Nearly a decade ago, Enverus, then known as DrillingInfo, posted a Gulf of Mexico (GOM) primer on its blog. It remains one of our most popular posts. A few things have changed since 2014, so we decided it was time for an update.
Geology
The geology of the GOM is largely Jurassic and Cretaceous, when the basin encouraged collection and evaporation of seawater, leaving behind accumulations of salt and gypsum, which then domed and trapped abundant hydrocarbons.
Offshore leasing program
The Submerged Lands Act of 1953 grants individual states rights to the natural resources of submerged lands from the coastline to no more than 3 nautical miles (5.6 km) into the Atlantic, Pacific, the Arctic Ocean and the GOM. The only exceptions are Texas and the west coast of Florida, where state jurisdiction extends from the coastline to no more than 3 marine leagues (16.2 km) into the GOM. Beyond the state boundaries in the GOM, there are Offshore Protraction Areas that are further subdivided into blocks that go up for bid from the federal government.
In 1953, Congress passed the Outer Continental Shelf Lands Act, which places responsibility for administration of mineral exploration and development on the Outer Continental Shelf with the Secretary of the Interior. Since 1983, leasing and administration of offshore leases has been delegated to the Bureau of Ocean Energy Management or its predecessor, the Minerals Management Service.
Oil and gas leasing is administered in five-year programs, with the upcoming proposal being the 2024-2029 National Outer Continental Shelf Oil and Gas Leasing Program that was released Sept. 29. When announced, the Department of the Interior boasted that the 2024-2029 program had the fewest offshore sales in program history as the Biden administration furthers its goal to rapidly phase down oil and gas leasing in the U.S. and reach net zero emissions by 2050. Under the proposed program, a maximum of three lease sales will be held: one each year in 2025, 2027 and 2029. Only areas of the GOM with existing production and infrastructure would be offered.
The number of sales in this proposal is the fewest allowable under terms of the 2022 Inflation Reduction Act that enable the DOI to expand its offshore wind leasing program through 2030. The DOI noted that the current plan is narrowed significantly from the Trump administration’s original proposal for 47 lease sales off all U.S. coastal areas over five years. The final proposal will become effective after a 60-day waiting period ends and Interior Secretary Deb Haaland issues a formal approval.
According to BOEM data, most of the big-money bids were in the 1970s and 1980s, but more recently Lease Sale 222 in 2012 delivered a top-10 bid of $157 million for Mississippi Canyon Block 718. Statoil (now Equinor) outbid its nearest competitor for the block by 5x. The company went on to drill the Martin exploration well in the block, making a non-commercial discovery in a Miocene-aged reservoir. In 2020, Equinor somewhat famously did a retrospective on its GOM foray, highlighting that on its 30 most expensive leases by bonus bid over $10 million, only five wells were drilled and one discovery was made—Shell-operated Blacktip. The Enverus docFinder database chronicles company presentations including Equinor’s 2020 retrospective, which can be viewed here.
Why do companies like the GOM today? Low-carbon barrels
Despite the Biden administration’s goal to phase out GOM oil and gas extraction, the basin remains a favorable destination for investment. Operators tout the U.S. GOM as having the lowest greenhouse gas emissions of any global play. A report commissioned by the National Ocean Industries Association and released May 8 by ICF found that GOM oil production is one of the lowest emitting crudes on earth and the lowest for any U.S. region. Its carbon intensity is 46% lower than the global average outside the U.S. and Canada. Ironically, the U.S. recently relaxed sanctions on Venezuela’s oil sector and is allowing six months of exports with no restrictions in exchange for electoral concessions made by the Maduro regime. Some of those oil volumes would likely end up in the U.S., providing America with some of the highest carbon intensity oil barrels available on the global market, according to the ICF report.
Low-cost development
The current wave of GOM activity is driven by infrastructure-led projects. The basin benefits from extensive infrastructure in place from decades of development. Operators’ capital programs over the last several years have focused on exploration and development that can be tied back to existing infrastructure, which lowers development costs and extends the life of existing assets. For example, Kosmos Energy’s Tiberius oil discovery, announced in October, could be developed as a tieback to Occidental Petroleum’s Lucius spar 6 miles away. Lucius has been online since early 2015 and existing Lucius tiebacks include ExxonMobil’s Hadrian South and LLOG Exploration’s Buckskin.
Exploration, appraisal and development
Drilling rigs
There are three primary offshore rig types. Jack-ups, semisubmersibles and drillships make up the majority of the offshore rig fleet, and all are used worldwide. Other rig types such as platform rigs, inland barges and tender-assisted rigs are used as well, but they are fewer in number and are generally used in specific geographic areas.
- Jack-ups – Used for shallow-water drilling, there are two jack-up types. Independent-leg jack-ups make up most of the existing fleet. They have legs that penetrate the seafloor, while the hull jacks up and down the legs. Mat-supported jack-ups are presently used only in the U.S. GOM. As the name implies, the mat rests on the seafloor during drilling operations. Cantilever jack-ups can skid out over the platform or well location, while slot units have a slot that fits around a platform when drilling development wells.
- Semisubmersibles – Used for deepwater drilling, these floating rigs have columns that are ballasted to remain on location either by mooring lines anchored to the seafloor or by dynamic positioning systems. They are used for both exploratory and development drilling.
