Renewed drilling fails to raise output forecasts

By Starr Spencer

Even though drilling resumed in the US Gulf of Mexico earlier than widely projected following the Macondo oil spill, two prominent energy agencies have said their forecasts of production deferrals resulting from the federal deepwater drilling ban and slow permitting afterward are likely to remain unchanged from those they released last year.

And an analysis by industry consultants Wood Mackenzie that is regularly updated has estimated even larger volumes of deferred crude oil production compared with five months ago.

Prior to the April 20, 2010, Macondo blowout, WoodMac had estimated the US Gulf would produce 1.89 million b/d of crude in 2011. In late November researchers changed that figure to 1.675 million b/d, 215,000 b/d lower than the original target.

Earlier this month, that number was reduced further to 1.514 million b/d, or 376,000 b/d less output, Matt Snyder, WoodMac's lead Gulf of Mexico analyst, told Platts.

While expectations vary for every field, Snyder said the longer that wells remain undrilled, the more production declines.

"Without new wells, your production base now is completely different from the base was six months ago," Snyder said. "Every day that wells don't come online, the expectation goes down."

For 2012, WoodMac had set a pre-Macondo target of 1.851 million b/d for Gulf output; five months ago that prediction dipped to 1.75 million b/d, a reduction of 101,000 b/d. The current estimate is 1.61 million b/d, down 241,000 b/d.

And for 2014, WoodMac in April 2010 pegged output at 1.804 million b/d, which last November was cut to 1.67 million b/d, down 134,000 b/d, and is now 1.624 million b/d, or 180,000 b/d less than originally projected.

Researchers, analysts, service firms and E&P companies concede that US regulators have granted at least 10 new deepwater permits at a brisk pace in recent weeks, following both the several-month drilling ban in 2010 and a similar-length lull afterward when permit approvals were on hold until operators complied with new federal safety measures.

Long lead time

But the permitting flurry and the slightly earlier-than-expected resumption of drilling are not likely to change production projections from the International Energy Agency or the US Energy Information Administration, researchers from those organizations said.

The reason is the long lead time at the heart of oil development, where a mere few months' jump on drilling most likely would not make much difference in longer-term output declines, said Julius Walker, IEA senior oil market analyst.

"If we see oil companies are accelerating again, or there are longer delays, we'll adapt our forecast," Walker said. "However much companies want to hurry these things, it takes an amount of time to do drilling work in an extremely challenging environment."

The IEA last year projected 100,000 b/d of delayed 2011 crude output stemming from both the moratorium from late May to mid-October 2010 and permitting issues that followed the ban.

The IEA also predicted a total 300,000 b/d of deferred output by 2015 from what Walker called "compounded effects" of the delays.

For deepwater blocks, which to US offshore permitting agency the Bureau of Ocean Energy Management, Regulation and Enforcement are in waters 1,000 feet or greater, operators have 10 years to drill wells before a lease term expires.

Normally, companies take at least a couple of years to drill a well, and if a discovery is made, appraisals take a year or two more. A subsequent development decision takes at least a year and often more, while actual development occupies another two or three years.

Meanwhile, the EIA last year estimated an impact of 31,000 b/d of reduced crude production in the fourth quarter of 2010 and 82,000 b/d this year.

Beyond that, "we don't know what wells would have been completed and their production rate," EIA senior economist Tancred Lidderdale said. "Any estimate would be educated guesses."

The EIA has no immediate plans to update those numbers, he added.

US regulators imposed the deepwater drilling moratorium in the wake of the Macondo blowout, which caused the worst marine oil spill in the nation's history.

During that period regulators enacted stricter safety mandates for drilling equipment, well design and oil spill containment capability. Even after the drilling ban was lifted, no permits were issued until late February because the new rules required operators to assure the government they could contain a worst-case oil spill. But until that month no containment systems were available to industry.

Looking up

Even so, as the deepwater industry emerges from nearly a year of hibernation since the Macondo accident (new shallow-water drilling was banned for just three weeks last May), things appear to be looking up.

The BOEM reported the number of active US Gulf deepwater projects at 20 last week, versus roughly 10 during the moratorium.

While Gulf operators simply found other regions to place their drilling dollars during the long activity lull there, it has not been as easy for drillers. Virtually all have taken sizeable financial hits from low or nonexistent Gulf drilling.

Corporate owners of at least eight rigs have found work overseas for their units that could keep the rigs away from the Gulf for a couple of years or more.

The Gulf "seems a little better now, but we need to see more consistency" in the pace of well permits, said Les Van Dyke, investor relations director for deepwater driller Diamond Offshore.

"If it's one here and one there, it's hard to build a drilling program and you're reluctant to sign for a rig," Van Dyke said. "Operators may already have rigs leased, but they don't know when permits will come. You need a flow pattern."

At least seven deepwater rigs were sent overseas, mostly to west Africa and Latin America, by large offshore drillers such as Noble, Diamond and Transocean.

Most made the journey during the moratorium, although Noble shipped its Clyde Boudreaux semi-submersible to Brazil in February.

Traffic also went the other way: for example, BP took delivery of two new Gulf drillships during the moratorium and succeeding months. Although the major had considered sending them to foreign arenas, BP now says the rigs' destination is "under consideration."

Diamond has warm-stacked one of its deepwater semi-submersibles which was the target of a lawsuit over whether a contract termination stemming from the moratorium was valid.

"We've still got guys struggling to get permits for

To subscribe or visit go to:  http://www.platts.com