Deepwater drilling is back in vogue after years of taking a backseat to shale, spurred by a revival of interest in the Gulf of Mexico as well as massive discoveries from Guyana to Namibia.
Technology breakthroughs and forecasts for oil demand to keep rising through the end of the decade at least have resulted in a growing appetite for deepwater projects that shows no sign of easing. Industry executives at the Goldman Sachs Energy, CleanTech & Utilities Conference in Miami, Florida, earlier this month said more will be needed to fill the gap as the shale boom slows.
"Shale has certainly played a key role, but now it's maturing," US independent Hess chief executive John Hess said. "You're going to need offshore, deepwater resources to give the world the oil production that it needs as you look out five and 10 years from now."
The deepwater Gulf of Mexico can look forward to a "standout" year in 2025, with projects such as Shenandoah, Whale, Anchor and Ballymore likely to account for half of the expected capacity increase, energy consultancy Wood Mackenzie estimates. That will mark a turnaround from a decline in 2024.
Having steadily built up its offshore position in the years since the pandemic, Hess now boasts a strong inventory of leases in the Gulf of Mexico. The firm has focused on tie-backs to existing infrastructure to keep costs down, as well as what it dubs "hub-class" exploration prospects.
In contrast, shale's best days might be behind it, even though producers are coming up with ever more innovative ways to boost efficiencies and squeeze more out of the remaining acreage. In such a scenario, projects such as Hess' 30pc stake in a giant offshore project in Guyana are gaining traction and more will be needed to meet future demand. "That's where the deep water comes in — and that has a longer cycle to it," Hess said. "That oil is going to be needed from the deep water, but you are also going to need it from Opec."
US president-elect Donald Trump's campaign promise to hold more offshore oil and natural gas lease sales to buoy US production could also help, although it remains unclear whether operators will rush to take him up on his offer.
Chevron, the second-biggest US major, is embarking on new projects to boost output from the Gulf of Mexico by 50pc to 300,000 net b/d of oil equivalent by 2026. That goal moved a step closer last week with start-up of the Whale semi-submersible platform, in which the company has a 40pc stake. "The deep water has a large resource bounty that has been explored, but not fully explored, and we're the second-largest lease holder out there, and believe there's a lot more still to be done," Chevron chief executive Mike Wirth said.
Anchor investment
Chevron last year started production from Anchor, the first ultra-high pressure deepwater development, to tap previously hard-to-reach resources in the region. It is also deploying new technology in sub-sea pumping and compression to speed drilling. "There is still a lot of running room in the deep water for us," Wirth said.
The increasing allure of deepwater drilling can be seen in a contractual dispute over the future of Hess' stake in the offshore Guyanese discovery. ExxonMobil and Chinese state-controlled CNOOC argue that they have the right of first refusal over the interest, which is the key attraction in Chevron's $53bn agreed takeover of Hess. The issue will be resolved in an arbitration hearing in May. "We continue to be very confident in Hess' position in the arbitration," Wirth said. "This has been studied extensively, and we feel like they clearly have the right side of this argument."
