May 29, 2017
Author: Lars Lysdahl, Senior Project Manager, Rystad Energy
Publisher: Offshore Magazine
Gulf of Mexico investments halved from the 2014 peak to 2016 following the oil price collapse, as volumes from OPEC and shale & tight oil flooded the market. The collapse also took its toll on the shale industry; rig counts plummeted and profits nosedived. Now that cost levels in the shale industry have adjusted to the new price regime, we are witnessing operators accelerating drilling efforts and the dawn of a new boom. The same effect is about to emerge offshore; cost reductions, standardization and simplification measures entail attractive breakeven prices, and we see indications of increased willingness to invest down the line.
Make no mistake; shale & tight oil will draw most of the investments and production growth going forward. In fact, we forecast production from US shale & tight oil to double from around five million barrels per day in 2017, to a remarkable ten million barrels per day by 2022. Despite this growth from shale, and despite assuming two million barrels per day of incremental production from OPEC, we see room for offshore oil to fill the gap and meet the growing demand.
There are already signs of activity picking up in the Gulf of Mexico. BP and Shell recently took final investment decisions on developing Mad Dog Phase 2 and Kaikias. Next year we expect Shell to greenlight the Vito project and Anadarko to go ahead with the Shenandoah and Phobos fields. In addition, there are ongoing qualification rounds and study work on numerous fields such as Cobalt’s North Platte and Chevron’s Anchor developments. On the exploration side, the deepwater auction in Mexico has received great interest from foreign oil companies and we therefore expect activity to rise from 2019.
In the short term, outlooks are still dire due to operators wanting to secure positive cash flows before increasing investments. From 2019, however, as development and exploration activity picks up, a gradual recovery in investments seems inevitable. When analyzing sensitivities, we indicate a modest increase in investments over the next five years at 60 USD/bbl oil prices. When assuming oil prices at 80 USD/bbl or more, a new boom is likely.