First, hydraulic fracturing and horizontal drilling made the shale oil industry economically viable; now new technology and smarter design are about to make the offshore oil industry competitive with it. New offshore projects are targeting costs of about $35 to $40 a barrel, which would compete with the lowest-cost shale resources. One cost cutting measure is due to the range of tiebacks—pipes that carry crude oil from the drill site to the platform—increasing in the past few years due to new subsea pump technology. Tiebacks as long as 60 miles may be part of the future of the offshore oil industry. Tiebacks that feed an existing platform can save about $12 a barrel compared with the cost of building a new platform. Two companies, Chevron and BP, have cut operating expenses in the Gulf by about 50 percent since 2013 by using standardized equipment, applying better technology, eliminating inefficiencies, and selling higher-cost assets.

Shale Oil Basins

Shale oil basins in Texas and North Dakota are making these two states the top oil producing states in the United States. Production from the Permian Basin of West Texas and New Mexico is expected to more than double over the next five years, to 5.4 million barrels a day—more than that produced by any OPEC member other than Saudi Arabia. The Energy Information Administration forecasts that shale oil from the Permian Basin in Texas alone will account for 50 percent of all new global oil production over the next five years. The growth will come from nearly 41,000 new wells and $308 billion in spending during 2018 to 2023. In the past 24 months, production from the Permian Basin alone has grown more than that of any other entire country in world.

Oil in these shale basins is produced using hydraulic fracturing, in which sand, water, and chemicals are pumped into the shale rock under high pressure to break open the rock, and then drilling horizontally to reach the oil or natural gas trapped inside. Fracking uses grains of sand to prop open the newly formed cracks so that gas or oil can flow out. The first fracked well used 229,000 pounds of sand. Today, a large contemporary well could require 30 million pounds of sand. The volume of water needed has also increased.

Offshore Wells

Offshore oil wells out-perform shale oil wells. In the Permian shale oil basin, a top-performing shale well produces about 2,000 barrels of oil daily for several weeks and then declines, while in the Gulf of Mexico, offshore oil fields produce as much as 100,000 barrels a day for decades.

At the Jack/St. Malo offshore platform—a floating steel structure the size of three football fields located about 200 miles off the Louisiana coast—giant underwater pipelines carry crude from three oil fields about 15 miles away in different directions from the platform. Unlike old-style platforms that pump oil from a field directly below, this arrangement lets the Jack/St. Malo pump more than 3,000 gallons of crude a minute from the three fields.

Oil companies are drilling offshore wells. Shell is expected to build a deep-water platform named Vito—a project that was reengineered after the 2014 oil-price crash and Chevron’s Big Foot is expecting to produce its first oil by the end of the year. BP’s Mad Dog 2 is in development mode. It was originally designed in 2012 to be the biggest platform in the world with a projected cost of $20 billion. Because of its high cost, the platform was redesigned, stripping out features and cutting the cost to $9 billion. Much lower world oil prices beginning in 2014 contributed to companies’ attempts to lower costs and increase efficiencies.

Expenses in Gulf of Mexico deep water areas have plunged

Source: Bloomberg


U.S. crude oil output is expected to average 10.7 million barrels of oil per day in 2018, exceeding the highest average production on record. The United States is already the world’s largest producer of natural gas and is forecast to surpass Russia and Saudi Arabia as the world’s largest producer of crude oil in the near future. Helping to meet that target are lower offshore well expenses and an administration that wants to open offshore areas to oil exploration. Currently, 94 percent of the U.S. outer continental shelf is closed to oil and gas exploration and production. It is clear that these multi-decade projects need to get the go-ahead now in order to contribute to U.S. energy and economic security well into the future.


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