By Raheem J. Brennerman, chairman and CEO of The Blacksands Pacific Group
At first reading, a June 2014 report* published by the U.S. Energy Information Administration (EIA) might appear to provide ammunition to those who believe that the Gulf of Mexico’s (GoM’s) days as a major source of hydrocarbons are numbered. In fact, while much has been written about how the Gulf has been experiencing a downward trend over the past decade, its potential for increased production and attracting investment actually remains extremely strong, with estimates that it has proven reserves of 4.9 billion barrels of oil equivalent (Bboe).
Admittedly, the EIA’s report, which only provides data for fossil fuels produced on federally owned lands and waters, notes that oil and gas production in the Gulf has decreased by nearly 50% since 2003. However, despite reporting a decline in production across federal waters in the Gulf, in its Short-Term Energy Outlook the EIA actually raised its 2014 to 2015 estimates for total U.S. oil production primarily due to stronger than expected production in the GoM.
Since the drilling moratorium was lifted in October 2010 following the Deepwater Horizon incident, oil and gas related activity in the Gulf has increased dramatically. A report released by Baker Hughes at the beginning of September noted that there were 62 deepwater rigs in the GoM, compared with only 12 at the time of the Deepwater Horizon incident, making it the fastest growing offshore market in the world. Confidence in the GoM has never been higher among the oil and gas majors. In August, a U.S. Bureau of Ocean Energy Management auction saw 14 companies bid for more than 21 million acres in the Western GoM, raising nearly $110 million in the process.
The deep waters of the Gulf remain very attractive propositions for global oil and gas companies, including Blacksands Pacific, with new major deepwater discoveries across the GoM coming onstream and ready to produce tens of thousands of boe/d.
A major contributor to the increase in production has been the development and introduction of new technologies such as high-resolution 3-D seismic data, deepwater hydraulic fracturing and horizontal drilling. These techniques have enabled the engineers to better target oil and gas reservoirs in deep waters, significantly increasing the returns from a single well. It has also allowed them to revitalize older wells by looking for reserves that might have been previously missed.
There are still huge areas of the Gulf that are under-explored or unexplored offering the potential of vast untapped reserves. The region offers geopolitical stability and good access to refining, pipeline and production infrastructure. The technology and techniques that have been developed here are easily transferable to other global projects, and the recent decision by the Mexican government to open up its oil and gas industry to outside investment will provide even more opportunity for U.S. energy companies to prosper. The EIA has estimated that the GoM contains proven reserves of 4.9 Bboe, but in all likelihood this figure will grow and give us many more than 4.9 billion reasons to be optimistic about the GoM’s long-term prospects.
*US Energy Information Administration, Sales of Fossil Fuels Produced from Federal and Indian Lands, FY 2003 through FY 2013, June 2014.
Raheem J. Brennerman is chairman and CEO of The Blacksands Pacific Group, an international oil and gas exploration and production company. He is also chairman of BLV Group, a real estate investment, management and development company he founded in 2004. An entrepreneur, philanthropist and experienced investor, Brennerman previously worked in investment banking and is the principal of Jefferson III Holdings, a private investment company.