US GoM output to rise by 23pc in 2015: WoodMac

OREANDA-NEWS. March 23, 2015. US Gulf of Mexico (GoM) production may increase by 23pc this year following several years of heavy spending that is bringing online six new projects, according to a study by consultancy Wood Mackenzie.

The six projects expected to come online this year would bring an additional 177,000 b/d of oil equivalent (boe/d) to the markets, increasing total output to 1.6mn boe/d. Capital expenditure (capex) in the region is expected to increases for a fifth year in a row to a record \\$14.9bn.

"We expect momentum from 2014, which marked the first year of production growth since 2009, to continue in 2015," the company said.

Fully funded projects that are well under way and lower breakeven costs compared to onshore projects will ensure that activity remains buoyant over the short-term, offering a rare bright spot for the oil industry reeling under a more than 50pc plunge in crude since June amid rising supplies and weak demand. The drop is making producers, big and small, sharply pare back their budgets and focus operations only on areas that offer the best returns.

GoM projects are less impacted by short-term oil price uncertainty because of their longer expected life, which are typically 30 to 40 years. Onshore shale wells can decline by as much as 80pc annually, while offshore wells typically decline on average by 30pc.

Projects such as Lucius, Jack/St. Malo and Tubular Bells that started up in the past six months have breakeven costs of \\$10-\\$50/bl at first production. Lucius is operated by Anadarko, Jack/St. Malo by Chevron and Tubular Bells by Hess.

Yet the longer term outlook of projects in the Gulf of Mexico changes if oil remains depressed for an extended period, WoodMac said. Projects like BP's Kaskida, Cobalt's North Platte, and Anadarko's Shenandoah and Tiber, have breakeven costs of about \\$70-\\$80/bl per current models. These projects are also in the early stages of development, which means they are more vulnerable to the current market environment.

The results of the US Interior Department's lease sale for acreage in the central US Gulf of Mexico this week revealed signs of waning enthusiasm for exploration in the area. A total of 42 companies bid on 169 blocks in the lease sale, compared to 50 companies that bid on 326 blocks in the same area in 2014, when crude was nearly \\$100/bl. The lease sale raised a total of \\$539mn in high bids, 37pc less than the \\$851mn in high bids in 2014.