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After Spill, Gulf Oil Rigs Proliferating

Thursday, July 18, 2013
Houston — The deep-water Gulf of Mexico, where operations were curtailed after the record 2010 BP oil spill, has rebounded to become the fastest growing offshore market in the world.

The number of rigs operating in waters deeper than 1,000 feet in the Gulf will grow to 60 by the end of 2015, said Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston. As of last week, 36 rigs were working in those waters, according to industry researcher IHS Petrodata.

Producers will need $16 billion worth of additional rigs to handle the expanded drilling, analysts including Uhlmer estimate. Demand is driven in part by exploration successes in the lower tertiary, a geologic layer about 20,000 feet below the sea floor containing giant crude deposits that producers are only now figuring out how to tap. Companies such as Chevron and Anadarko Petroleum do more drilling to turn large discoveries into producing wells — as many as 20 wells for each find.

“The Gulf had more than its fair share of discoveries,” Chris Beckett, chief executive officer at Pacific Drilling, said in an interview. “Right now, the Gulf is the fastest growing deep-water region in the world.”

The revival will add to surging crude oil supplies from the U.S. shale boom, with Gulf production climbing 23 percent to 1.55 million barrels a day by December 2014 from 1.26 million in March, according to the U.S. Energy Information Administration.

While deep-water exploration in the Gulf of Mexico has been increasing since 2011, the magnitude of the growth and the potential for revenue and profit for the service companies is under appreciated, Jud Bailey, an analyst at International Strategy & Investment Group in Houston, said in an interview. Offshore contractors from Schlumberger to Pacific Drilling are benefiting from the region’s growth spurt.

Hornbeck Offshore Services Inc. and other contractors that provide supply vessels to the giant drill ships than can work in water depths of more than two miles are among companies that may reap the biggest benefit from a rebounding Gulf, James West, an analyst at Barclays Plc in New York, said in an email.

Drilling rig contractors Rowan Co. and Noble Corp., which are building some of the world’s most expensive oil rigs to operate in some of the deepest areas offshore, are also expected to at least double earnings per share in the same period.

The blowout at BP’s Macondo well in April 2010 killed 11 workers, injured 17 and triggered an 87-day oil spill that fouled thousands of square miles and shut much of the Gulf to fishing for months. The U.S. suspended drilling in the Gulf for five months, and even after activity restarted, obtaining permits for drilling was slow as federal regulators stiffened safety rules.

As a result, some deep-water drilling rigs migrated to other exploration frontiers such as offshore West Africa and Brazil where work continued. Now some of those rigs are returning, though most of the Gulf’s rig growth will come from newly ordered, more sophisticated deep-water vessels, Bailey said. Better financing terms from the shipyards, put in place in late 2010, are helping fuel a record number of orders for new deep-water rigs around the world, David Smith, an analyst at Johnson Rice & Co. in Houston, said in a phone interview.

The Gulf’s prosperity today is helped by the large offshore industry already in place along the Gulf Coast. With infrastructure such as pipelines, ports and supply vessels readily available, producers are able to move quickly from drilling discovery wells to developing the fields.

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