A complex set of variables is driving a resurgence in the Gulf of Mexico. Despite a federal push away from fossil fuels, the Gulf’s major oil players are investing in new production platforms that will increase, or at least maintain, current production rates for several years.
Industrial Info Resources of Houston is currently tracking 97 offshore oil and gas projects totaling nearly $27 billion that are in the planning, engineering or construction stage.
“The majors are developing more projects than I’ve seen in the last five years,” says Gordon Gorrie, vice president of oil and gas research at Industrial Info.
“There are several new projects taking off … not just additional steel platforms but a lot of deepwater floaters and semi-submersibles. And most of that is offshore of Louisiana, not Texas.”
That’s welcome news for south Louisiana’s oilfield service industry. When the market bottomed out from 2014 to 2016, the rig count in the Gulf dropped precipitously from 60 rigs to about 14. Now, it’s around 20 to 22.
“There are a large number of production platforms going into the Gulf of Mexico, with 12 of them having just announced, or are very close to announcing, an FID (Final Investment Decision),” says economist Loren Scott with Loren C. Scott & Associates in Baton Rouge.
Shell PLC and Equinor ASA, who recently approved a 90,000 barrels per day oil and gas platform in the Gulf, said they would aggressively invest in exploration to continue production through 2050.
The deepwater Gulf of Mexico will also remain a key component of BP’s overall energy portfolio, even as it invests in the energy transition, with a goal of increasing production to 400,000 barrels per day.
‘Landing a man on the moon’
Technology is part of the reason for the resurgence. Chevron disclosed in August that it had pumped oil from its Anchor Oilfield at 20,000 psi pressures using specially designed equipment. BP has its own high-pressure technology and is expected to soon pump its first 20,000 psi well in the Kaskida Oilfield about 250 miles southwest of New Orleans.
“It’s like a whole new frontier has opened up,” Scott says. “What they’re doing out there, technologically, is more difficult than landing a man on the moon.”
Mike Moncla, president of the Louisiana Oil & Gas Association, says sustained oil prices are also fueling investment.
“The industry is commodity driven, and for the last several years we’ve had $80 oil as an average,” Moncla adds. “Shell and BP have invested a lot in the renewables side, but recently they’ve decided to concentrate more on being profitable for their shareholders. And at $80 oil, the profitability is in drilling for oil, not in renewables.”
That’s grabbing the attention of Louisiana’s oilfield service companies. Prior to 2023, Danos Group Holdings in Gray had made a significant move into onshore work, particularly in the Permian Basin, but the ratio has recently begun to tilt back to offshore.
In March 2023, Danos acquired Wood’s offshore labor supply operations, then a year later Performance Energy Services (PES) in Houma. “The Wood acquisition was a pure play in terms of investment in offshore production,” says Paul Danos, CEO of Danos Group Holdings, “and while Performance has some work in Israel, outside of that all of their work is offshore.”
As a result, Danos has retrenched itself squarely in the offshore market, with nearly 75% of its business now in the Gulf of Mexico. “Our recent acquisitions help us leverage our existing infrastructure and make us more competitive in that space,” Danos says.
Nevertheless, he remains “cautiously optimistic” about the future of offshore oil and its impact on south Louisiana service companies. “The ‘cautious’ part comes from experience,” he says. “Our company has been around some 77 years, and we’ve moved through many oil and gas cycles, so being cautious just comes with the territory.
“And while there continues to be good opportunities, we need a federal government that wants to produce oil and gas in the Gulf,” he says. “If they do, there are companies that are still interested in this space.”
Many oil producers also point to environmental reasons for the ramp up in offshore attention.
A recent report by the National Ocean Industries Association, an industry group, asserts that greenhouse gas emissions associated with extracting a barrel of oil from the Gulf are one-third lower than emissions from a land-based well. “It’s a combination of God-given geology and the small footprint that they occupy,” Danos says. “They’re producing a lot of barrels in very small and confined area. And they can stick it in a pipeline, not on a ship that burns fuel.”
Pushing Against the Headwinds
The recent offshore surge seems to fly in the face of the Biden Administration’s attempts to curtail future investment.
The U.S. Department of Interior released its 2024-2029 National Outer Continental Shelf Oil and Gas Leasing Program nearly 500 days late and with the fewest oil and gas lease sales in the program’s 45-year history. Only three lease sales are scheduled in 2025, 2027 and 2029.
“And there’s no guarantee that they’ll have those,” says Tommy Faucheux, president of the Louisiana Mid-Continent Oil and Gas Association. “With the couple of lease sales that we had recently, Congress had to force them to happen.”
As a result, 2024 will be the first year in the program’s history with no sales at all. “If you look at the long-range forecast for production, it’s going up but then it starts to tail off and drop,” Scott says. “The decline curve is much shallower than a shale rig, but it does decline. Unless you get more drilling, you’re going to see that decline in production continue in the Gulf.”
Industrial Info’s Gorrie says new offshore investment will only help maintain the current rate of 2 million barrels per day, as the more mature platforms are producing less oil.
According to the American Petroleum Institute, most of the oil currently being produced is from leases sold during the Reagan and Clinton administrations.
“That’s how long it takes,” says LOGA’s Moncla. “Just because there’s a lease doesn’t mean it’s going to be drilled this year. When they ink a lease, they have to do seismic studies, geological surveys and figure out the best place to drill, then it might take a year or two to get a rig. Then you’ve got the logistics of getting the oil or natural gas to the shore. It takes years.”
And while the oil and gas industry continues to innovate to maximize production at existing lease sites, “they’re doing it with the leases they have now,” Faucheux says. “We have to figure out at a policy level how to increase the number of leases in order to incentivize these companies to explore and produce for the next 10 to 20 years.”
Faucheux points to the upcoming Dec. 20 suspension of the National Marine Fisheries Service’s “biological opinion”–used by federal agencies when permitting new oil wells–as another threat to production.
In August, the U.S. District Court for the District of Maryland ruled in a lawsuit brought by environmental groups that the NMFS opinion “underestimated the risk and harms of oil spills to protected species.” The ruling creates uncertainty for oil and gas operations while NMFS completes a new biological opinion, as ordered by the court.
While it won’t stop Gulf of Mexico production, Faucheux says, “it will make it very hard to get new permits for any type of activity.”
That’s given pause to companies such as Danos, who remain wary about the future even as they prepare for a ramp up in work. “Historically, the Gulf of Mexico has had a predictable regulatory market, relative to other places in the world,” Danos says, “but that has been totally undermined over the last two years.”
