Churning around?

Jake Gillian, EIC

May 1, 2017

Prospects are looking up in the US Gulf of Mexico as operators make final investment decisions. EIC’s Jake Gillian outlines activity in the area.

 

The US Gulf of Mexico (GoM) has seen somewhat of a slowdown in activity ever since the oil industry recession began in November 2014. There does, however, finally seem to be some light at the end of the tunnel with project investment set to take a significant jump as we close out 2017 and move into 2018 (See capex investment chart).

Signs that the tide is turning are best exemplified by final investment decisions (FIDs) coming for both BP’s Mad Dog II project, and Shell’s Kaikias subsea tieback in February 2017. BHP Billiton (a 23.9% shareholder) committed to invest US$2.2 billion into the Mad Dog II project, while Shell took steps to secure investment for the development of the Kaikias deepwater field: the first Shell project approval for 18 months.

Project activity

The Mad Dog II project, operated by BP (60.5%) with partners BHP Billiton (23.9%) and Chevron (15.6%), aims to deliver up to 140,000 b/d through a total of 14 subsea wells by 2021. Project costs have recently been cut to $9 billion (down from $20 billion) through standardizing design, lower steel prices, and the renegotiation of contracts, and as a result BP gave the project the greenlight in December 2016. Following BHP Billiton’s FID, Chevron also took the decision to proceed with the project in early March 2017. Samsung Heavy Industries has recently (January 2017) been awarded the $1.3 billion contract to build the semisubmersible production unit.

There are also significant opportunities developing at Shell’s Vito offshore oil field project. Recently, Shell narrowed the shortlist for the semisubmersible production facility down to Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering. Kiewit, and COOEC are shortlisted for topsides only. Contract awards are expected in late 2017.

Encouragingly, the North Platte offshore oil discovery, operated by Cobalt (60%) and partnered with Total (40%) encountered 198m of net oil pay in January. Cobalt is seeking a production unit capable of producing between 80,000 and 100,000 bo/d of oil. Cobalt has not chosen to proceed with a traditional multi-stage tender process and instead has opted to partially fund a design competition, expected to be underway as early as Q2 2017.

Appraisal drilling at Anadarko’s Shenandoah-6 well reached total depth in February 2017 and sidetrack work was started. SBM Offshore is currently proceeding with front-end engineering and design work (funded by Anadarko) for the facilities semisubmersible platform while Wood Group is proceeding with topsides and subsea components. There is currently no firm date for an FID, and Anadarko has previously cited the low price of oil as the main reason that investment was not forthcoming. However, with the price of oil stabilizing, Anadarko upping their share in the discovery to 33%, and continuous appraisal work being undertaken, there may be an FID soon.

The outlook

The outlook for the GoM is definitely bright, especially when considering the projected level of investment in 2018 and 2019 into major project start-ups. Additionally, with the increasing utilization of subsea tiebacks, breakeven costs are being lowered. Shell, for example, is expecting breakeven costs of below $40/bbl on its Kaikias subsea tieback through utilizing infrastructure already in place at the Shell-operated Ursa production hub.

Furthermore, President Donald Trump’s plan to open up 73 million acres of coastline for offshore drilling as a way to drive the US toward energy independence reinforces the optimistic outlook for the region’s future.

Jake Gillan works on the EIC’s project tracking database, EICDataStream, for North and Central America as well as monitoring market trends, project and business opportunities beneficial to the EIC membership. He has a BA in History from Plymouth University in the UK and has worked for UK valve supplier, PJ Valves.