- Drillships – Also used for deepwater drilling, these ship-shaped floating rigs move from location to location under their own power. They can operate in more remote locations and require fewer supply boat trips than do semisubs. They are maintained on location via dynamic positioning systems. Most of the rigs currently under construction are drillships.
- Platform rigs – These are self-contained rigs that are placed on fixed platforms for field development drilling. Some are called self-erecting and can be rigged up in as little as a few days. Other larger units require a derrick barge to be installed and can take up to two weeks to be rigged up. Once drilling is completed, the rig is removed from the platform.
- Tender-assisted rigs – There are only about 25 of these rigs left in existence, used mostly in West Africa and Southeast Asia. They are monohull units that are moored next to a platform. The rig is then installed onto the platform, while all the power, storage and other functions remain on the tender.
- Inland barges – These rigs are specially adapted for inland waters close to shore. They are used in the GOM as well as other areas of the world.
Depending on the rig type, offshore rigs are rated to drill in water depths as shallow as 80 ft to as great as 12,000 ft. The greatest water depth a jack-up can drill in is 550 ft, while many newer units have a rated drilling depth of 35,000 ft. On the floating rig side, the deepest water depth in existence today is 12,000 ft. A handful of these rigs have a rated drilling depth of 50,000 ft, but most of the newer units are rated at 40,000 ft.
Components of an offshore rig
- Hull – initially rigs were built out of tanker hulls, so the terminology remains
- Power module – converts available fuel into power for the station
- Process module – onboarding and offloading of supplies and products
- Drilling module – the traditional drilling rig apparatus
- Quarters module – where the crew sleeps and eats
- Wellbay module – access to the well and other equipment
- Derrick – the oil derrick
This image shows some of the major components of an offshore semisubmersible rig:
Offshore rig builders
There are several shipyards around the world that build offshore rigs. Most of the major yards are in Southeast Asia and the Far East, and there are other facilities in the Middle East and some being established in Brazil. Two of the largest are Korea’s Samsung Heavy Industries and Singapore’s Seatrium, the product of a 2023 merger of Keppel Corp. and Sembcorp Marine.
Once offshore infrastructure is built, it must be transported. Tugboats are used to move jack-ups and semisubs for infield moves. When rigs are moved from one geographic area to another, usually a heavy-lift vessel is deployed in an operation commonly called dry-tow. In some cases, semisubs might be what is called wet-towed, in which the rig is towed while in the water. Of course, drillships move under their own power in any situation. As one can imagine, it can be a pretty big production to move a rig from one area to another; a new rig being built in Singapore will take 90 days to reach the GOM.
Project staffing
The offshore installation manager has the executive authority on a rig during a shift. Beyond that, there are various other positions, all with very specific roles to play to keep the rig running smoothly. The number of crew personnel on a rig varies depending on rig type and where the rig is operating. There can be as few as 50 and as many as 200. Given that there are currently more than 200 rigs being built, one of the problems facing the industry today is how they are going to be staffed. Obviously, some of the people will come from older rigs that are retired over time, with the crew simply transferred to a new rig. However, there is still a large people shortage coming.
Procurement and transportation
Supply boats transport supplies to offshore units. These vessels make regularly scheduled trips to and from the rigs, bringing necessary equipment, food and other supplies. Crews are generally transported by either helicopter or crew boats, depending on how far the trip is.
Production
Oil and/or natural gas production is connected by a flowline to another facility or connects into a large-diameter trunk line to the onshore location for processing. Additionally, floating production, storage and offloading (FPSO) vessels can store oil in their hulls for later transport to shore by another tanker vessel.
For more on GOM pipelines, check out this Enverus Foundations workbook.
According to the EIA, U.S. GOM production averaged 1.731 MMbo/d in 2022. Despite being a mature basin, volumes were only 1% below the prior five-year average. Annual output from the basin hit a high of 1.898 MMo/d in 2019. As of the most recent data, production averaged 1.891 MMbo/d in August 2023, and the monthly average has been as high as 1.933 MMbo/d this year in July.
Oil is the primary development driver in the basin. Natural gas production from the basin has essentially been in decline since the EIA started recording withdrawal data for gas in the GOM in 2001. In 2022, natural gas output from the basin averaged 1.909 Bcf/d compared to 13.774 Bcf/d in 2001.
According to Enverus Foundations data, the largest oil producer in the GOM is Shell, with the company’s gross operated production averaging more than 540,000 bo/d for the last available month of production for active wells. BP is the second-largest producer at nearly 400,000 bo/d, followed by Chevron (nearly 230,000 bo/d), Occidental Petroleum (more than 186,000 bo/d) and Murphy Oil (nearly 150,000 bo/d). Enverus Foundations data is constantly updating. While the table below will become outdated as time passes, this workbook will be current.
In 2022, Shell had the most operated wells reach first production, at 10, driven by activity at Mars-Ursa and Power Nap fields in the Mississippi Canyon area, according to Enverus Foundations data. Murphy Oil came in second with seven wells, primarily related to its Khaleesi, Mormont and Samurai fields, which produce to the Kings Quay platform in the Green Canyon area. Arena Energy, which is focused on the shallow-water GOM, had the third-most wells reach first production during 2022, at six.
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