The Permian Basin typically dominates headlines about U.S. oil production. But offshore production is more quietly getting a boost.
Shell Midstream Partners, L.P. (SHLX) announced first oil was produced by the Appomattox floating production system in the Gulf of Mexico on May 23, 2019. The Appomattox system started producing months ahead of schedule. Production is predicted to be 175,000 b/d. That is nearly a 10% rise in GOM production.
Kevin Nichols, CEO, said:
Our offshore corridor strategy is working - and we are pleased with the resilience and growth that the Gulf of Mexico provides."
Appomattox is the first commercial discovery brought into production in the Gulf of Mexico Norphlet formation. The start of production at Appomattox is the beginning of further increasing the flow of resources in the prolific Norphlet surrounding Appomattox.
"Appomattox creates a core long-term hub for Shell (NYSE:RDS.A) (NYSE:RDS.B) in the Norphlet through which we can tie back several already discovered fields as well as future discoveries," according to the company.
The final investment decision to move ahead with the Appomattox was made back in 2015 when oil prices were very weak. This demonstrates how the major oil companies basically ignore the cycles in oil prices. Shell has also reduced its deep-water projects' costs by 45% since 2014 to be competitive.
The Energy Information Administration projects that Gulf of Mexico production will climb to almost 2.2 million barrels per day in 2020. This growth contradicts predictions that investment in oil development has been too low to sustain production, let alone grow it.
Permian Basin Debottlenecking
The growth in GOM production coincides with the completion of about 2.3 million barrels per day of pipeline capacity linking the Permian Basin to the Gulf Coast in 2019. Planned additions in 2020 are another 1.5 million. The new pipelines will enable Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) to scale-up production in the Permian regardless of short-term oil price declines.
The outlook for rising oil production in the U.S. remains very favorable. The major oil companies are refocusing their development efforts onshore as well as offshore in the U.S., where oil has already been discovered and just needs to be lifted.
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