The Gulf of Mexico seems to be a sea of contradictions. Production-decline rates continue to challenge the shallow Continental Shelf, causing some companies to exit that play entirely. Meanwhile, amazing deepwater discoveries create blockbuster headlines. The federal government recently opened more acreage in the hotly contested eastern Gulf, but will increase all offshore royalties to 16.7% from 12.5%. The 2005 hurricanes precipitated an eye-opening 18-month recovery process that for some is not over. Hundreds of Gulf leases expiring by 2009 need to be drilled soon and some 22 new jack-up rigs will be delivered to the Gulf this year, with another 26 in 2008. But these offset rigs migration to Mexico, West Africa and the Middle East. A rig shortage could occur later in 2007, cautioned Rowan Cos. chief executive Danny McNease, speaking at an investment conference last fall. Big changes are occurring in the Gulf. Legendary Kerr-McGee Corp., which drilled the first offshore well in 1947 and pioneered the use of the production spar, vanished in 2006, absorbed by Anadarko Petroleum Corp. Its frequent offshore partner, Dominion Exploration & Production Inc., is now for sale, with the fate of its deepwater Gulf assets uncertain at press time. For more on this, see the February issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

Comments