A Timely Question

During this week’s monthly web chat, a subscriber asked about the major producers in the Gulf of Mexico. This proved timely, because the next morning Energy XXI (Nasdaq: EXXI) — the 12th largest producer of oil and sixth largest producer of natural gas in the Gulf of Mexico in 2013 — agreed to buy EPL Oil & Gas (NYSE: EPL) for $1.5 billion at a 34 percent premium to the previous day’s close. So, let’s review the major oil and gas producers in the Gulf.

BP Dethroned by Disaster

The first company to pop into most people’s heads when discussing Gulf of Mexico oil production will be BP (NYSE: BP). Next month will mark the four-year anniversary of the Deepwater Horizon oil spill at the BP-operated Macondo Prospect. The accident killed 11 people, spilled nearly 5 million barrels oil in the Gulf of Mexico and caused lasting damage to BP’s reputation and balance sheet.

In 2010 — the year of the Deepwater Horizon spill — BP was the Gulf of Mexico’s top oil producer, having wrested that distinction from Shell (NYSE: RDS-A) in 2008. BP remained the Gulf’s top oil producer in 2011. But liabilities from the Deepwater Horizon spill forced the company to sell off assets, including some in the Gulf. So in 2012 BP ceded the top spot back to Shell, which retained it last year.

The Top 10

The Bureau of Ocean Energy Management (BOEM) keeps detailed statistics for all of the oil and gas producers in the Gulf. In 2013 there were 450 million barrels of oil and 1.3 trillion cubic feet (tcf) of natural gas produced in the Gulf of Mexico. Here are the top oil producers:

These 10 were responsible for more than 74 percent of the Gulf’s oil production in 2013. Shell, along with new Conservative portfolio holding BP and long-time Conservative portfolio holding Chevron (NYSE: CVX), accounted for nearly 44 percent of the total.

In contrast to growing oil production from the continental US as a result of the shale oil boom, oil production in the Gulf of Mexico has dropped for four straight years. In 2013 it was down 21 percent from the 570 million barrels produced in 2009. As recently as 2007 — before the shale boom took off — the Gulf was responsible for 25 percent of all US production. Today that percentage has fallen to a bit more than 15 percent, but still amounts to some 1.2 million barrels per day.

There is quite a bit of natural gas produced along with the oil, so it isn’t surprising to find that, in addition to being the top oil producer, Shell is the second largest natural gas producer in the Gulf. Anadarko (NYSE: APC) and Chevron also made the top five in both categories.

Table 2. 2013’s Top Gulf of Mexico Natural Gas Producers

No Sunset in the Gulf Yet

The US Energy Information Administration (EIA) estimates that remaining proved reserves in the Gulf of Mexico are equal to nearly 5 billion barrels, with the majority in the waters off of Louisiana and Alabama. There is also believed to be considerable oil off the coast of Florida, but it is presently off limits.

In March 2010, the month before the Deepwater Horizon spill, President Barack Obama had announced his support for increased offshore drilling. But the subsequent oil spill galvanized public opposition and led to a six-month moratorium on deepwater drilling. In December 2010 the Obama Administration announced that no drilling would be allowed in the eastern Gulf of Mexico or off the Atlantic coast for at least seven years.

In 2009 the EIA estimated the technically recoverable but still undiscovered resources available for development in the Gulf of Mexico at nearly 41 billion barrels of oil and 210 tcf of natural gas. Undiscovered resources that are off limits to development in the Eastern Gulf — primarily offshore Florida — were estimated at 4 billion barrels of oil and 22 tcf of natural gas.

At the 2013 rate of 1.2 million bpd of oil production, the proved reserves are equivalent to nearly 11 years of production, while the EIA’s estimate of still undiscovered oil in the Gulf would be equivalent to more than 90 years of oil production at the 2013 rate. While the EIA’s estimate may be on the optimistic side, clearly there are fields still to be discovered, and the Gulf will continue to produce oil for many years.

In fact, the agency’s latest Short-term Energy Outlook forecasts a production increase in the Gulf to 1.4 million bbl/d this year and 1.6 million bbl/d in 2015. “Production growth in 2014 comes from eight projects expected to come on line: Jack, St. Malo, Entrada, Big Foot, Tubular Bells, Atlantis Phase 2, Hadrian South, and Lucius. Further production growth in 2015 comes from an additional 10 projects: Axe, Cardamom Deep, Dalmatian, Deimos South, Kodiak, Pony, Samurai, West Boreas, Winter, and Mars B,” the report notes.

Conclusions

Shell and BP will continue to battle it out for the title of the top producer, but BP owns the most acreage and is making the largest investments in the Gulf. Look for it to regain the title of the Gulf of Mexico’s top oil producer within the next few years.