The U.S. Gulf of Mexico is better prepared now to ride out the oil crisis than it was in the 2015-2016 downturn, as 82 percent of oil production has a short-run marginal cost - operating costs, taxes, and royalties - of US$10 a barrel Brent, Wood Mackenzie said on Thursday.
The Gulf of Mexico is now nimbler and leaner and more resilient to the recent oil price crash and current downturn, the consultancy said in new research.
Despite the lower costs and leaner operations compared to the previous crisis, the Gulf of Mexico will not remain unscathed by this year's price collapse as companies have cut budgets and recalibrated exploration and sanctioning plans, WoodMac said.
Offshore oil has also felt the severity of the oil price collapse, and it could take years for some offshore regions around the world to recover.
According to WoodMac, capital expenditure (capex) by Gulf of Mexico operators is expected to drop to US$7.4 billion this year, down by 22 percent or US$4 billion from 2019.
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In addition, production from the region could see its first decline since 2013, due to reduced budgets that could change the scope and timeline for drilling campaigns and new projects, Wood Mackenzie said. Before the coronavirus and the oil price crash, the consultancy had expected the Gulf of Mexico to break yet another production record this year and pump 2.2 million barrels of oil equivalent per day (boed). The forecast is now revised down by 200,000 boed. Yet, recovery in production is set to come as early as next year because start-up dates for major projects in the near term haven't been delayed, WoodMac said.
Exploration is set to suffer more, with just 15 wells expected this year-a historic low for the Gulf of Mexico and recovery will take time.
In project approvals, WoodMac sees no US GoM project sanctioned this year.
"But, unlike the last downturn, where some projects were cancelled, this time project FIDs have simply been deferred. This is attributed to the relatively competitive economics of the pre-FID projects in the region, which could come down even further with cost deflation," the consultancy said.
By Tsvetana Paraskova for Oilprice.com
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