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The U.S. Gulf of Mexico (GoM) is poised to be the newest Comeback Kid among the American oil plays in 2015 if new wells continue to perform and decline rates are kept in check, according to a recent report by Barclays Plc (NYSE: BCS). The GoM has been plagued by steep decline rates spurred by a decrease in drilling activity following the Deepwater Horizon oil spill and explosion in 2010, but it appears that those decline rates are finally starting to reverse.
“Oil-directed drilling rigs dwindled from 20 to five, on average, after the incident, and operators deferred drilling activity at existing fields,” according to the report. “Since then, however, drilling activity for oil and gas has picked up, increasing almost 50% in 2012, 20% in 2013 and 10% in 2014 [year-to-date] YTD compared with the prior year.”
Despite significant underperformance by some fields during the past two years, Barclays projects the U.S. GoM will grow from 1.4 million barrels per day (bbl/d) in 2014 to 1.6 MMbbl/d in 2015.
It’s an incremental change, but it could lead to a decline in demand for imports in states along the Gulf Coast. “New production will do more to reduce PADD III imports of crude oil than incremental additions of light tight oil onshore since light imports of 35 API and greater have already fallen away,” according to the report. “With the barbelling of the PADD III crude slate, medium barrels are poised to be in higher demand.”
New exports of condensate are also an issue when considering new production from the Gulf. “Possible relaxation of restrictions on condensate production would narrow Brent-LLS and increase the need for more medium grades (imported and domestic) in the GC to fill the void,” according to Barclays.
The Gulf Coast currently imports 900,000 bbl/d of medium-light sour crudes, about 400,000 bbl/d more than in 2013, according to the report.
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