Crude production to reach record levels in US Gulf of Mexico

The US Energy Information Administration (EIA) forecasts annual crude oil production in the US Gulf of Mexico (GOM) will increase to an average of 1.9M barrels per day b/d in 2019 and 2.0 million b/d in 2020. This follows record-setting levels in 2018 when crude oil production averaged 1.8M b/d in the US Gulf.

International oil companies (IOCs) expect eight new projects to come online this year and four more in 2020. US EIA forecasts these projects to contribute about 44,000 b/d in 2019 and about 190,000 b/d in 2020 as projects ramp up production.

Despite the record levels of oil production, the number of offshore rigs actively drilling in GOM has been relatively stagnant throughout 2019 and is less than half the levels seen five years ago; 23 rigs were drilling in the GOM as of October 2019, one more than was reported in January 2019, according to Baker Hughes. By contrast, 56 drill rigs were active in the GOM in October 2014. Lower offshore drilling rig activity translates into lower demand for OSVs and indicates fewer future developments.

Speaking at the Pareto Oil & Offshore Conference in September, newly appointed Tidewater president, chief executive and director Quintin Kneen said OSV industry demand fundamentals were improving, with global floater demand on the rise.

US-based Tidewater has the largest market cap of any OSV owner, US$632M as of early September, with a fleet of 223 vessels. As of the end of June, Tidewater had 38 vessels operating in the Americas, 15 of those in the US Gulf. Tidewater had an ‘active’ utilisation of 79.3%.

Mr Kneen says the recovery is being led by high-spec platform supply vessels (PSVs) with capacities of 3,000 dwt and above. In the US Gulf, this has translated to a 49% increase in day rates, from a low point of US$11,250 per day in January 2017 to US$16,750 per day in July 2019. For large PSVs in the North Sea, day rates have jumped 127%, from US$6,738 in May 2016 to US$15,313 in July 2019. In the Middle East , day rates were up 68% for mid-sized PSVs, moving from US$6,500 in September 2017 to US$10,950 in July 2019.

While that is all good news for the fundamental health of the OSV market, the patient is not nearly recovered. Mr Kneen estimated that the global stacked and idle fleet of OSVs stood at about 1,200 vessels, about two-thirds of which have been out of service for two years or more. He estimated that 440 of those were 15 years old or more and that the bell could be tolling for many of these older vessels. Special statutory surveys in combination with costly maintenance cycles could send many older vessels to the scrap heap. Some 450 active and 204 stacked vessels are due for class certification in 2019 and another 448 active and 146 stacked vessels are due in 2020.

This could add considerably to the record 603 OSVs sent for demolition over the last nine years. The high level of demolitions has helped the global OSV fleet absorb 127 newbuilds since 2017 and still shrink by a total of 124 vessels.

Mr Kneen said offshore oil production will be an increasingly important source of demand for OSVs, generating between 45 and 55%, as developments move further from shore and become more complex.

Brownfield activity drives demand

IOCs are investing in less risky, less capital-intensive deepwater brownfield activity, which is driving vessel activity.

Ahead of planned drilling activities, geo-data specialist Fugro has completed several high-resolution geophysical surveys for deepwater blocks in the greater Perdido and Mars development areas in the US GOM for Shell International Exploration and Production Company.

Moored in 2,450 m of water, Shell’s Perdido spar floating production platform has been in operation since 2010, producing about 100,000 b/d of oil from three fields, Great White, Tobago and Silvertip. In April, Shell announced the Blacktip discovery in the Alaminos Canyon Block 380 in about 1,900 m of water, 48 km from the Perdido platform.

“Blacktip is Shell’s second material discovery in the Perdido Corridor and is part of a continuing exploration strategy to add competitive deepwater options to extend our heartlands,” says Royal Dutch Shell upstream director Andy Brown. While Shell specifically did not mention a subsea tie-back to the platform, it did say that Blacktip “presents the opportunity to augment existing production in the Perdido area where Shell’s Great White, Silvertip and Tobago fields are already producing.”

Shell also took FID on PowerNap, a deepwater discovery in 1,280 m of water in the Mississippi Canyon area of the Gulf. Shell plans to tie-back production from PowerNap to its Olympus production hub. PowerNap will start production in late 2021, producing 35,000 barrels of oil equivalent per day (boe/d) at peak rates. Shell anticipates an attractive break-even price of less than US$35 per barrel.

Shell has already begun production from Appomattox in 2,255 m of water.

Surveys of the deepwater blocks are required to locate and support the clearance of potential environmental, engineering, geological and archaeological hazards ahead of drilling operations.

As the preferred contractor for this project supporting Perdido and Mars, Fugro deployed a Hugin autonomous underwater vehicle (AUV) from its purpose-built survey vessel Fugro Brasilis. Depth-rated to 3,000 m and equipped with multibeam echosounder, sidescan sonar and sub-bottom profiling sensors, the Hugin AUV was able to acquire seabed information over the project area efficiently, despite the challenging water depths.

With its specially designed hull, diesel-electric drive and resiliently mounted engines, Fugro Brasilis is designed to support acoustically quiet operations during its survey work. Flying the Bahamian flag, the vessel has a suite of sensors capable of seabed mapping from 12 m to full ocean depth. A hull-mounted ‘gondola’ provides a platform for Kongsberg EM302 and EM2040 multibeam echosounders, multifrequency single beam echosounders and a Kongsberg 300-6/Edgetech 2000-DSS sub-bottom profiler. Towed EdgeTech 4200 sidescan sonar and Marine Magnetics SeaSPY magnetometer are also part of the vessel’s survey equipment package.

Stern and starboard A-frames enable geotechnical sampling equipment to be deployed, whilst vessel-mounted compressors can run high-resolution digital seismic surveys. The vessel’s 340 m² back deck facilitates mobilisation of AUV and remotely operated vehicle systems.

With an overall length of 66.65 m, beam of 14 m and draught of 4.2 m, Fugro Brasilis has dynamic positioning class 1 capability and can accommodate 42.

Fugro’s current work for Shell began in July and finished in early October, collecting over 8,500 km of survey data.

Brownfield development is also an important part of US-based multinational oil company Chevron’s strategy of maximising its existing resources in the GOM. In September, it announced the sanction of a waterflood project in the deepwater St. Malo field to increase recovery to 175M boe. It will include two new production wells, three new injector wells and topsides injection equipment to the Jack/St. Malo floating production unit, allowing Chevron to extend the life of the field for another 30 years.