Deepwater development is holding steady

Committed Gulf of Mexico deepwater development work still appears to be largely on schedule, albeit with some modifications, even as smaller operators shut-in production closer to shore.

“The capex savings that we take this year are not coming from deepwater,” Royal Dutch Shell Chief Executive Officer Ben Van Beurden said on April 30, after the company trimmed 2020 capital spending by $5 billion to cope with the oil price collapse aggravated by the demand sapping Covid-19 pandemic.

Chevron suggested the same. CEO Michael Wirth said during a May 1 investor call, “the Gulf of Mexico has been resetting its cost structure to compete in a world like this. I think it means we’ve got more work to do to make the Gulf of Mexico compete even more, with more focus on tiebacks, infill drilling, utilizing existing infrastructure and finding efficient ways to develop in the Gulf of Mexico. And so that trend is one that we need to stay on.”

Chevron curtailed between 200,000 and 300,000 bbls. of oil/day in May, split equally between the U.S. and international assets, with the bulk of U.S. cuts coming from the Permian Basin of West Texas and New Mexico.

As for independent operators, Murphy Oil Corp., which operates 13 mostly deepwater fields with interests in five others, said that given a reduced Gulf of Mexico budget of $315 million, the original three-well development drilling program on the Front Runner field in Green Canyon has been cut to two wells. Meanwhile, despite a pandemic-related delay, the company is proceeding with development of the floating production system (FPS) for the King’s Quay field, also in Green Canyon, initially scheduled for commissioning in the first half of 2022. Murphy and a private equity company are 50-50 partners in the field, acquired as part of last year’s deal for LLOG Exploration’s deepwater holdings.

Talos Energy Inc. expects to shut-in upwards of 13,500 bpd of Gulf of Mexico production over the second quarter but says 6,000 to 7,000 bpd of that will come from accelerated planned maintenance and facilities-related shut downs. As of May 6, Talos was still planning on first oil from the Claiborne field in Mississippi Canyon by midyear. The company holds a 25.3% stake in the field, where drilling commenced on a third development well in January.

On the shelf, privately held Cantium LLC shut-in a reported 200,000 bpd it was producing from two shallow-water fields, immediately after oil prices fell to an untenable level. “We pulled the plug,” CEO Richard Kirkland told The Wall Street Journal on April 23, adding that the wells would remain shut-in for at least two and possibly four months.

About the author

Jim Redden

Jim Redden is a Houston-based independent petroleum writer, focused largely on the upstream oil and gas industry. He can be reached at jimredden@sbcglobal.net.

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