American Oil and Gas Reporter - February 2015 - 25

IndustryDigest
number for the producing region was up
79 Bcf from a year ago.
In the eastern region, EIA reports,
gas storage on Jan. 23 was 1.281 Tcf,
3.0 percent below the five-year average
and down 379 Bcf from the 1.660 Tcf
reported in storage on Dec. 26, which
was 3.6 percent below the five-year
average. The Jan. 23 storage number for
the eastern region was up 200 Bcf,
compared with a year earlier.
In the western region, EIA reports,
storage levels on Jan. 23 were 375 Bcf,
1.1 percent above the five-year average
and down 86 Bcf from the 461 Bcf
reported on Dec. 26, which was 1.8
percent above the five-year average. The
Jan. 23 storage number in the western
region was up 45 Bcf from a year ago. Ì

U.S. Crude Production
Tops 9.0 MMbbl/d For
3rd Consecutive Month
WASHINGTON-Domestic crude oil
production averaged above 9.0 million
barrels a day for the third month in a
row in December, reaching its highest
December output since 1972, the
American Petroleum Institute reports.
In its latest Monthly Statistical Report,
API says U.S. crude oil production in
December increased by 15.9 percent over
December 2013 and was up 0.7 percent
from November, to just more than 9.1
MMbbl/d. API points out this also was
the highest output for any month since
February 1986.
For the fourth quarter, the report says
domestic crude production rose by 16.3
percent compared with the same period
last year, and for year to date, oil output
jumped 16.1 percent over 2013 levels.
Natural gas liquids production
averaged more than 3.0 MMbbl/d for
the seventh consecutive month, reaching
its highest recorded output. NGL
production in December was up 0.2
percent from November and was 19.4
percent higher than last year. For the
fourth quarter, NGL output was 15.9
percent above the same period in 2013.
According to Baker Hughes Inc., the
number of oil and gas rigs in the United
States in December was 1,882, down by
43 from November's count. API says
this is the lowest count since July.
Total U.S. imports reached their
highest level in 2014 in December, but
were the third-lowest December import

levels since 1997, averaging nearly 9.7
MMbbl/d. Total imports were up from
November and December 2013,
increasing 8.6 percent and 1.3 percent,
respectively. Crude oil imports rose by
2.5 percent from November, to 7.6
MMbbl/d, the second-lowest level in 18
years, API says. This was down by 1.6
percent compared with year-ago levels.
For the fourth quarter, crude imports
had dropped 1.9 percent against 2013
numbers.
Crude oil stocks rose 2.3 percent
from November and were up by 7.4
percent from last year, to end 2014 at
383.5 million barrels, the highest
inventory for December in 84 years. Ì

Analyst Anticipates
A New Growth Period
In The Deepwater Gulf
HOUSTON-Production in the
deepwater Gulf of Mexico is expected
to reach a peak of 1.9 million barrels of
oil equivalent a day in 2016, according
to analysts Wood Mackenzie. Driven by
new developments and the expansion of
older fields, Wood Mackenzie says, this
will be the first time GOM production
surpasses its previous peak set in 2009.
"2014 is the start of the next
significant growth period in the
deepwater GOM," states Imran Khan,
GOM analyst at Wood Mackenzie. "We
expect production to grow 18 percent
annually from 2014 to 2016."
For 2015, Wood Mackenzie forecasts
Gulf of Mexico production will increase
21 percent from its 2014 level. The firm
says the impact will intensify in 2016
when the Heidelberg Field comes on
line and the Jack/St. Malo project ramps
up. "These three fields combined will
produce 115,000 boe a day in 2016,"
Khan asserts. "In addition to new fields
coming on stream, redevelopment and
extension of older fields will augment
growth."
After hitting this new peak in 2016,
however, Wood Mackenzie says it
expects production to plateau for the
remainder of the decade. The firm
estimates that only eight developments
will come on line from 2017 through
2020, compared with 15 developments
from 2014 through 2016.
Khan adds that although the number
of fields coming on stream during the

latter part of the decade is limited, they
are important fields that will define the
long-term success of the region.
"Stones, Shenandoah, and North Platte
are part of the Lower Tertiary, which
has garnered attention because of the
potential to find large discoveries," he
points out.
However, he says the economics are
challenging because of high costs,
technological limitations, and low
recovery rates. "Unless these obstacles
are overcome, it will be difficult for the
region to grow in the next decade,"
Kahn suggests. "Not including as yet
undiscovered reserves, we forecast
production will start to decline after
plateauing at 1.9 MMboe/d in 2021.
The current slide in oil prices does not
help the long-term outlook either,
especially if the downward trend
continues for a prolonged period."
Wood Mackenzie's outlook
emphasizes the need for a sustained
level of investment to support increases
in GOM production. Recent discoveries
have been in deeper waters and
emerging plays that require complex
drilling and more advanced
technologies that are capital intensive.
Khan says, "A typical development
well in the Lower Tertiary can cost $300
million, compared with the shallower,
more established plays such as the
Upper/Middle Miocene, where
development well costs are closer to
$100 million."
Consequently, Wood Mackenzie says
it expects capital spending to increase in
the coming years, especially in the
emerging plays. "It will require $17
billion in capital expenditures to meet
our 2015 production forecast, which is
30 percent higher than 2013 capex,"
Khan notes. "The Lower Tertiary will
make up 21 percent of this capex, and
its share will increase to 53 percent of
the total in 2021."
Furthermore, Wood Mackenzie's
outlook underscores that the Gulf of
Mexico will continue to see increased
competition globally as regimes try to
attract capital and open their borders,
such as the move by Mexico to open its
energy sector to foreign companies. The
competition will continue to stiffen also
because of a sustained level of increased
costs in the GOM, which Wood
Mackenzie says have escalated 5-10
percent annually, despite the softening
in the rig market.
Ì
FEBRUARY 2015 25



American Oil and Gas Reporter - February 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - February 2015

Contents
American Oil and Gas Reporter - February 2015 - Cover1
American Oil and Gas Reporter - February 2015 - Cover2
American Oil and Gas Reporter - February 2015 - Contents
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American Oil and Gas Reporter - February 2015 - Cover3
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