Little fanfare, but Gulf of Mexico oil still growing steadily

Reuters | May 4, 2017 | Jessica Resnick-Ault

As rapid growth in U.S. shale production grabs headlines and threatens to upend attempts by OPEC to balance oil markets, a more unsung sector of the U.S. industry is also hitting new output highs - the offshore Gulf of Mexico.

The Gulf region is expected to add another 190,000 bpd before the end of the year, according to the U.S. Energy Information Administration. Growth should continue, according to consultancy RBN Energy, which expects production to rise by 300,000 bpd in 2018 from current levels.

To get similar 2017 growth in Texas's Permian Basin, for example, drillers would need to double the current rig count from the current 342, according to a Reuters analysis of U.S. EIA data. Even if that were possible, incrementally added rigs might not be as productive as those currently drilling, as prime locations have already been claimed.

Unlike shale, where price immediately governs production, Gulf production has proved relatively resistant to fluctuations in prices, fueled by projects approved before oil lost 80 percent of its value in less than two years.

For production to ramp up further in the Gulf, however, producers will have to reckon with the idea that the more active shale region - where time horizons are shorter - might keep crude oil prices CLc1 overall lower for longer, with little chance to break out of the $45 to $55 per barrel range.

Low oil prices had prompted some companies, including ConocoPhillips (COP.N), to pull back from the Gulf, as offshore rig owners are still smarting from the downturn.

Because of the long lag involved in assessing deepwater prospects and building drilling rigs, some of today's projects are the result of decisions made five or more years ago. Hess Corp's (HES.N) Stampede offshore project, for example, is expected to produce 15,000 bpd of crude beginning in the middle of next year.

While attention and investment is focused on shale, the Gulf is the among the most prolific oil source in the United States, producing more than Alaska, the West Coast and Rocky Mountains combined. The region churned out a record 1.76 million barrels per day of crude in January, trailing only Texas onshore production, which includes the growing Permian Basin.

“The business can compete with tight onshore oil any day,” said Richard Morrison, regional president for the Gulf of Mexico for BP Plc (BP.L) speaking at the annual Offshore Technology Conference in Houston, where nearly 70,000 people from 120 countries are attending.

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