The Gulf of Mexico (GOM) for decades was the breadbasket for U.S. natural gas and oil production, but the Lower 48 took over as unconventional drilling uncorked massive reserves. As onshore activity has waned, however, the deepwater is once again beckoning.
Enverus Intelligence Research (EIR) director Andy McConn recently shared the firm’s outlook about the potential in the GOM during an oversight hearing before the House Natural Resources Subcommittee on Energy and Mineral Resources.
“It is well known that growth momentum has shifted in previous decades from the offshore region to onshore, namely to shale resources,” he said. “But we forecast U.S. onshore oil growth to moderate significantly by the end of the decade.
“We estimate that each of the main shale oil basins holds between three and 10 years of economically attractive drilling inventory, which represents a sharp reduction from industry estimates years ago.”
Exploration and production (E&P) companies have worked to “preserve scarce shale inventory,” he said. That’s been “in conjunction with a diminished role of growth-oriented private capital and investors’ desire for capital to be returned to shareholders…” Those factors “all contribute to our forecast of lower domestic oil production growth onshore.”
‘Green Shoots’
Because of the U.S. onshore’s “diminishing role,” there is “an opportunity for the U.S. offshore region,” McConn said. “A change to market conditions, such as higher oil prices and/or new government-led initiatives, could inject growth potential back into the U.S. offshore energy sector. Indeed, there are already signs of green shoots.”
In the Interior Department’s last GOM auction, held in December, Lease Sale 261 resulted in the highest bid total by E&Ps since 2015.
E&Ps in particular are being drawn to the Lower Tertiary Trend because of its “high-impact acreage,” McConn noted.
The Lower Tertiary has been explored for years. In 2010, Shell plc ramped up the Perdido spar in the Lower Tertiary, which at the time was the world’s deepest offshore drilling and production facility.
In the last lease sale, the Lower Tertiary was the center of interest. The Mississippi Canyon Block 389 in the trend drew five bids, the most in the auction. The block is between BP plc’s Na Kika project and Shell plc’s Appomattox development.
Shell, the No. 1 GOM operator, in recent years also has sanctioned big projects in the Lower Tertiary. In 2017, it issued the first green light in 18 months in the Lower Tertiary for the Kaikias deepwater field after slashing costs by more than half.
Shell has continued to build out its Lower Tertiary portfolio. In December, three more wells were sanctioned in the Great White unit, which will be processed through the Perdido platform.
Shell last year also sanctioned Sparta, a deepwater development in Garden Banks within the Lower Tertiary. Sparta is scheduled to ramp up in 2028. And Shell recently acquired the remaining stakes in the Kaikias field, giving it 100% ownership.
Better Completions
What’s helping propel the GOM is the use of hydraulic fracturing technology, which turned around the Lower 48’s oil and gas fortunes when it was combined with horizontal drilling.
Using fracturing in the GOM “has yielded some positive results,” McConn noted. “These tailwinds add to the region’s already recognized attractive features like low emissions intensity, low above-ground risk and high estimates for undiscovered technically recoverable resources.”
The ICF completed a study issued last year by the National Ocean Industries Association about global oil production emissions. Researchers found that the GOM had a carbon intensity that was 46% lower than the global average.
E&Ps are taking note. Shell’s Sparta, for example, is to be the first to feature all-electric topside compression equipment as the company works to reduce emissions across its operations.
Separately, EIR in March issued a report assessing the fracturing parameters and recovery enhancement in the Lower Tertiary.
“The market is under-appreciating the role of hydraulic fracturing in the Gulf of Mexico – and its role in growing the Lower Tertiary play and potentially other offshore regions,” McConn said.
The region has a substantial amount of oil and gas too.
Still, in the past decade only four operators have fractured 27 wells in the Lower Tertiary, which represents about one-half of the wells, according to EIR. Three to five zones may be fractured for each well, with an average treatment time of two days per zone.
EIR expects the Lower Tertiary to lead the GOM’s production expansion, with an estimated compound annual growth rate of 22% between 2023 and 2028.
“Developing the resource is challenging, because the reservoirs typically contain ultra-high pressure and low permeability, so modern drilling and fracturing technologies are critical to unleashing their potential,” said EIR’s Marvin Ma, who authored the Lower Tertiary report.
