Center for Energy Studies - Louisiana State University...Center for Energy Studies. Deepwater Horizon Oil Spill. GOM Offshore Oil and Gas – Deepwater Exploration Trends. 3. Over

Center for Energy Studies

David E. DismukesCenter for Energy Studies

Center for Energy Studies Deepwater Horizon Oil Spill

GOM Offshore Oil and Gas – Economic Overview

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Note: Gulf Coast states include Louisiana, Texas, Mississippi and AlabamaSource: Bureau of Economic Analysis, US Department of Commerce; Energy Information Administration, U.S. Department of Energy; and Baker Hughes.

• In 2008, over 420 MMBbls of oil and 2.4 Tcf of natural gas were produced in the Gulf of Mexico OCS.

• Employs over 200,000 workers in the Gulf Coast region. Over 100,000 workers associated with offshore activities.

• Contributes almost $100 billion to Gulf Coast states’ GDP.

• GOM accounts for 30 percent of total U.S. crude oil production.

• Deepwater areas produced 76 percent of all GOM crude oil production in 2007.


GOM Offshore Oil and Gas – Deepwater Exploration Trends

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Over the past 20 years, the water depth barrier has moved from 5,300 feet to over 9,500 feet.

Source: Bureau of Ocean Energy Management, Regulation and Enforcement, US Department of the Interior.


GOM Offshore Oil and Gas – Recent Deepwater Structure Development

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Has 5 independent E&P partners plus one midstream partner/operator. Operates in 8,000 feet water depth.

Enterprise and the Atwater Valley Producers Group, which includes Anadarko, Dominion, Kerr-McGee, Spinnaker and Devon Energy.

Process ultra-deepwater natural gas and condensate discoveries in the previously untapped Eastern Gulf of Mexico.

• 1 Bcf per day of processing capacity, the largest in the GOM.• Tie-back flow lines that are longer than 45 miles, the longest in the GOM.• 2.4 miles of mooring lines.• The Gulf’s deepest suction pile installation.• The Gulf’s largest monoethylene glycol (MEG) reclamation unit.• The Gulf’s deepest pipeline inline future tie-in subsea structure.• The Gulf’s longest single subsea umbilical order. (carbon instead of steel) • The flow lines are 210 miles in total length, and the umbilicals contain about 1,100 miles of stainless

steel tubing.

Source: Offshore-Technology.com


GOM Offshore Oil and Gas – Economic Overview

5Sears Tower1,729 feet

Taipei 1011,667 feet

Petronas Towers1,486 feet

Mars Tension Leg Platform3,250 feet

Structures in the GOM are as large some of the world’s largest buildings.

Empire State Building1,472 feet


GOM Offshore Oil and Gas – Deepwater Statistics and Considerations

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• Over $1.5 billion in surface structure and equipment needed to service deepwater wells.

• Drilling costs $80 million to $120 million per well.

• Drilling crews between 200 to 300 for large drilling project.

• Structures and wells are typically 100 miles to 200 miles from the coast.

• Water depths between 5,000 feet to 8,500 feet.

• Drilling depths of 15,000 feet to 28,000 feet (lower tertiary).


GOM OCS Deepwater Wells

0

50

100

150

200

250

1992 1994 1996 1998 2000 2002 2004 2006 2008

> 7,500 ft5,000 - 7,499 ft1,500 - 4,999 ft1,000 - 1,499 ft

Num

ber o

f Wel

ls

Active deepwater wells are down relative to the earlier part of the decade, but still make considerable contributions to OCS production levels.

Deepwater Horizon Oil Spill

7Source: Bureau of Ocean Energy Management, Regulation and Enforcement, US Department of the Interior.


GOM OCS Deepwater Crude Oil Production

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0

100

200

300

400

500

600

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Deepwater Oil

Shallow-water Oil

Oil

Pro

duct

ion

(MM

Bbl

)

The significant increase in deepwater crude oil production has been a major new source of domestic crude oil supply.



GOM OCS Deepwater Natural Gas Production

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0

1,000

2,000

3,000

4,000

5,000

6,000

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

Deepwater Gas

Shallow-water Gas

Gas

Pro

duct

ion

(Bcf

)

Deepwater natural gas production has remained relative constant in recent years, despite the overall GOM gas production plummet in 2002.



U.S. Offshore Capital Expenditures

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$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$0

$5,000

$10,000

$15,000

$20,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Cru

de O

il P

rice

($ p

er b

arre

l)

(mill

ion

$)

Exploration Development Production WTI Crude Oil Price

Source: Energy Information Administration, U.S. Department of Energy.

The federal OCS, and its deepwater regions, account for a large share of the increasing capital investments for major oil companies.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Onshore Lower 48 GOM - Deep Water GOM - Shallow Water

Offshore Pacific & Atlantic Alaska


U.S. Crude Oil Production Forecast

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Deepwater Horizon Oil SpillC

rude

Oil

Pro

duct

ion

(MM

Bbl

spe

r day

) Projection

Potential moratorium-created production risk

Deepwater production is forecast to increase by almost 20 percent between 2010 and 2030.

$-

$20

$40

$60

$80

$100

$120

$140

$160

0

10

20

30

40

50

60

70

80

Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10

Pric

e of

WTI

per

Bar

rel

Num

ber o

f Tot

al A

ctiv

e G

OM

Dril

ling

Rig

s

Historical Rigs Baseline Forecast Attrition ForecastPrice of WTI WTI Futures


Gulf of Mexico Offshore Rig Forecast – Moratorium Impact

Apr-20:Accident

Sources: Dept. of Interior, Energy Information Administration, Baker Hughes, CME Group (NYMEX)

Moratorium-forecasted reductions in activity

Forecasted activity


Source: Baker Hughes. 13


Active Drilling Rig Trends in Louisiana

0

20

40

60

80

100

120

140

160

Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

N. Louisiana - Land S. Louisiana - Inland WaterS. Louisiana - Land S. Louisiana - Offshore

Num

ber o

f Rig

s, S

. Lou

isia

na


Moratorium Impacted Rigs

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Impacted rigs anticipated to operate in very close proximity to Louisiana ports and support services.


Gulf Coast Oil and Gas Employment – All Activities

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Gulf Coast Oil and Gas Employment - Production

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Gulf Coast Oil and Gas Employment - Drilling

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Gulf Coast Oil and Gas Employment – Support

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Potential Moratorium Impacts – Louisiana Only

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Potential Moratorium Impacts (Short Run) – Potential Parish Level Impacts

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Some longer-run issues for Louisiana and Gulf Cost include:

• Intermediate-run implications (12-36 months) of current drilling moratoria andthe decreased economic activity.

• The impacts that likely regulatory changes will have on GOM operations andcosts that will impact investment profitability.

• Changes in operator liability requirements and the cost of insurance for GOMoperations, particularly for independent operators that have a relatively large(in total) economic presence in Louisiana than the majors.

• New excise taxes, fees, surcharges, and the elimination of drilling incentivessuch as the Deepwater Royalty Relief Act and Energy Policy Act of 2005 EPActdeep-gas drilling incentives (shallow water, well depths in excess of 20,000feet).

• Impacts on opening the Eastern GOM and elimination of potential economicopportunities for Louisiana service ports (Venice, Fourchon) and LA-basedservice companies.

Long Run Issues Associated with Spill


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Center for Energy Studies - Louisiana State University...Center for Energy Studies. Deepwater Horizon Oil Spill. GOM Offshore Oil and Gas – Deepwater Exploration Trends. 3. Over