Who Wins if the USA Gulf of Mexico Loses Out?
A temporary U.S. federal moratorium on new oil and natural gas leases has been in place since January as part of a Biden administration executive order to review new fossil fuel leasing and permitting practices, amid other climate change initiatives to reduce carbon emissions.
Analysts say the moratorium has had little or no immediate impact on current production in the U.S. Gulf of Mexico (GOM) given acreage already in play. That could change.
“In case of a moratorium in the U.S. offshore Gulf of Mexico federal region or complete ban on new leases, the impact would not be felt immediately but may have serious ramifications on production and investments after four to five years,” said Atul Prasad Gupta, assistant director, Oil & Gas Practice with Acuity Knowledge Partners.
Given the current economic and political environment, coupled with potential changes in leasing and permitting practices, some companies may be starting to think about long-term viability, while also playing the “wait-and-see” game.
“Irrespective of what the oil prices are going to be in the U.S. part of the Gulf of Mexico, new exploration drilling and production for the foreseeable future is unlikely to happen,” said Ramanan Krishnamoorti, chief energy officer for the University of Houston.
Near-term expectations for U.S. GOM
Despite weather-related setbacks during the past few years and the global pandemic, “several companies, including super majors, have invested heavily on infrastructure in the region since the past two decades in anticipation of future production and are awaiting further updates on the moratorium before taking counter measures,” Gupta said.
While there could be implications on the workforce in the U.S. GOM in the form of reallocation or relocation, analysts say it’s too soon to see how hiring and employment effects related to the moratorium could play out.
“We can always get the resources with time, training, and experience,” said Vance Scott, a Houston-based managing director in the energy practice at AlixPartners LLP.
Who sees a bump?
Developing coastal areas of Mexico, the Caribbean, South America, Africa, and Western Australia, as well as other countries with high resource development potential that compete with the United States for investment, “may benefit from the moratorium and the planned reduction in new Gulf of Mexico lease activity,” said Reid Morrison, PwC U.S. oil and gas advisory leader. “Investment in deepwater development capabilities will likely go to the regions that have alternate exploitation opportunities and fewer regulatory constraints.”
Regions surrounding newly discovered giant fields also may benefit as signs point toward a focus shift from a large number of low-cost, low-volume fields with subsea tie-backs to a smaller number of low-cost, high volume fields.
Guyana and Suriname
Gupta said the focus will likely be high on ExxonMobil’s (NYSE: XOM) Stabroek block in Guyana and its adjacent blocks in Suriname, where Total (NYSE: TOT) has had exploration successes.
“These two regions have proved to be among the most prolific finds of the decade, with about 15 billion barrels of probable reserves and low cost of production (USD $30 to $40 a barrel), stimulating investments in these frontier regions,” he noted.
Known to have high recoverable resources, the pre-salt Campos Basin has seen an uptick in activity, likely keeping it a high-interest region, according to analysts.
The U.K. Department for Business, Energy & Industrial Strategy recently announced its Energy Transition Deal for the North Sea, which states in part that “this decade will be the decade of delivery and change” as a call to action to address climate change.
“This partnership between government, the Oil and Gas Authority and the offshore oil and gas sector has enabled the sector to remain an important part of the economy,” Morrison said. “It supports about 147,000 jobs that directly employ people across the country and supports many more local jobs in sectors that rely on a vibrant oil and gas industry.”
Frontier and known fields in this region have already proven successful for Total and Eni (NYSE: E).
In the current environment, with uncertain policies governing federal waters in the U.S. Gulf of Mexico, whether any new federal oil and gas lease sales lead to GOM capital expenditure and production increases remains questionable. What is certain, however, are discussions of strategy shifts to focus on the energy transition – with a goal of reducing emissions and major international players staying in the global offshore markets.
“Major multinational private and publicly traded companies are going to be more in the alternate energy sphere than in oil and gas,” Krishnamoorti said. “That said, they have the technologies, know-how, and expertise to make these things happen safely in developing worlds.
“In spite of the fact that you have national oil companies that are going to be the dominant players, the underlying technologies, the underlying expertise are going to come from the international oil companies.”
Monique and Steve Jozwiakowski own Houston-based MOJOZ Consulting, LLC.
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