Gulf of Mexico Oil and Gas Fields Attract Offshore Technologies and Massive Investments that Boost Production

Since the first offshore well was drilled in shallow water 10 miles off the Louisiana coastline in 1947, offshore oil and gas production has been of rapidly growing importance worldwide. Today, a recently completed oil well in the Gulf of Mexico can flow over 30,000 barrels of oil daily—vastly higher than an onshore well. Wells in extremely deep water can flow at even greater rates. The Gulf of Mexico already produces from roughly thousands of American offshore platforms, with tens of thousands of wells and 30,000 miles of pipelines.

Early 2023 saw a dramatic upswing in offshore production activity. Westwood Global Energy Group reported that, as of December 2022, 90% of the world’s approximately 600 offshore drilling rigs were working or under contract, compared to only about 63% in 2017. A combination of oil supply constraints due to the war in Ukraine and relatively high crude prices spurred this activity. Oil companies were leasing rigs for more than $400,000 per day, compared to $300,000 in 2022 and $200,000 in 2021. Many analysts were forecasting lease prices topping $500,000 per day in 2024.

The market price per barrel of oil certainly affects offshore drilling and development strategy, but deep-water wells are very long-term projects of massive scale. They require years of planning, along with procurement of special rigs, supplies and crews before drilling can even commence.

At the same time, new efficiencies and simpler operations are slashing operating costs. Many major producers have been able to lower their cost-per-barrel produced to very reasonable levels.

SPOTLIGHT: The Mars Platform

Mars, a floating platform off the coast of Louisiana, is one of the major production sites in the Gulf of Mexico. (Production is from 24 wells that are attached to the platform for gathering purposes and maintenance.) It was jointly developed by Shell (71.5%) and BP Amoco (28.5%). Shell Deepwater Production, Inc. is the operator. Mars is an excellent example of modern offshore technology. It utilizes a Tension Leg Platform (TLP) that weighs about 36,500 tons. The platform is over 3,250 feet tall from the seabed to the top of the drilling rig. It is designed to stand up to hurricane force winds of 140 mph or more, and waves of 70 feet. Up to 170 workers can live onboard at any one time, coming and going via helicopter, while supply ships keep a stream of necessary materials on hand. Oil production is sent via an underwater pipeline to Louisiana in a 116 mile trip. Gas production is sent 55 miles to a separate facility.

Technological advances have further extended possible well depths to more than seven miles. One example of these wells is the Tonga #1 well in the Gulf of Mexico. Owned and operated by Schlumberger and ChevronTexaco, the well reaches a depth of 31,825 feet, or slightly less than six miles. Another well, Unocal’s St. Malo, found oil by drilling through water and rock to a depth of 35,966 feet. In August 2012, Exxon Neftegas Ltd. drilled even deeper, completing its Z-44 Chayvo well with a measured total depth of 40,604 ft. as part of its Sakhalin-1 Consortium, near an island off eastern Russia, seven miles offshore. Transocean’s $1.2 billion Deepwater Titan, which was operating in the Gulf of Mexico as of late 2023, has the ability to drill up to 40,000 feet deep and operate in up to 12,000 feet of water.

Deep-water hubs for natural gas are also reaching new depths. For example, the Independence Hub off the coast of Louisiana in the Gulf of Mexico, regulates gas flow from wells on the Gulf floor, two miles below. Attached to the wells by cables called umbilicals, the hub sends data, electricity and chemicals such as antifreeze to keep droplets of water from freezing and slowing the flow of natural gas to the wells below. The wells are capped by heads that regulate flow and pressure. Flow lines transport gas from the wells back to the hub for transmission via the Independence Trail pipeline to the mainland. Ten different gas fields feed the Independence Hub, collectively extracting 1 billion cubic feet of natural gas per day.

Offshore reserves near America’s Atlantic, Pacific and Gulf Coasts might reach 86 billion barrels or more, if widespread exploration was allowed, but state and federal restrictions make it impossible to drill in many promising fields.

