BSEE/BOEM report outlines strategy to revive shallow water

Jan. 16, 2020
New research released from BSEE and BOEM indicates the need to define the Gulf of Mexico Shallow Water Province to avoid stranding more than $20 billion of oil and gas resources.

New research released from the Bureau of Safety and Environmental Enforcement (BSEE) and Bureau of Ocean Energy Management (BOEM) indicates the need to define the Gulf of Mexico Shallow Water Province (water depth less than 200 m) as a distinct province to avoid stranding more than $20 billion of the nation’s oil and natural gas resources.

The Shallow Water Province is a historically energy-rich area that now primarily serves as a natural gas province, accounting for 33% of the Gulf’s natural gas production and just over 10% of its oil production. Production and infrastructure investment used to be substantially higher in area, but over the last 20 years, development has moved onshore or to deepwater operations.

The number of wells drilled has decreased 89% over the last 10 years, and approximately 100 platforms a year are being removed with no new platforms being installed. If this trend continues, the lack of development will potentially strand 179 MMbbl of oil and 4,567 bcf.

The joint research report, “Gulf of Mexico Data and Analysis/ Leasing, Drilling and Production, Gulf of Mexico Shallow Water Potential Stranded Assets,” evaluates the contributing factors for this decline and recommends using an updated discount rate for the two distinct provinces.

BSEE Director Scott Angelle said: “This research provides critical information that energy development in the Gulf of Mexico should not be managed with a ‘one size fits all’ approach in how we avoid stranding our nation’s valuable energy resources. Although reversing the natural decline may not be entirely possible, promoting the recovery of the remaining oil and natural gas resources in the Gulf of Mexico Shallow Water Province, while protecting the interests of the American public, is an obligation this administration is taking action on.” 

BOEM Acting Director Walter Cruickshank said: “To ensure maximum resource recovery, BSEE and BOEM are working together to encourage increased activity consistent with the resource conservation policy established by Congress under Outer Continental Shelf Lands Act.”

The research has laid the groundwork for two actions that encourage increased activity in the province. They include: (1) BOEM’s publication of updated discount rates for the two distinct provinces of the Gulf of Mexico; namely, the Shallow Water Province and the Deepwater Province (the discount rate for the Deepwater Province also applies to all other OCS areas that that will be used for BSEE’s special case royalty relief evaluations); and (2) verification that BSEE has authority to consider applications for royalty relief on a “per project” basis. These projects can include exploratory wells in order to promote development of discovered resources.

The updated discounted rate for the Shallow Water Province will apply to special case royalty relief applications and will only be applicable for new wells and production in the region.

Deepwater to propel record oil production

Despite massive cuts in investment the US Gulf of Mexico is set for another year of record oil production in 2020, according to Rystad Energy. Most of the supply growth next year will come from deepwater projects.

“The year 2020 is expected to be another record year with average production above 1.9 MMb/d,” says Joachim Milling Gregersen, an analyst on Rystad Energy’s upstream team.

Oil production in the Gulf has grown every year since 2013, with an average of 104,000 b/d added annually. An essential contribution has come from infill drilling in legacy producing fields such as Mars, Thunder Horse, and Tahiti. The top contributors to supply growth in 2019 have so far been the Big Foot and Crosby fields. However, the Appomattox field should have ramped up toward its processing capacity of 175,000 boe/d.

In terms of discoveries since 2015, the GoM has been the world’s second most prospective offshore region, trailing only Guyana. The collective resources discovered in the Gulf over the past five years amount to 5.03 Bboe, with an estimated value of $1.9 billion.

“This is on the high end of the scale and relates to the frontier deepwater being less mature, providing opportunities for large discoveries. At the same time, infrastructure-led exploration has contributed with more frequent, smaller discoveries that can be tied back to existing infrastructure,” Gregersen added. •