#528. New Oil Play in an Old Location

New Oil Play in an Old Location

Last week we discussed how the price of oil affects so many facets of the economy, both good and bad. With all the hype of the Bakken Oil Fields in North Dakota and Montana and the massive finds there, it is hard to believe that the oil hotspot brewing in America is the Gulf of Mexico.

Production in the Gulf is forecast to rise 12% to 1.6 million barrels per day in the next two years, according to the Oil and Gas Investment Bulletin. Following are excerpts from their April 11, 2015 issue:

Getting a play online in the GOM – in any offshore play- costs a lot of money.  Low oil prices don’t factor into offshore plays as much.

In fact, the Energy Information Administration says low oil prices will have “minimal direct impact on GOM crude oil production through 2016”. The reason being the long lead times involved with Gulf projects.

Unlike with onshore plays like the Bakken and Permian, offshore developers—especially in high-tech and high-cost ultra-deep water plays—can’t just shut things down when oil prices fall.

Simply put, after you’ve ordered hundreds of millions of dollars worth of custom equipment to develop on offshore field, you’re going to put the project online—whether crude is $50 or $100 per barrel.

And there’s a big slate of such already-committed projects in the GOM. A total of eight new fields came online in 2014—and another eight are scheduled to begin pumping in 2015. Add on another five new projects to be commissioned in 2016, and there’s a lot of production coming down the pipe for this region.

All of which means the projected 12% increase in oil production is likely to come in as forecast.

For more from the Oil and Gas Investment Bulletin, visit http://oilandgas-investments.com/.