Africa continues to be one of the most prolific and promising offshore oil and gas regions in the world. Immense amounts of production flow from deep-water fields near nations including Nigeria, Angola, Ghana and the Democratic Republic of Congo. Total SA, the French oil firm, has a huge oil field in the development phase offshore Nigeria, called Egina, along with its partners CNOOC, Petrobras and South Atlantic Petroleum. It will have a forecasted production capacity of 200,000 barrels per day. Despite the enthusiasm, deep-water wells in Africa remain expensive to drill, while political and security risks remain high. In many cases, oil companies also must deal with challenging geologic formations.

Brazil has proven to have immense oil reserves offshore in deep water. While the potential for production is excellent, costs of producing from Brazil’s offshore fields are very high. This cost structure creates long-term challenges. Nonetheless, Brazil has become a significant producer of oil. In recent years, Brazil’s government-controlled oil company Petrobras announced the discovery of several mega oilfields offshore, including a major gas deposit named Jupiter, off the coast of the state of Rio de Janeiro, and an immense new oil discovery about 155 miles offshore of the state of Sao Paulo in the Santos Basin. This is close to the major offshore oil field once known as Lula (formerly known as Tupi) which was discovered in 2006 in the Santos Basin. (An even larger find was made in 2010 in ultra-deep water north of Lula. The find, called Libra, could hold as much as 12 billion barrels of oil.)

Combined, these finds turned Brazil into an offshore oil and gas giant almost overnight, with billions of barrels of offshore reserves. Lula ranks as one of the biggest discoveries in the Western Hemisphere in the past 30 years while Libra is potentially even bigger. The Santos Basin is a vast area in very deep water. There, oil reservoirs lie under a thick layer of salt, which creates technical challenges due to heat, pressure and potential movement of the salt structure. Wells in this area have an average depth of about 22,000 feet, including 7,000 feet of water. Under the water is the 6,500-foot-thick, corrosive layer of salt. When a drill bit finally penetrates the salt, it can access a pool of oil estimated to run from 250 to 400 feet thick. The total Santos Basin covers about 1,000 square miles. The exploration and production challenges here are similar to those faced on a regular basis in the Gulf of Mexico.

Brazil’s Petrobras is among the world’s largest producers of oil drilled in waters deeper than 1,000 feet. It could become one of the world’s top oil producers, if it can manage exploration and production costs effectively, deal with political interference (as a firm that is largely controlled by the government), raise the necessary investment funds and create the right kind of management structure. This list comprises a tall hurdle for the company to rise above. Unfortunately, Petrobras has been embroiled in massive political scandals, that are likely to constrain the company’s progress for many years to come.

Shell’s $53 billion acquisition of BG Group in 2016 afforded Shell significant deep-water assets in Brazil, as well as greater LNG production. Elsewhere in South America, oil and gas production remains promising due to immense reserves of all types: onshore, offshore and in shale. Venezuela continues to hold some of the world’s largest oil and gas reserves. Next door, the small nation of Guyana is attracting immense investment due to recent massive discoveries offshore by American firms ExxonMobil and Hess. Guyana’s Liza field, where initial phases of development were completed in 2016, could be producing 500,000 barrels per day by 2024. Fields offshore of Guyana are extremely promising, and oil income is transforming this tiny, undeveloped nation of fewer than 800,000 population. Oil firms Hess and ExxonMobil have estimated billions of barrels of recoverable oil in Guyana’s Stabroek field alone, and that estimate is likely to grow as the firms conduct further exploration there.

In addition to the challenges posed by deep-water activity, which cover everything from shifting pressure zones, extreme temperatures and drills required to pass quickly from water to sand to rock, oil and gas companies face a scarcity of deep-water drilling rigs. (Only a small number of offshore rigs are capable of working in extreme water depths.) China launched its first home-built deep-water rig in 2012, with plans to steadily grow its fleet, while it extends its claims of territory in the South China Sea.

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