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Why Big Oil is Shifting Away from the Gulf of Mexico

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A BP official who led the company before the 2010 incident in the Gulf of Mexico marked his return to the region in a $3.75 billion deal with Houston-based Apache. Apache seemingly said goodbye to the Gulf of Mexico in the deal, opting instead to focus its efforts onshore. Former BP Chief Executive John Browne helped nab 1.9 million net acres in the agreement with Apache last week. Apache’s “good run” in the Gulf of Mexico may suggest assets onshore may hold more long-term value for explorers.

Apache unloaded its assets to Fieldwood Energy, an entity held by Riverstone Holdings LLC. Fieldwood CEO Matt McCarrol said his company would take over where Apache left off, adding his company was “very enthusiastic about the opportunity to continue this legacy going forward.” McCarrol said the assets obtained through the deal make up more than 500 blocks encompassing 1.9 million net acres. By the end of last year, the company said the area had proved reserves of 239 million barrels of oil equivalent, of which 55 percent is oil.

Riverstone Holdings LLC includes former BP chief John Browne, whose tenure ended in 2007 with the arrival of Tony Hayward. Under Browne, BP became one of the premier energy companies working in the Gulf of Mexico. By 2010, the company, as well as Hayward, became the subject of public scorn after the Deepwater Horizon oil disaster.  Two high-ranking BP officials were charged in 2012 with misleading investigators during their investigation into the spill.

Apache CEO G. Steven Farris said the deal was an “important step” in restructuring his company’s portfolio. Since 2010, the company has focused its efforts on developing onshore assets, where it said it expects to achieve attractive rates of return. Farris said the assets sold to Browne and his associates had matured to the point that they were more difficult to exploit than onshore plays.

New drilling technologies have contributed to exponential production gains for onshore oil and natural gas in the United States. The North Dakota Department of Mineral Resources said last week it produced, on average, 810,129 barrels of oil per day in May, a new all-time high and a 2 percent increase from the previous month. Oil field services company Baker Hughes said most of the new wells started during the second quarter of 2013 came from the Eagle Ford and Permian basins spread across the southern United States. Apache says it’s one of the largest operators in the Permian basin with more than 12,000 wells in service. During the first quarter of the year, the Permian basin gave up more than 119,000 barrels of oil equivalent per day for Apache, a 20 percent increase year-on-year.

Apache’s CEO said his company “had a great run on the Gulf of Mexico shelf over the last 30 years.” The Energy Department said it expects oil production in the Gulf to reach 1.5 million bpd by December 2014, up from the 1.26 million bpd recorded in March. The Gulf is still giving up substantial amounts of oil, but Apache seems to be betting the biggest bonanza will be onshore.

8 Comments on "Why Big Oil is Shifting Away from the Gulf of Mexico"

  1. Plantagenet on Tue, 23rd Jul 2013 12:17 am 

    drill baby drill and frack baby frack on land beats out just drill baby drill at sea.

  2. Kenz300 on Tue, 23rd Jul 2013 1:28 am 

    Cost-competitive Renewable Energy

  3. BillT on Tue, 23rd Jul 2013 2:04 am 

    “… proved reserves of 239 million barrels of oil equivalent, of which 55 percent is oil…”

    Even if it were all oil and recoverable, we are talking 2 weeks worth at best and probably less. And if there is another big ‘accident’ in the Gulf, drilling may end permanently. Just as fraking will when the bubble bursts and the people say ‘enough’!

  4. GregT on Tue, 23rd Jul 2013 4:27 am 

    I remember Matt Simmons, just before he mysteriously passed away in his hot tub, explaining that the pressures involved were beyond our current technologies to contain them. In any event, is it really worth the capital expenditures and risks involved for such small oil plays? I guess the industry will speak for itself.

  5. Fulton J. Waterloo on Tue, 23rd Jul 2013 3:10 pm 

    Apache is a well run company, good at squeezing marginal barrels out of declining fields. If they are getting out of offshore oil, it is NOT a good sign for its future potential…

  6. Mike on Tue, 23rd Jul 2013 4:43 pm 

    That’s funny, drilling permits for the gulf have only increased.

  7. Mike on Tue, 23rd Jul 2013 4:45 pm 

    Frack Baby Frack, usually occurs in REPUBLICAN COUNTIES, and leads to FORECLOSE BABY FORECLOSE, as your Cancer Bills exceed your fracking income.

  8. BillT on Wed, 24th Jul 2013 1:15 am 

    Not to mention, Mike, that your property values plummet.

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