Gulf Coast Energy Outlook with DI ProdCast

Gulf Coast Energy Outlook with DI ProdCast

Over the past two decades, the landscape for oil and gas development has experienced a fundamental shift due to technological advancements made along the U.S. Gulf Coast Region. As the combining of horizontal drilling and sequential hydraulic fracturing has become economical in “tight” shale oil plays, the historic trend of declining oil and gas production has reversed itself and created historical increases in production that has fundamentally changed the trajectory of both the energy industry, and the economy more generally, both here in the U.S. and across the world.

Thus, this new era of oil and gas production has fundamentally transformed the Gulf Coast Region’s role in global energy markets. These changes have been the catalyst for an inaugural annual Gulf Coast Energy Outlook (GCEO) (full report here), which focuses specifically on the Gulf Coast Region and its interaction with U.S. and global energy markets. The GCEO is a collaborative project between the Louisiana State University E. J. Ourso College of Business and Center for Energy Studies.

The collaborative research initiative focuses on upstream oil and gas production and downstream refining and petrochemicals, as well as the contribution of the energy sector to the broader Gulf Coast economy. The report also includes forecasts of future employment in relevant energy sectors.

For the report, GCEO researchers used the Drilling Info ProdCast Tool to create oil and gas production forecasts. Because ProdCast allows for reservoir level production to be aggregated into larger regions, our researchers were able to examine not only the forecasted oil and natural gas production in their region, but also the relative share of regional production. Other dynamics, such as the relative share of shale, conventional onshore, and offshore production were also considered.

As shown in Figures 8 and 9 of the report, ProdCast estimates increases in both U.S. oil and gas production over the next decade, with oil production peaking at 12 million barrels per day in 2024 and natural gas production experiencing year-over-year growth until 2030, when production is expected to exceed 100 Bcf per day. While for the Gulf Coast Region both oil and natural gas production are expected to increase, the relative importance of the region for oil is expected to increase from its current approximately 11 percent of U.S. production, to more than 12 percent in 2030. But for natural gas, a very different story emerges. Specifically, Gulf Coast natural gas production accounted for more than 50 percent of total U.S. production just a decade ago, but this relative share has attenuated to less than 40 percent and is expected to remain relatively flat as a share until 2030. Thus, while the Gulf Coast Region still serves a larger absolute share of natural gas production relative to crude oil, the relative importance has attenuated.

In addition to new oil and gas production, the Gulf Coast Region is experiencing historical investments in refining, petrochemicals, and LNG exports. Figures 11 and 12 show the completed, currently underway, and announced projects associated with this shale-boom-induced investment, much of which is driven by LNG export facilities located in Calcasieu and Cameron Parishes in southwest Louisiana. In addition, significant investments in petrochemical facilities have been heavily concentrated along the Mississippi River parishes in southeast Louisiana.

The report concludes with employment forecasts for both Texas and Louisiana in the upstream oil and gas extraction sectors and refining and chemical manufacturing. Figures 16 and 17 show upstream oil and gas employment forecasts in both Louisiana and Texas. These forecasts were developed using outputs from the DI Prodcast tool alongside historical labor market data. During the recent oil price drop, Louisiana has lost about 16,000 upstream jobs, and is expected to gain about half of these jobs back over the next three years. Texas lost more than 100,000 jobs and is similarly expected to see about half of these jobs return in upcoming years.

This past decade and a half has been an exciting one for the energy industry. Technological advancements in the upstream oil and gas extraction sectors have fundamentally changed the outlook of energy, not only here on the Gulf Coast, and not just here in the United States, but around the world, as the global energy outlook has changed for decades to come. Drilling Info has been a great partner in allowing for researchers to study regional implications of oil and gas activity.

Toe-to-Toe: Unconventional Plays vs. Mature Field Redevelopment

Toe-to-Toe: Unconventional Plays vs. Mature Field Redevelopment

Unconventional oil and natural gas production from shale has transformed North America’s energy outlook. Because of this, news headlines are filled with stories about the critical economic benefits the shale energy boom is providing the U.S.

Although a significant amount of attention is currently being placed on the unconventional development of natural resources, the upside potential in the redevelopment of mature oil and gas fields is oftentimes overlooked.

Many mature fields have been abandoned while producing at commercial rates. Furthermore, less than 50 percent of recoverable oil is generally produced during the initial development phase of many conventional oil and natural gas fields.

By implementing new wells in mature fields and utilizing technological advancements to optimize production capacity, companies specializing in mature field redevelopment can more efficiently access and produce the remaining oil and gas.

Experience dictates the redevelopment of these fields to be low risk due to its low initial costs and increased likelihood of payout, even with below average cumulative recovery.

Unconventional vs. Conventional Production

Based on our extensive experience in central Oklahoma, GeoComp Energy has sufficient data to compare the economics of a Mississippian Lime Play prospect with a conventional, mature redevelopment project.

The Mississippian Lime extends from Kansas through northeastern Oklahoma, maintains roughly a 6,000 foot depth and has lower well costs compared to other popular formations such as the Bakken or the Eagle Ford.

To effectively compare the economics of a Mississippian Lime prospect to those of a mature field redevelopment project, we analyzed decline curves from new Mississippian wells and from vertical infill wells drilled in mature fields throughout Oklahoma.

The geographic location of the data sets, as well as the reduced capital expenditures of the two fields provided a more ideal framework for such an analysis. For the purposes of this evaluation, we established the following parameters to determine the costs and profitability of the two prospects:

  • Four wells and one new salt water disposal well for each type of prospect
  • 1,280 acres required for the Mississippian project
  • 160 acres for the mature field redevelopment prospect
  • Average acreage, drilling, completion and commodity prices
  • 8 year economic model

Mississippian vs Mature Field

As you can see, the mature field redevelopment prospect requires only about 1/4th of the initial capital necessary to develop the Mississippian Lime play project.

However, the Mississippian prospect produces roughly 50 percent more hydrocarbons over an eight year period. Because of this, the projected net value of the Mississippian project after 8 years of production reaches an impressive $40 million, whereas the estimated worth of the mature field redevelopment prospect is $25 million.

Nevertheless, the mature field redevelopment prospect exhibits an improved return on investment. In fact, the projected ROI of the mature field redevelopment prospect more than doubles the estimated ROI of the Mississippian Lime play prospect since it requires a substantially lower capital investment.

Considering the difference in initial costs and the improved ROI projections, mature field redevelopment projects present low-risk opportunities for oil and gas companies compared to the operational risks and elevated costs associated with unconventional drilling.

Under the Radar

The unconventional production of oil and natural gas from shale is without a doubt essential to the economic recovery of our nation. However, independent oil and natural gas companies can benefit greatly from the lowered risk and enhanced economic advantages of optimizing production in mature fields.

Although the scale may not attract a great deal of attention from media avenues, mature field redevelopment projects typically offer a higher ROI ratio compared to unconventional oil and natural gas prospects.

Your Turn

What do you think? Should more companies focus their resources on redeveloping old fields, instead of chasing headlines and unconventional plays? Please leave your thoughts in the comments below.