Deepwater Drilling in the Gulf of Mexico Predicted to Bounce Back to Pre-Blowout Levels

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The infamous BP oil spill caused chaos in the US deepwater oil industry, but now drilling in the US Gulf of Mexico (GoM) is making a comeback, according to natural resources experts GlobalData.

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One major attraction for deepwater oil exploration in the GoM is the stable political climate and clear regulations

New research released by GlobalData, a leading business intelligence provider for the energy sector, states that despite the increased US government restrictions that followed the Deepwater Horizon explosion – combined with the risks and high costs involved in deepwater drilling – climbing crude oil prices will see GoM oil production surpass its former records.

Matthew Jurecky, Global Director of Energy Research and Consulting for GlobalData, recently stated in a prior release that, “The rise in crude oil prices, and consequently retail gasoline prices, was and is inevitable. The global economy is at one of its lowest points in decades and crude oil prices are still set to average a record high for 2012.”

Now, GlobalData's report, Deep Offshore Oil & Gas Exploration and Production (E&P) in West Africa - Market Analysis, Competitive Landscape and Forecasts to 2020, states that the increasing price of crude oil means that offshore Brazil, offshore West Africa and the US Gulf of Mexico are forming a “Golden Triangle” for deepwater oil exploration and production.

BP plc’s Macondo well experienced a blowout in April 2010, resulting in the destruction of the Deepwater Horizon drilling rig, a 5 million barrel (MMbbl) oil spill, and a six-month moratorium issued by the US government for certain areas of the GoM. However, a recent surge in issued permits indicates the return of large-scale deepwater drilling to the area.

The US government issued 44 deepwater drilling permits (including permits issued for new wells, bypass and sidetrack, excluding revised permits). This is a promising figure considering that throughout all of 2011 and 2010 the US government issued only 79 and 74 permits respectively. This growth suggests that deepwater drilling in the GoM will return to levels seen before April 2010 by the end of 2012.

One major attraction for deepwater oil exploration in the GoM is the stable political climate and clear regulations, while many other parts of the world see oil and gas investment opportunities marred by regime changes or nationalization. The US and Mexican governments entered into an agreement in February 2012, that set a framework to facilitate hydrocarbon exploration and production in the GoM. The agreement enables lease operators in the US GoM to coordinate with Petroleos Mexicanos (Pemex), the Mexican National Oil Company (NOC) for the joint exploration and production of hydrocarbons in the GoM in the Mexican maritime boundary of GoM. The agreement allows a greater level of freedom for US oil corporations, and is expected to increase investment and drilling in the GoM.

Major International Oil Companies (IOCs) such as BP and Chevron Corporation have always dominated deepwater drilling in the GoM, and are at the forefront of the drilling resurgence. Out of the 44 deepwater drilling permits issued in Q1 2012, BP (with 13) and Chevron (with 14) garnered the majority. IOCs hold the required technological expertise and the capacity to fund high capital expenditure and potential multi-billion-dollar liability risks in the event of another oil spill.

However, the dominance of IOCs in the GoM deepwater exploration is enhanced by an apparent lack of interest from some small independent US operators, as regions such as the Bakken and Eagle Ford shales offer attractive opportunities without the levels of risk involved in deepwater drilling.

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Alice Robinson
GlobalData
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