Production from the Federal offshore, now about equal to output from the Alaskan North Slope, is limited by policy to California and the western and central Gulf of Mexico. New production plays in the Gulf of Mexico, the only area with active new leasing, led to a resurgence in activity there. Leasing, drilling, production and numbers of fields under development all set records in 1997, as the deepwater Gulf of Mexico became the place to be for almost any larger oil companies, domestic or foreign.
The important characteristic of these new plays is their water depth. When production in the Gulf of Mexico peaked in the mid-1980’s, it came almost exclusively from the waters over the Continental Shelf. The new plays are further offshore, in the much more challenging deepwater. Production is already occurring in water depths of one mile. Recent discoveries suggest that this water depth record could be extended to a mile and a half in the next couple of years, by which time drilling could have moved out to waters two miles deep.
As noted throughout the Supply chapter, technology has been the key to opening up these new production plays. New deepwater production options such as tension leg platforms (TLP), spars, compliant towers, and subsea completions have allowed companies to do what was deemed impossible until quite recently -- operate in deep water, while three technological advances have been particularly important in making new discoveries economically viable: 3-D seismic, horizontal and directional drilling, and multi-lateral completions.
The number of discoveries that it makes sense to develop in the deepwater Gulf of Mexico has been further increased by royalty relief that is worth at least $2.00-$3.00 a barrel on initial production and by an unexpected bonus: an unusually high level of production per well for the United States. Instead of a stripper well’s 10 barrels, or even a Gulf of Mexico shallow water well’s 1,000 barrels, daily production rates of 10,000 barrels have been common and as high as 30,000 barrels have been achieved. As a result, the number of new fields coming onstream annually in the deepwater jumped to 15-20 from a lifetime average of 2.
This surge was widely expected to double deepwater Gulf of Mexico production to 2 million barrels per day by the year 2000 or shortly thereafter, turning the Gulf in total into the preeminent oil producing region of the United States. Such growth would slow or even temporarily halt the long term decline in United States production, curb the rate of growth of United States crude oil imports, and have a significant impact on crude markets throughout the Gulf Coast and the Midwest. The pace and timing of these deepwater plays, like all other upstream exploration, was impacted by 1998's low prices.
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