United States domestic oil production is steadily increasing. This surge is largely attributed to two factors. For one, lower natural gas prices – and the ensuing lower profits for those ventures – are forcing companies to increase the oil mix in their drilling efforts to remain competitive. Additionally, two important unconventional arenas (tight oil shale plays and deep-water oil formations) continue developing more efficient technologies for incredible yield.
Oil Production Surges
A recent on 5-year production results of 50 top O&G companies found that exploration, development, and acquisition spending since 2008 has considerably increased despite a decline in after-tax profits. Even with a 58% drop in profit, total capital expenditures for the 50 companies hit $185.6 billion in 2012, the highest in the study’s seven-year history. At the same time, oil reserves reached 23.3 billion barrels, an increase of 13% over 2011 and 45% over the 5-year study period:
Gulf of Mexico Rallies
Shale – and its importance to the domestic O&G industry – is well-covered ground. While the increased spending reflects the incredible opportunities that shale presents, a renaissance of Gulf production will further enrich domestic crude oil supplies.
Deep-water exploration has been on a strong rebound since 2011 and is now the fastest growing offshore market in the world. Production in the Gulf is now up 23%, and the Environmental Protection Agency forecasts that the 1.26 million barrels a day produced in March 2013 will climb to 1.55 million by December 2014.
A combination of forces has led to the Gulf rebound. One is the advance of technology, including more sophisticated deep-water drilling rigs and seismic imaging that bounces sound waves off the ocean floor to discover large pockets of crude hidden beneath layers of salt.
Two, excellent prices and financing terms from shipyards have been encouraging producers to buy new deep-water rigs that can work in water depths of more than two miles. Most of this production expansion in the Gulf comes from new rigs, providing lots of opportunity for builders who anticipate that the number of new vessels to be built between 2013 and 2019 will be more than double the 39 built from 2003 to 2009.
Three, because the region has been a major production center for many years, the infrastructure is already very well established. Pipelines, ports, and supply vessels have been waiting for a return to a high level of activity.
Lastly, government permitting has increased since mid-2011, renewing confidence in the industry. When drilling activity resumed, stricter safety regulations made the permit process cumbersome and pushed some companies to other locations around the world. Producers are now returning to the U.S. Plus, the Gulf has lower operating costs than in other high-yield markets, yielding higher profits.
Gulf Fuel Under-Appreciated?
Although the magnitude of the Gulf’s O&G growth and profit potential is not yet fully understood, its “lower tertiary” layer about 20,000 feet below the sea floor boasts enormous crude deposits. Producers are just discovering the economical means of tapping all of that energy. The prolific productivity of the shale plays and the Gulf Coast could give pause to the cynics who expected the end of domestic oil reserves. In fact, the revived prominence of the US Gulf is now taking shape as shale’s partner in the US climb toward energy self-sufficiency.
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