The forecast for wells drilled this year in the US Gulf of Mexico shows a 2.4% increase to 744 from the 2006 total of 726. This is in contrast to the narrow decrease of 0.1% from 2005 actual to the predicted 2006 total based on wells to date.
Oil and natural gas production still are suffering the lingering effects of hurricanes Katrina and Rita in 2005, and even Ivan in 2004. Oil production continued a decline begun in 2004, dropping 45% from the 2003 production level. Gas production was down in 2006 by 19% compared to 2003.
Wells drilled in all water depths in 2005 totaled 732. The number declined slightly to 726 in 2006, and the forecast rebounds to 744 for 2007. On a percentage basis, the growth is in water depths of 457 m (1,500 ft) or more, forecast to be up by 21.3% this year over last year. In absolute numbers, of course, the bulk of the work is in waters less than 457 m (1,500 ft) deep, where a decline in wells drilled starting in 2005 still results in a 2007 forecast of 580 total wells, although that is 2.9% below the 2006 prediction.
The immediate effect of the storms on drilling activity is seen in the difference between exploration wells planned and those actually drilled in 2005. In the shallower depths, 470 wells were planned, but only 256 were drilled. In deeper water for the same period, 307 exploration wells were planned versus 66 actually drilled.
Comparing the totals including development wells for 2005, 1,165 were planned versus 732 actually drilled. By contrast, in 2006, more wells were drilled than were planned. Some 689 wells were planned for both exploration and development at all water depths, and 726 are predicted as actual for an increase of 37 wells.
There are two other factors in play regarding GoM drilling prospects for the future. Some operators either sold or returned leases where production was marginal and the cost of repairs following the storms mitigated continued work for economic reasons. Another factor coming into play is rig availability. The worldwide rise in demand for drilling rigs and the resulting rig day rates has resulted in rigs moving out of the area. Consequently, the number of wells possible has decreased. Since mobile rigs predominately are exploration tools, the biggest impact can be expected in that area.
Production status following hurricane impact
The impact on GoM oil and gas production from hurricanes Ivan in September 2004, and Katrina and Rita in September 2005 lingers. The numbers tell the story.
In 2003, the average monthly oil produced in water depths of 457 m (1,500 ft) or less amounted to 19.9 MMbbl compared to 18.8 MMbbl monthly average for January through August 2004. As an effect of Ivan, the average monthly production rate for September through December 2004 was 14.6 MMbbl, 4.2 MMbbl less than the average for the year prior to the storm.
In 2005, the average monthly production from January through August was 15.9 MMbbl. As an effect of Katrina and Rita in September 2005, the average monthly production declined to 6.67 MMbbl for September to December, a 66% decrease in average monthly volume from 2003. From January through May 2006, the average monthly production was 11 MMbbl, down 9.9 MMMbbl, or 45% less than 2003 production.
In water depths greater than 457 m (1,500 ft), monthly production of oil in 2003 averaged 26.8 MMbbl. From January to August 2004, the monthly average was 27.9 MMbbl. For the September through December time frame, the monthly average was 25.4 MMbbl. For the year 2004, the monthly average was 27.2 MMbbl. The consequences of Ivan to deepwater production was minimal.
Katrina and Rita created a different story 2005. Before September, the average monthly production in deepwater GoM for January through August amounted to 29.9 MMbbl. However, from September through December production dropped to 16.9 MMbbl. Output had bounced back by December at 25 MMbbl.
Natural gas production decline continues
In water depths 457 m (1,500 ft) or less, monthly gas production declined 23% in September 2004 from September 2003. By September 2005, average monthly gas was down 60% from September 2003, and 44% less than in August 2005. In 2006, average monthly gas production through May was down 46% from the first five months of 2003. Average monthly gas produced in the year 2004 was down 14% from 2003. The hurricane effect and reserve depletions are a looming crisis to gas production in shallow GoM waters. Annual gas production in shallow waters was 3.2 tcf in 2003, 2.8 tcf in 2004, and 2.0 tcf in 2005.
The hurricane effect in September 2004 decreased gas production in water depths greater than 457 m (1,500 ft), 22% from September 2003. In September 2005, the gas volume produced was 65% less than in September 2003. Likewise, in October 2005, average monthly production was 42% less than in October 2003 and 39% less in November 2005 than November 2003. In December 2005, 17% less gas was produced than in December 2003. Average monthly gas produced in the first five months of 2006 was down 19% from the same period in 2003. Annual gas totals for 2003-2004 were 1.2 tcf versus 1.1 tcf in 2005.
Variable factors
With any forecast, a fixed set of parameters has to be considered. There are unpredictable elements that can impact the actual results. One big one, of course, is weather. While the Gulf did not see any hurricanes in 2006, that is not the norm. Based on the foregoing data, drilling and production plans come to a halt in the face of major storms, and the aftermath of damage and repairs pushes the timing of drilling plans.
Monthly oil production for all water depths from 2003 to 2006 year-to-date.
An equally unpredictable effect on the forecast comes from Washington, D.C. Continental shelf leasing and the subsequent exploration and drilling are political issues as well as business issues. Most recently, the issue of where to lease on the shelf has been in the political arena. Depending upon government action, the forecast can be affected by speeding up leasing or opening new areas to drilling.
New regulations regarding operations also can affect the drilling numbers. Environmental managment rules, for instance, can make drilling more expensive because of the cost of equipment and logistics, and even the added time to handle the effluents.
Another example is a result of the hurricanes in 2005. There are new mooring regulations that require additional anchors and chains. That, too, will add time and expense to GoM operations.
Deepwater drilling key to future activity
The US Minerals Management Service predicts that in the next 10 years, GoM oil production will increase 43%, and natural gas production will rise 13%. Further, the MMS says that the increase will come from the technically difficult areas of deepwater and deeper holes. Of particular note to industry and MMS is the activity in ultra deepwater, which the MMS defines as more than 1,525 m (5,000 ft) water depth. Over the past three years there have been 24 significant discoveries in ultra deepwater.
In addition to deepwater, there is potential for deep and ultra deep drilling for natural gas in the shallow water areas of the Gulf of Mexico shelf. Some of the ultra deep gas prospects currently being targeted could contain as much as 4 tcf of natural gas.
The rise in prices has made the cost of meeting those technical challenges feasible.
Future leasing
Looking back, there have been about 150 deepwater discoveries in the last decade, and 109 fields now are in production. Looking ahead, the MMS expects to conduct two GoM sales in 2007. One is expected to be in the western GoM. The area for the second sale has not been determined at press time. The total number of lease sales in the 2007-2012 span will be determined when the new MMS five-year program is finalized in the spring of 2007. The current leasing program expires on June 20, 2007.
What actually happens over the five-year period is subject to political influence, of course. Areas available for leasing can be increased or decreased by Congress and/or the Executive Branch.
James Dodson
Ted Dodson
James K. Dodson Co.
Gene Kliewer
Technology Editor
