“When you combine the U.S. and Mexico, onshore and offshore, the Gulf of Mexico basin is one of the world's most prolific hydrocarbon super basins. Over 250 billion barrels of oil equivalent have been discovered to date, and almost 20 percent (currently 18 percent) of U.S. oil production comes from the Gulf of Mexico.”
That's Cindy Yeilding, Senior Vice President, BP America, speaking about the petroleum power and potential of the Gulf as a preview to her upcoming presentation at the AAPG Global Super Basins Leadership Conference in Houston, which will include discussion of the region’s production history and the geologic trends, innovation, and, yes – even failures associated with the region.
The realm of the Gulf of Mexico is not just important to the United States.
“We will also highlight the Gulf of Mexico … and the promise it holds for Mexico,” she said.
Life from the ‘Dead Sea’
Industry has been exploring offshore possibilities in the U.S. Gulf of Mexico since the 1930s, when the first wells were drilled in a few feet of water. It was an exciting time, especially in the late ‘40s.
Unfortunately, however, much of the early “colorful history,” as Yeilding described it, has been lost.
(The U.S. Department of the Interior and the Bureau of Ocean Energy Management has done a good job reconstructing the Gulf of Mexico’s resume in its study entitled “History of the Offshore Oil and Gas Industry in Southern Louisiana.”)
“Exploration in the deepwater U.S. GoM,” Yeilding said, “dates back to the late 1970s,” and like any exploration program, there have been failures, but also perseverance and tenacity.
And a watershed moment.
Yeilding pointed to Shell and BP's discovery of Mars in 1989, a project about 130 miles southeast of New Orleans. Initial cost of the development was pegged at about a billion dollars.
It's been a good investment.
According to the website technology.com, Mars produces approximately 21,000 barrels of oil and 25 million cubic feet of gas per day. It was and is the largest Gulf of Mexico discovery in more than 25 years and confirmed the presence of a world-class hydrocarbon source and well-developed clastic reservoirs.
“That was the turning point for developers,” Yeilding said.
Yeilding concedes that while many in the industry flocked to the region afterward and made significant discoveries following Mars, there was also a series of expensive dry holes. This was about the time many in the region started characterizing the Gulf of Mexico as “the Dead Sea.”
The relationship between the industry and the Gulf of Mexico has always been a bit on the complicated side.
“We have a love/hate relationship with the salt present in much of the GoM. We battle the seismic imaging challenges created by salt, but we love the salt-related structural complexity that sets up the hydrocarbon system for much of the basin,” she said.
Yeilding said that industry persevered in the deepwater because it developed new exploration concepts focused on older and sub-salt stratigraphy.
“We invested heavily in the development of 3-D seismic at scale and advanced 3-D seismic imaging techniques, which dramatically improved our imaging beneath the salt. Eventually this led the way to major sub-salt discoveries such as Thunder Horse, Mad Dog and Atlantis,” she said.
As for the future, Yeilding said the challenges in the Gulf are similar to those throughout the industry.
Specifically, in the Gulf of Mexico, dozens of operators have left, moving their investments to onshore fields or other basins around the globe.
“In the current lower oil price environment, many companies have been tightening their belts and paring back their exploration programs,” she said.
Additionally, co-ownerships, as well as suppliers collaborating to reduce cost, have also increased efficiency.
Yeilding calls for a new understanding of the shift by “creating a fiscal and regulatory environment that helps spur development and production in the Gulf of Mexico.”
Specifically, she calls for resetting royalties back to the traditional rate of 12.5 percent.
“About a decade ago, in response to high oil prices, U.S. deepwater royalty rates were raised by 50 percent, and many new lease terms were shortened,” said Yeilding.
Because of the subsurface complexities of the deepwater, she said, “We would also like to see all leases carry an initial lease term of 10 years, which is often how long it can take to develop a lead into a drill-able prospect.”
For all the difficulties and tightening of margins, she is not dissuaded.
“The basin still holds lots of promise. Recent advances in seismic imaging have allowed companies to gain more accurate images of the subsurface. Technology has helped with the ability to develop fast paced tie-backs, and we are seeing a lot more of those projects competing for capital in the U.S.,” Yeilding said.
For example, the Mexican side of the basin is open – which she calls “enticing” – and has had significant discoveries to date and promising discoveries on the horizon.
“While there have not been major exploration successes – or ‘elephant-sized’ discoveries – in the U.S. recently, there are still twinkles in the explorers' eyes, and the basin holds promise for new plays in both the U.S. and Mexico,” she said.
Big Fields Get Bigger
And while the Gulf of Mexico will be the focal point of the presentation, specifically, Yeilding is excited about super basins in general, for more than 60 percent world's oil reserves and resources come from giant oil fields. These basins are where the adage “big fields get bigger” comes to fruition.
“A small increase in recovery, or an additional untapped reservoir, can have a significant impact on production and reserves,” she said.
“We've experienced this in several fields in the GoM,” Yeilding concluded, “including our Mad Dog field. Mad Dog was initially estimated at four billion barrels of oil in place, but recent appraisal drilling and new geophysical technologies demonstrate that the field likely holds over 5 billion barrels in place.”
Cindy Yeilding, Senior Vice President, BP America, will present “Gulf of Mexico Offshore Evolution of Past, Present, and Future Plays” at the upcoming AAPG Global Super Basins Leadership Conference to be held March 27-29 at the Hilton Americas Hotel in Houston.