Overview: Gulf of Mexico - By Tsvetana Paraskova

The Gulf of Mexico has definitely recovered from one of the worst downturns in the oil and gas sector in a generation - the region saw its highest annual average production last year and is on track to set another record this year.   

Major oil companies have sanctioned and brought online new projects since 2017 and continue to expand their development plans in the Gulf of Mexico as they have managed to bring costs down.  

Analysts expect drilling activity and investment to return to the Gulf of Mexico this year and mergers and acquisitions (M&As) in the area to pick up.   

In 2018, crude oil production in the federal US Gulf of Mexico increased by 61,000 barrels per day (bpd) to the highest annual average of 1.74 million bpd, according to data from the US Energy Information Administration (EIA). The Gulf of Mexico was the second-biggest oil producing region in 2018, after Texas, which pumped 40% of all US crude oil production last year.  

Rising production, especially in Texas, resulted in US annual crude oil production reaching 10.96 million bpd in 2018, up by 17% compared to 2017 and beating the previous production record from 1970.
In the Gulf of Mexico, oil and natural gas producers brought online 11 new projects last year, while eight new projects are expected to come online this year, the EIA said in April 2019.

The number of producing natural gas wells in the Gulf of Mexico dropped from 3,271 in 2001 to 875 in 2017, leading to a decline in the region’s natural gas production, the Administration said last November. However, a total of 16 new field starts in 2018 and 2019 combined may slow or even reverse the nearly two-decade decline in natural gas production in the Gulf of Mexico, the EIA noted. These 16 projects have a combined natural gas resource estimate of about 836 billion cubic feet.

This year, oil production in the Gulf of Mexico is set for another record-breaking performance, Rystad Energy reckons. The energy research and business intelligence company forecasts that oil production this year will average 1.95 million bpd, with some months potentially touching the 2 million bpd threshold, also thanks to Royal Dutch Shell’s new oil and gas platform Appomattox, which began production in May 2019, months ahead of schedule.

Appomattox, which currently has an expected production of 175,000 barrels of oil equivalent per day (boepd), is the first commercial discovery brought into production in the deepwater Norphlet formation - the first ever production from a Jurassic play in the Gulf of Mexico. Industry analysts will be watching closely the development and production at Appomattox for indications about other potential reservoirs in the Norphlet formation.

“Appomattox creates a core long-term hub for Shell in the Norphlet through which we can tie back several already discovered fields as well as future discoveries,”
Andy Brown, Upstream Director at Shell, said.

Commenting on Appomattox and the Gulf of Mexico’s oil production, Joachim Milling Gregersen, Analyst on Rystad Energy’s Upstream team, said:

“The torch has been carried by large deepwater fields, of which Appomattox is the latest contribution.”  
Another major oil company and one of the largest producer in the Gulf of Mexico, BP, advanced plans in May to expand its Thunder Horse project, sanctioning the development of Thunder Horse South Expansion Phase 2 in the deepwater Gulf of Mexico—a project expected to add 50,000 bpd of oil production.

“This latest expansion at Thunder Horse is another example of how the Gulf of Mexico is leading the way in advantaged oil growth for BP, unlocking significant value and safely growing a high-margin business,” said Starlee Sykes, BP’s regional president for the Gulf of Mexico and Canada. “It also highlights our continued growth and momentum in a region that will remain a key part of BP’s global portfolio for years to come,” Sykes said.

BP’s net production in the Gulf of Mexico rose from less than 200,000 boepd in 2013 to more than 300,000 boepd at present. The UK supermajor expects to boost its production in the Gulf of Mexico to around 400,000 boepd through the middle of the next decade.

Exciting new project sanctions could lead to more than US$10 billion of investment into the region, William Turner, senior research analyst at Wood Mackenzie, said in December 2018, expecting 2019 to be a strong year for the Gulf of Mexico.

Shell’s Appomattox is a cornerstone of its global deepwater strategy, and all eyes will be on the well performance of the potential heavy hitter, according to WoodMac.  

The energy consultancy also expected a potentially thriving M&A market in the Gulf of Mexico in 2019.
In April, Murphy Oil Corporation said that it would buy deepwater Gulf of Mexico assets from LLOG Exploration Offshore for US$1.6 billion.

The transaction makes Murphy the eighth-biggest producer in the Gulf of Mexico, while only a year ago, they were number 20, Imran Khan, Senior Research Manager, US Gulf of Mexico Upstream Oil and Gas, at WoodMac, said.

“We forecast a big year for M&A in the Gulf of Mexico, and the momentum is starting to pick up,” Khan noted.

In May 2019, Equinor said that it had exercised its preferential rights to buy an additional 22.45% interest in the Caesar Tonga oil field from Shell for US$965 million in cash, boosting Equinor’s interest from 23.55% to 46%.

“Deepwater Gulf of Mexico forms an important part of Equinor’s portfolio. This deal will strengthen our position in this prolific basin and build on the recent discovery in the Blacktip well. Later this year we will be drilling the Equinor-operated Monument prospect, which has the potential to further develop our position in the Gulf of Mexico,” said Christopher Golden, Equinor’s Senior Vice President for Development and Production International, North America Offshore.

Exploration activity in the Gulf of Mexico is expected to increase by 30 percent this year, with Shell and Chevron leading the way. However, the actual exploration growth will come from new entrants – Kosmos Energy, Equinor, Total, Murphy, and Fieldwood, according to WoodMac.

One of those new entrants, Kosmos Energy, announced in early June 2019 the first success from the 2019 Gulf of Mexico exploration campaign - an oil discovery at Gladden Deep in which Kosmos holds a 20% working interest.