Deepwater Gulf Production To Set New Record In 2016; Will Plateau After That -- Rigzone -- November 13, 2014

Rigzone is reporting:

Discoveries are being made in increasingly deeper waters and emerging plays that require complex drilling and more advanced, capital-intensive technologies.

To meet Wood Mackenzie’s production outlook, $17 billion in capital expenditures will be required, 30 percent higher than 2013. 

However, the region will face difficulty in growing over the next decade unless the oil and gas industry can overcome challenging economics due to high costs, technological limitations and low recovery rates.

“Not including yet finding reserves, we forecast that production will start to decline after plateauing out at 1.9 million barrels of oil equivalent per day in 2021,” said Imran Khan, GOM analyst at Wood Mackenzie, in a Nov. 13 press statement. “The current slide in oil prices does not help the long-term outlook either, especially if the downward trend continues for a prolonged period,” Khan noted.

Also at Rigzone:

The offshore rig market is a prime example with “a lot of supply” entering the market from “2014 through 2016 and to some extent 2017,” Gjerding explained.

The supply condition may differ across different segments of the oilfield services sector, but “in general, the decrease in demand is matched by an increase in supply.”

Seismic and exploration drilling will be the first segments experiencing spending cuts, according to DNB’s projection, even though supermajors and large cap independents have experienced the intent to carry on with their exploration activities.

Meanwhile, rig operating day rates in the ultra deepwater segment have experienced reductions, resulting in lower valuations for the offshore drilling asset class.

And later in that article:

The Saudis stand in the best position to benefit from additional demand created from sub-$100 oil prices, which are hitting offshore E&P as well as slowing down the spread of shale gas revolution from the U.S. to the rest of the world.

“Shale revolution will totally close down at $25 per barrel, but you only need to keep to $70 to $80 per barrel to get significant impact.”

“We don’t see clear signs [that] the Saudis want to remove the barrels to protect oil prices,” Kjus said.

Shale production contributed significantly to the growth in crude oil production in the United States, which is seen to have more than matched supply outages arising from political turmoil in the OPEC nations including Libya, South Sudan and Iran until 2014.

Kjus described U.S. crude producing states North Dakota, New Mexico, Oklahoma and Texas as the “new Iraq.” Oil production from the four states grew 3.3 million barrels per day since 2010, bringing U.S. monthly crude output to 8.7 million barrels per day, almost matching the level in the 1980s.

If oil gets down to $25/bbl due to supply/demand imbalance, a lot more than just the shale revolution is going to shut down.