Technology improvements are driving a renaissance in offshore drilling in the United States. And it’s not a moment too soon, as many analysts believe shale is nearing its peak. Also, with the energy transition not going as fast as hoped, some new oil and gas supply would come in quite handy.
Earlier this year, the U.S. Energy Information Administration said that it expected crude oil output from Gulf of Mexico fields to rise from the current 1.8 million barrels daily to 2.4 million barrels daily as early as 2027.
“We believe that offshore production will play an increasingly larger role in filling the global energy demand,” the chief executive of Talos Energy, Paul Goodfellow, said a few months ago during a conference call. “Questions are starting to arise about the continued long-term economic viability of onshore basins... At the same time, technological advancements have unlocked significant deepwater reserves,” he elaborated.
These technological advancements concern many aspects of offshore drilling, but one has been called a breakthrough: drilling in ultra-high pressure. Last year, Reuters reported that new drilling tech was being deployed by Big Oil, making it possible to drill under pressure of up to 20,000 pounds per square inch. Analysts believed at the time this technology could add some 5 billion barrels to recoverable oil reserves.
Now, the Financial Times is reporting that Big Oil is deploying the ultra-high pressure drilling tech in the Gulf of Mexico, tapping reserves previously inaccessible. Chevron and TotalEnergies are doing it with the Anchor project, the report noted, and Shell and BP are going to start using similar tech at new fields in a couple of years. It appears that from the perspective of offshore oil producers the outlook for demand is quite bright.
Meanwhile, new discoveries abound in the Gulf. A few months ago, Talos Energy announced that it had struck oil at the Daenerys field, with Wood Mackenzie saying it could be the most significant discovery since Shell’s Whale discovery in 2017. BP, meanwhile, said it would spend $5 billion on developing the Tiber-Guadalupe field, with reserves estimated at some 350 million barrels and production seen at 80,000 barrels daily. Chevron’s Anchor project, the one with the breakthrough tech, is seen driving peak production of 75,000 barrels daily with a productive life spanning 30 years, according to the supermajor.
Deepwater drilling has been a strategic focus for big oil companies for several years now, as fields in shallower waters mature and production declines, while oil demand appears to keep going higher. Shale was one major diversification venue, but now shale is moving past its boom years, and while there are still a lot of barrels in the shale formations, extracting them is getting costlier.
In offshore drilling, on the other hand, the upfront costs are something the industry is used to, and the lifespan of the projects tends to justify those upfront costs, with Talos Energy saying that breakeven costs at offshore fields could come in at as little as $20 per barrel in some fields. Last year, Wood Mackenzie forecast that oil and gas production from deepwater fields would surge by 60% over the next five years alone—almost as if there had been no forecasts of peak oil demand growth. Rystad Energy also expected a substantial increase in spending on offshore drilling. One might even go as far as to call it a boom.
The Financial Times reported this week that investment in the Gulf of Mexico fell to $18.6 billion last year. That was down from $43.7 billion ten years ago, the publication noted. But things are about to change—global offshore investment is already on the rise and what Big Oil is doing in the Gulf suggests it is not going to be an exception.
By Irina Slav for Oilprice.com
