Imran Khan, GoM analyst at Wood Mackenzie, explained 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," Khan observed.
However, the economics are currently challenging because of high costs, technological limitations, and low recovery rates, Khan notes. "Unless these obstacles are overcome, it will be difficult for the region to grow in the next decade," Khan observed. "We forecast that production will start to decline after plateauing at 1.9 MMboe/d in 2021.The current slide in oil prices does not help the long-term outlook either, especially if the downward trend continues for a protracted 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 explained: "A typical development well in the Lower Tertiary can cost $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 $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, $17 billion in capex will be required, which is 30% higher than 2013," Khan noted. "The Lower Tertiary will make up 21% of this capex and its share will increase to 53% of the total in 2021."
There will be further challenges ahead as the industry moves into the next decade. By 2021, some of the largest fields such as Mars and Mad Dog will have been producing for 15 to 20 years.
The impact from this depletion will be significant. Those fields currently onstream are expected to produce 4.2 Bboe between now and 2021. Based on the average deepwater GoM discovery size of 77 MMboe, almost 55 discoveries would be required to make up this amount.
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 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 concluded: "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."