By Gary McWilliams
HOUSTON, Aug 16 (Reuters) - Oil and gas producers in U.S.
Gulf of Mexico have consolidated at a faster rate during the
pandemic, new government data shows, as crashing prices squeezed
out smaller drillers who had been seen as the industry's future.
The dominance of the top producers in the Gulf looms large
as the industry's technology showcase, the Offshore Technology
Conference, officially gets underway in Houston on Monday. The
event, which in prior years drew more than 60,000 people and
1,000s of exhibitors, will be smaller this year due to company
cutbacks and coronavirus-induced travel restrictions.
The pandemic, along with recurring hurricane shut-ins,
hastened the demise of some Gulf of Mexico producers. Smaller,
private-equity backed firms that pushed into offshore fields
last decade have struggled, leading several to exit while others
slipped into bankruptcy.
"We’re only going to see further consolidation," said Colin
White, an analyst with consultant Rystad Energy. Private-equity
backed producers are being swallowed up by larger firms or are
abandoning exploration for safer infrastructure investments, he
said.
The top 10 producers - led by Royal Dutch Shell, BP
Plc and Chevron - this year pumped 86% of the
region's 1.6 million barrels per day (bpd), up about 11
percentage points since 2017, data from regulator Bureau of
Safety and Environmental Enforcement (BSEE) shows.
Two closely-held offshore drillers, Fieldwood Energy and
Arena Energy, fell into bankruptcy in 2020 as crude oil prices
plummeted. U.S. energy experts forecast output will return to
its peak https://www.eia.gov/todayinenergy/detail.php?id=47536
of 1.9 million bpd by 2022.
Arena emerged with its debt extinguished and a reduced
drilling program. But the U.S. suspension of offshore auctions
"has certainly chilled any potential investors," said Michael
Minarovic, chief executive.
NEW PROJECTS TAKE WING
BP plans its first production early next year on a
140,000-bpd project, Shell recently approved a 100,000 bpd field
that will begin producing in 2024, and Chevron is preparing to
tap a super-high pressure field that could pave the way for a
series of new wells, said Neil Menzies, Chevron's general
manager of capital projects for its Gulf of Mexico business
unit.
"We plan to grow to about 400,000 bpd by the middle of the
decade," said Starlee Sykes, BP's senior vice president over the
Gulf operations, from about 350,000 bpd now. With advanced
seismic and high-pressure technologies, "I’m optimistic the Gulf
of Mexico will be around for a very long time," she said.
The consolidation has reduced the number of Gulf producers
to about 49 today from 60 five years ago. Financing for smaller
firms has dried up, leaving future wells in the hands of big
operators that can self-finance operations.
"The amount of regulation and overhead makes it difficult
(for smaller companies)," said Ryan Smith, senior director of
commodity research, at energy data provider East Daley Capital.
"Bigger operators are used to the overhead."
Oil majors are renewing investments because of the region's
lower carbon intensity for production. Offshore wells are under
high pressure, meaning oil flows readily to the surface instead
of needing carbon-emitting boosters. U.S. regulators' ban on
routine flaring also has fed an extensive pipeline network
resulting in a lower carbon footprint than many onshore fields,
executives said.
Royal Dutch Shell, among others, plans on increasing its
investment in offshore. U.S. permitting of projects have not
been affect by the Biden administration's review, executives
said.
The U.S. Gulf oilfields, with their proximity to onshore
refineries and gas processing plants, are "the closest thing the
energy industry has to farm-to-table" restaurant, said Bill
Langin, Shell's senior vice president of deepwater exploration.
(Additional reporting by Jessica Resnick-Ault in New York;
editing by David Gregorio)