For more than a decade, the shale patch has been the engine of growth in U.S. oil production. Now, with the help of a pro-oil federal government, the trend is shifting to offshore oil production given technological advances and maturing shale reservoirs.
Earlier this year, the Energy Information Administration said oil production from Gulf of Mexico fields was expected to rise from 1.8 million barrels a day. barrels per day up to 2.4 million barrels per day already in 2027. Already in 2027 Both parties cited federal support for easier permitting, technological advances that make offshore drilling more cost-effective and efficient, and an appetite for investment in the industry.
This month, BP said it would invest $5 billion in a new offshore project in the Persian Gulf that would use about $350 million. barrels of oil reserves. The company said the Tiber-Guadalupe project would increase total U.S. output by 80,000 barrels per day as it plans to ramp up to more than 1 million barrels per day.
But that wasn’t the only recent oil news from the US. BP, again in partnership with Chevron, also announced a discovery in the Far South prospect earlier this year, with the executive saying: “This Far South discovery shows that the American Gulf remains an area of incredible growth and opportunity for bp.” Indeed, the supermajor plans to increase its Gulf production to 400,000 barrels per day by 2030.
Related: U.S. oil drillers continue to retreat as prices fall
Also this year, Talos Energy announced a discovery in the Persian Gulf that Wood Mackenzie said was the most significant since 2017. Shell’s Whale find. The Daenerys discovery is estimated to produce about 65,000 barrels per day at peak production, which could lead to more discoveries in the area, Wood Mac analysts said in September.
“We believe that offshore generation will play an increasing role in meeting global energy demand,” Talos Energy CEO Paul Goodfellow said in June, as quoted by Reuters. “It is tempting to raise questions about the long-term economic viability of onshore basins… At the same time, technological advances have unlocked vast deep-sea resources.”
That’s a pretty succinct description of the US oil situation. For many years, shale was favored because production could start much faster than conventional offshore fields. The latter required years of work and large upfront investment, while a shale well could be drilled and on production in a matter of months.
Only over time did the downside to this rapid start to production become apparent: shale wells started producing faster, but also ran out faster. As a result, shale drillers have to keep drilling, and sooner or later they come to the realization that not all drilling locations are equally “sweet”. As prime acreage begins to run out, shale producers have taken on the more expensive parts of the acreage and become more careful with their money.
Some have also pointed to evidence of declining well productivity in parts of the shale acreage, which, like costs, has weighed on production growth plans. Add to the mix the uncertainty of oil prices in global markets, and the situation for US shale becomes quite complicated. As one industry executive told the Dallas Fed’s energy survey, “We can make money at current oil prices. But with rising costs and politics, it’s better to pay dividends than take risks.”
On the other hand, offshore drilling starts with high upfront costs. It’s a given. However, new and better drilling equipment made it possible to drill in ever deeper waters and mine previously inaccessible sediments. Over time, the profits of an offshore frac may fall well below the current average for even the cheapest shale. As Talos’s Goodfellow said earlier this year, its offshore projects would remain profitable this half even if international oil prices fell to $35 a barrel. In addition, he said offshore breakeven could drop to $20 per barrel, while onshore oil breakeven averages $48 per barrel.
The Energy Information Administration forecasts that Gulf oil production will reach 1.89 million barrels this year. barrels per day, and in 2026 will grow to 1.96 million barrels per day. Meanwhile, onshore production will rise by just 190,000 barrels per day, excluding Alaska. That would be the slowest growth since 2010, excluding the Covid year, Reuters noted, citing an EIA outlook.
Meanwhile, offshore production will continue to grow, and some analysts, such as Energy Aspects, expect offshore growth to fully offset onshore declines over time — if supportive federal policies remain, that is. The Trump administration’s prioritization of local energy production has fueled offshore growth, making drilling easier by relaxing some regulations and helping to improve productivity. The return of Democrats to power is likely to dramatically change the outlook for offshore oil.
Oilprice.com by Irina Slav
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