As US onshore oil growth slows, will improved drilling boost Gulf of Mexico offshore oil production?

Analysts and consultants predict that offshore investment will continue to grow as new technology and more friendly regulations encourage investment. In recent years, the offshore oil and natural gas sector has been overshadowed by shale because it requires more upfront investment and years of construction. The entry costs for shale were lower and the returns faster, so the rapid expansion of shale led to the U.S. becoming the top oil producer in the world. The U.S. president Donald Trump has introduced regulations that are friendly to the industry. As the Permian field, one of the largest fields in the world, is depleted, the most productive shale regions are being tapped. This forces shale producers to shift their drilling operations to more expensive areas.

The technology unlocks 'Significant Deepwater Reserves'

In a strategy call in June, Paul Goodfellow said that offshore production would play a larger role in meeting the global energy needs.

He added that "questions are beginning to be raised about the long-term viability of the onshore basins... While at the same time technological advances have released significant deepwater resources."

The U.S. oil sector is expected to grow this year due to the offshore production, which accounts for 15% of all U.S. output. Talos says that although initial investment costs may be high offshore, break-even prices are as low as 20 dollars per barrel. This compares to an average onshore price of $48. Dividends, debt repayments and other expenses increase the break-even cost per barrel.

Talos' offshore drilling projects in the second half 2025 are still economically viable at a price of $35 per barrel.

After a drop of 70,000 barrels per day last year, the U.S. Energy Information Administration predicted that U.S. Gulf of Mexico production would rise by 100,000 to 1,89 million barrels bpd by 2025.

In 2026, production is expected to reach 1,96 million bpd. The agency increased its crude oil production forecast in October citing an earlier than expected ramp-up of production. EIA estimates that U.S. Onshore Production, excluding Alaska is expected to increase by 190,000. bpd, to 11,22 million bpd, this year. This will be the lowest growth rate since 2010, except for two years when production declined during the COVID-19 Pandemic. In 2026, onshore production will decline to 11,10 million bpd.

In April, U.S. Interior Department increased estimated oil and natural gas reserves in Gulf of Mexico (which it calls Gulf of America) by 1.30 billion barrels of equivalent oil (boe), compared to its estimate for 2021. This brings the total estimate of reserves to 7.04 billion.

NEW EQUIPMENT IS ABLE TO RESIST HIGHER PRESSURES UNDERWATER

The price of U.S. crude oil dropped to as low as $55 per barrel in this year. Shale producers who are able to turn off and on their wells more quickly have reduced some production. Since April, oil prices have remained largely below $70 a barrel as OPEC+ increased its supply to increase market share. The price of oil has also been affected by the economic uncertainty caused by Trump's trade policies.

Analysts predict that offshore growth could surpass onshore growth even as soon as this year. Consultancy Energy Aspects predicts that U.S. crude oil production offshore will grow by 200,000 barrels per day (bpd) between the end of 2020 and 2025. Onshore output, however, is expected to fall at a similar rate.

Equipment that can withstand pressures of up to 20,000 pounds per square inch (psi) is now able to drill in deepwater areas previously considered to be off limits. This compares to the 10,000 pounds per square inch and 15,000 pounds per sq. inch drilling done before. Beacon Offshore Energy LLC is a Houston based private offshore company that began producing oil at its Shenandoah Field off the coast Louisiana in July. The technology used to extract the oil can withstand higher subsea pressurized.

Beacon increased the Phase 1 wells last week to about 100,000 bpd and expressed the hope that the technology would facilitate the development of similar fields.

CHEVRON SEES OFFSHORE OUTPUT UP BY 50% IN TWO ANNUALS Chevron produced the first oil in its Anchor Project in the Gulf last year using similar technology.

Chevron stated in an email that "U.S. Production will Continue to Reach Record Levels... With Growth in Offshore Production Supporting U.S. Domestic Supply"

The company stated that its production in the Gulf region will reach 300 000 barrels of oil-equivalent per day (boepd), an increase of 50% in just two years.

Chevron stated that 20,000 psi drilling could be used in 20% of its Gulf exploration opportunities.

Analysts have stated that technologies which can safely tap into ultra-high pressure areas could bring up to 5 billion bbls of previously unaccessible crude oil into production. BP made a final decision last month to invest in its Tiber-Guadalupe Project in the U.S. Gulf. The company cited the importance of the project for its global strategy. The project will begin in 2030, and it will use technology capable of managing pressures up to 20,000 pounds per square inch.

EASING REGULATIONS

Trump's plans for a boost in U.S. fossil-fuel production will benefit offshore drilling over the long term, even though fewer projects will start production after 2026. The U.S. Government has proposed that in December, it will sell oil and gas rights for drilling on 80 million acres (32,4 million hectares), in the Gulf of Mexico. Deepwater royalty rates would be reduced to encourage industry participation and reduce production costs.

Trump signed "One Big Beautiful Bill", a law, on the 4th of July. This act requires that at least 30 oil and gas leasing sales offshore in the Gulf of America be made over a 15-year period.

Jessie Jones, an analyst at Energy Aspects, says that lower royalties will further reduce break-even costs, encouraging marginal projects, and boosting cash flows for companies, which could be invested in drilling.

Miles Sasser, Wood Mackenzie analyst, said: "The administration's general attitude towards the industry is making it easier for investors to get capital and more comfortable." (Reporting and editing by Liz Hampton, David Gregorio, and Arathy Sasser in Houston)

(source: Reuters)