the next couple of years. Even so, with higher technical risk and higher breakevens, market conditions would have to align for it to become a reality.”

Shell’s Appomattox development, in Mississippi Canyon Block 392, is due to come onstream in 2019, marking the first production ever from a Jurassic reservoir in the GOM. This would be a milestone for Shell, as Appomattox is a cornerstone of its global deepwater strategy. All eyes are expected to be on the well performance of the potential heavy hitter.

“If the Jurassic roars to life in 2019, it could give operators greater confidence in the play’s potential,” Turner said. “However, if Appomattox disappoints, the Jurassic could continue to lie dormant. The wider region would also be missing an expected strong production growth contributor.”

Merger and acquisition (M&A) activity in the GOM also is also expected to pick up as a long list of assets for sale continues to grow. Private equity players may want to sell as their assets get closer to maturation, while established players shed noncore positions.

“There appears to be plenty for sale in deepwater Gulf of Mexico,” Turner said. “We believe the quality of the assets is high. If oil prices cooperate, we could see a thriving M&A market in 2019.”

A key factor to ensuring the year ahead is strong will be holding onto industry-wide efficiency gains made since 2014.

“In the last four years, deepwater operators have focused heavily on lean operations, standardisation and industry collaboration to achieve fiscal discipline,” said Turner. “Reverting to inefficient ways of doing things is a real threat that operators need to look out for in 2019.

“The challenge to operators and the service sector alike will be to hold onto lessons learned, mitigate efficiency risks where possible and properly plan for higher costs and longer schedules where unavoidable.”

For the global offshore, Rystad Energy said the outlook also is strong, with more than 100 projects overall in line to be sanctioned. As much as $210 billion could be spent on oilfield services (OFS) worldwide next year.

“The offshore service market is like a super tanker. It takes time to accelerate,” said Rystad’s Audun Martinsen, head of OFS research. “The uptick in new projects in 2017, 2018 and now 2019, will be enough to turn revenue growth positive to mid-single digits as offshore capex is set to increase due to the recent years of capital commitments. And on top of that comes expected increases in operating expenses.”

Even though oil prices have been declining, operators still plan to sanction projects. More than 85% of the projects expected to be FID’d would generate returns of more than 10% even at current Brent oil prices, as development costs have fallen by as much as 30% since 2014, according to Rystad.

“Unit prices in 2018 were down at levels not seen by the offshore market since 2006, which naturally has positive implications for the breakeven prices of the projects in question,” according to the research firm.

“Offshore operators are quite trigger-happy on FIDs these days, despite the recent reduction in oil prices,” Martinsen said. “2018 saw the lowest obtainable unit prices since 2006, as much as 30% down from the peak in 2014, and that makes their cost per barrel and breakeven prices highly favorable.”