EXPANDING FRONTIER

When the original version of this report (Cranswick and Regg, 1997) was published in February 1997, a new era for the GOM had just begun with intense interest in the oil and gas potential of the deepwater areas. There were favorable economics, recent deepwater discoveries, and significant leasing at that time.

In February 1997, there were 17 producing deepwater projects, up from only 6 at the end of 1992. Since then, industry has been rapidly advancing into deepwater and, indeed, many of the anticipated fields have begun production since the 1997 report. The previous version of this report (Baud et al., 2002)highlighted dramatic advancements from 1997 through 2001. Significant advances have continued and are described in this report.

At the end of 2003, there were 86 producing projects in the deepwater GOM, up 51 percent in the two years since Baud et al. (2002). Deepwater production rates have risen by well over 100,000 barrels of oil per day (BOPD) and 400 million cubic ft of gas per day (MMCFPD), respectively, each year since 1997.

The dramatic shift toward high activity levels in the deepwater GOM occurred during the last few years, although it had been developing for over two decades. Deepwater production began in 1979 with Shell�s Cognac field, but it took another five years before the next deepwater field (ExxonMobil�s Lena field) came online. Both developments relied on extending the limits of platform technology used to develop the GOM shallow-water areas. Deepwater exploration and production grew with tremendous advances in technology since those early days. This report focuses on changes during the last 12 years, 1992-2003.

Over the last 12 years, there has been an overall expansion in all phases of deepwater activity. There are approximately 7,800 active leases in the Gulf of Mexico OCS, 54 percent of which are in deepwater. (Note that lease statuses may change daily, so the current number of active leases is an approximation.)

Contrast this to approximately 5,600 active Gulf of Mexico leases in 1992, only 27 percent of which were in deepwater. On average, there were 29 rigs drilling in deepwater in 2003, compared with only 3 rigs in 1992. Likewise, deepwater oil production rose over 840 percent and deepwater gas production increased about 1,600 percent from 1992 to 2002.

Although deepwater production and the number of discoveries have increased substantially, some measures of deepwater activity have declined since the last report. There have been decreases in the average bid amount per block, average number of rigs operating, the number of wells drilled, and the number of deepwater plans submitted.

All phases of exploration and development moved steadily into deeper waters over the past 12 years. This trend is observable in seismic activity, leasing, exploratory drilling, field discoveries, and production. Major oil companies dominated deepwater leasing activity until 1996, when the activity of nonmajor companies increased. Major oil companies continue to dominate deepwater oil and gas production. Production from major oil companies has continued to increase steadily, but production from nonmajor companies has remained flat.

The OCS Deep Water Royalty Relief Act (DWRRA; 43 U.S.C. �1337) has had a significant impact on deepwater GOM activities. This legislation provides economic incentives for operators to develop fields in water depths greater than 200 m (656 ft). These incentives include the suspension of Federal royalty payments (for new leases issued 1996-2000) on the initial 17.5 million barrels of oil equivalent (MMBOE) produced from a field in 200-400 m (656-1,312 ft) of water, 52.5 MMBOE for a field in 400-800 m (1,312-2,624 ft) of water, and 87.5 MMBOE for a field in greater than 800 m (2,624 ft) of water.¹

Reduction of royalty payments is also available through an application process for some deepwater fields that were leased prior to the DWRRA but had not yet gone on production. The fixed suspension volume provision of the DWRRA (for new leases issued 1996-2000) expired on November 28, 2000. Leases acquired between November 28, 1995, and November 28, 2000, will retain the incentives until their expiration. Exploration and production incentives have continued since 2000 for leases in water depths greater than 400 m (1,312 ft). Royalty relief volumes range from 5 MMBOE in water depths of 400-799 m (1,312-2,621 ft) to 12 MMBOE of relief in depths greater than 1,600 m (5,249 ft). Royalty relief is granted to individual leases, not fields1 as in the DWRRA. Post-DWRRA provisions are subject to change for each lease sale.