Consolidation of U.S. oil producers in the Gulf of Mexico accelerates
HOUSTON, Aug.16 (Reuters) – U.S. Gulf of Mexico oil and gas producers have consolidated at a faster rate during the pandemic, new government data shows, as falling prices crowded out small drillers who were seen as the future of the industry.
The dominance of major Gulf producers is looming as the industry’s technology showcase, the Offshore Technology Conference, officially kicks off in Houston on Monday. The event, which has drawn more than 60,000 people and thousands of exhibitors in previous years, will be smaller this year due to business cutbacks and coronavirus-induced travel restrictions. Read more
The pandemic, as well as the recurring stops of hurricanes, accelerated the disappearance of some producers in the Gulf of Mexico. Small, privately funded companies that have ventured into offshore fields over the past decade have struggled, leading many to exit while others have slipped into bankruptcy.
“We will only see one more consolidation,” said Colin White, analyst at consultant Rystad Energy. Producers backed by private capital are swallowed up by larger companies or abandon exploration for safer infrastructure investments, he said.
The top 10 producers – led by Royal Dutch Shell (RDSa.L), BP Plc (BP.L) and Chevron (CVX.N) – this year pumped 86% of the 1.6 million barrels per day (bpd) of region, up about 11 percentage points since 2017, data from the regulator Bureau of Safety and Environmental Enforcement (BSEE) shows.
Two tightly owned offshore drillers, Fieldwood Energy and Arena Energy, went bankrupt in 2020 as crude oil prices plummeted. US energy experts predict that production return to its peak 1.9 million bpd by 2022.
Arena emerged with its debt settlement extinguished and a reduced drilling program. But the US suspension of offshore auctions “has certainly cooled all potential investors,” said Michael Minarovic, managing director.
NEW PROJECTS TAKE OFF
BP expects first production early next year on a 140,000 bpd project, Shell recently approved a 100,000 bpd field that will begin production in 2024, and Chevron is preparing to operate a field at very high pressure that could pave the way for a series of new wells, said Neil Menzies, general manager of Chevron’s capital projects for its Gulf of Mexico business unit.
“We expect to grow to around 400,000 bpd by the middle of the decade,” said Starlee Sykes, BP’s senior vice president for Gulf operations, from around 350,000 bpd currently. With advanced seismic and high pressure technologies, “I am optimistic that the Gulf of Mexico will be there for a very long time,” she said.
Consolidation has reduced the number of Gulf producers to around 49 today, down from 60 five years ago. Financing for small businesses has dried up, leaving future sinks in the hands of large operators who can self-finance their operations.
“The amount of regulation and the overhead make it difficult (for small businesses),” said Ryan Smith, senior director of commodity research at energy data provider East Daley Capital. “Bigger operators are used to overhead.”
The oil majors are renewing their investments due to the low carbon intensity of the region’s production. Offshore wells are under high pressure, which means oil flows easily to the surface instead of needing carbon-emitting boosters. U.S. regulators’ ban on routine flaring has also fueled a vast network of pipelines, resulting in a lower carbon footprint than many onshore fields, executives said.
Royal Dutch Shell, among others, plans to increase its investments in offshore. U.S. project approvals were unaffected by the Biden administration’s review, executives said.
The US Gulf oil fields, with their proximity to land-based refineries and gas processing plants, are “the closest thing the energy industry has to a farm-to-table restaurant.” said Bill Langin, senior vice president of deepwater exploration at Shell.
Additional reporting by Jessica Resnick-Ault in New York; edited by David Gregorio
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