Photo:
For over a decade, the shale patch has been the engine behind U.S. oil production growth. Now, the pattern is shifting to offshore oil amid tech advances and maturing shale reservoirs—with the help of a pro-oil federal government.
Earlier this year, the Energy Information Administration said it expected oil output from Gulf of Mexico fields to rise from 1.8 million barrels daily at the moment to 2.4 million barrels daily as early as 2027. The Bureau of Ocean Energy Management had the same estimate. The two cited federal support in the form of easier permitting, technological advancements that make offshore drilling more economic and efficient, and investment appetite in the industry.
This month, BP said it would go ahead with a $5-billion investment into a new offshore project in the Gulf that would tap reserves of some 350 million barrels of crude. The company said the Tiber-Guadalupe project would add 80,000 barrels daily to its total U.S. output as it eyes boosting this to over 1 million barrels daily.
Yet that was not the only recent offshore oil news from the United States. BP again, in partnership with Chevron, earlier this year also announced a discovery in the Far South prospect, with an executive saying, “This Far South discovery demonstrates that the Gulf of America remains an area of incredible growth and opportunity for bp.” Indeed, the supermajor plans to ramp up its Gulf output to 400,000 barrels daily by 2030.
Also this year, Talos Energy announced a discovery in the Gulf that Wood Makenzie said was the most significant one since Shell’s Whale find in 2017. The Daenerys discovery could produce an estimated 65,000 barrels daily at peak production rates, and it could lead to more discoveries in the area, Wood Mac analysts said in a September report.
“We believe that offshore production will play an increasingly larger role in filling the global energy demand,” Talos Energy’s chief executive, Paul Goodfellow, said in June, as quoted by Reuters. “Questions are starting to arise about the continued long-term economic viability of onshore basins… At the same time, technological advancements have unlocked significant deepwater reserves.”
This is a pretty succinct description of the situation in U.S. oil. For years, shale was a favourite because production could start so much faster than it would at a conventional offshore field. The latter required years of work and a lot of upfront investment, while a shale well could be drilled and start producing in a matter of months.
It was only over time that the drawback of this fast start of production surfaced: shale wells started producing faster, but they also depleted faster. As a result, shale drillers have to keep drilling, which is where they sooner or later face the fact that not all drilling locations are equally “sweet”. As top-tier acreage begins to run out, shale producers have ventured into higher-cost parts of the patch and have become more cautious with their cash.
Some have also pointed to evidence of declining well productivity in parts of the shale patch, which, like costs, has affected production growth plans. Add to the mix the oil price uncertainty on global markets, and the situation for U.S. shale becomes quite complicated. As one industry executive put it to the Dallas Fed Energy Survey, “We can make money at today’s oil prices. But with costs climbing and politics in play, we’d rather pay dividends than take big risks.”
Offshore drilling, on the other hand, starts with high upfront costs. These are a given. Yet new and better drilling equipment has made it possible to drill in ever-deeper waters and tap previously inaccessible deposits. Over time, the breakeven for an offshore field could fall far below what is now average for even the lowest-cost shale. As Talos’ Goodfellow said earlier this year, its offshore projects for the current half of the year would remain economical even if international oil prices plummeted to $35 per barrel. What’s more, he said that offshore breakeven could fall to as low as $20 per barrel, while for onshore oil, the breakeven average is $48 per barrel.
The Energy Information Administration projects Gulf oil production to hit 1.89 million barrels daily this year, rising to 1.96 million barrels daily in 2026. Onshore production, meanwhile, will only grow by an estimated 190,000 bpd, excluding Alaska. That would be the slowest growth since 2010, excluding the Covid years, Reuters noted, citing the EIA outlook.
Offshore production, meanwhile, will keep growing, with some analysts, such as Energy Aspects, expecting the offshore growth to offset onshore decline fully over time—if favorable federal policies stay in place, that is. The Trump administration’s prioritization of local energy production has helped offshore growth, facilitating drilling by relaxing some regulations and thus helping improve productivity. A return of the Democrats to power would likely change the outlook for offshore oil dramatically.
Oilprice Intelligence brings you the signals before they become front-page news. This is the same expert analysis read by veteran traders and political advisors. Get it free, twice a week, and you’ll always know why the market is moving before everyone else.
You get the geopolitical intelligence, the hidden inventory data, and the market whispers that move billions – and we’ll send you $389 in premium energy intelligence, on us, just for subscribing. Join 400,000+ readers today.
Source: finance
