Gulf of Mexico Crude Oil Production Hits Record High

File photo credit: Royal Dutch Shell

Crude oil production in U.S. federal waters in the Gulf of Mexico (GOM) set an annual high of 1.6 million barrels per day (b/d) in 2016, surpassing the previous high set in 2009 by 44,000 b/d, the U.S. Energy Information Administration said Wednesday. 

In January 2017, GOM crude oil production increased for the fourth consecutive month, reaching 1.7 million b/d. On an annual basis, oil production in the GOM is expected to continue increasing through 2018, based on forecasts in EIA’s latest Short-Term Energy Outlook (STEO).

Contributing to 2016’s high production levels, a total of eight projects came online in the GOM last year, with another seven projects anticipated by the end of 2018. With the addition of these new and existing fields, the EIA estimates that annual crude oil production in the GOM is expected to increase to an average of 1.7 million b/d in 2017 and 1.9 million b/d in 2018.

Because of the length of time needed to complete large offshore projects, the EIA notes that oil production in the GOM is less sensitive to short-term oil price movements than onshore production.

“Recent crude oil price increases have not had a significant impact on operations in the GOM,” the EIA said press release on Wednesday. “Rotary rig counts in the GOM—including both gas- and oil-directed rigs—have actually declined since crude oil prices increased following the November 2016 Organization for the Petroleum Exporting Countries (OPEC) announcement to cut production.”

However, the EIA notes that long-term trends also affect GOM oil production, with the number of rotary rigs operating in the GOM decreasing from an average of 55 in 2014, when the Brent crude oil spot price began dropping, to 22 in 2016.

Meanwhile the number of development and exploratory wells has fallen in each year since 2012. Although the number of operating rotary rigs in the GOM increased from 2012 to 2014, falling crude oil prices in 2014, along with drilling delays caused by the 2013 discovery of faulty rig safety equipment, led to decreasing drilling activity in that period, according to the EIA said. 

According to the EIA, exploratory wells are favored in the current low-price environment as they allow operators to identify more promising areas in the event that oil prices increase.

“Resources estimated from discoveries made through exploratory drilling can add to the value of oil producers’ inventory of assets. Exploratory wells are drilled to find new reservoirs (in either a new area or in a known field). Once a reservoir has been discovered, development wells are drilled to maximize production from the reservoir, based on geologic conditions, economics, and project timelines,” the EIA said. 

In recent years, the number of development wells has fallen much faster than the number of exploratory wells, reflecting operators’ taking advantage of the lower day-rates in the current low price environment, with expectations of higher returns when crude oil prices rise and discoveries are brought into production, according to the EIA.