Exxon doubled down on their strategic CCS bidding; their only bids (69 in total) again appeared to be solely for carbon sequestration purposes. As previously noted, acquiring tracts for CCS purposes is not authorized in an oil and gas sale. Arguably, these bids should be rejected.
The other super-majors, BP, Chevron, and Shell, were active participants as were many independents.
It was good to see BOEM Director Liz Klein announcing bids. This shows respect for the OCS oil and gas program.
“I am of a firm view that the world will need oil and gas for a long time to come,” (Shell Chief Executive) Sawan, who started the job on Jan. 1, told Times Radio in the U.K. on Friday. “As such, cutting oil and gas production is not healthy.”
Back in 2021, Shell predicted that its own oil production would decline every year and drop by as much as 18% by 2030. BP had a similar outlook, but CEO Bernard Looney rolled back its climate targets this year and said it will increase investment in exploration and production.
BP and Shell have trailed their U.S. peers in price to earnings ratios. Analysts have said investors interested in exposure to oil and gas have shunned them for putting more money into renewables, while investors focusing on environmental concerns haven’t rewarded them. That’s kept European energy firms trading at a discount.
BOEM published their Sale 257 Decision Matrix on Friday (2/24/2023), and my previous speculation regarding the rejected Sale 257 high bid has proven to be partially incorrect. The rejected high bid was submitted by BP and Talos and was for Green Canyon Block 777. BOEM’s analytics assigned a Mean of the Range-of-Value (MROV) of $4.4 million to that tract, which tied for the highest MROV for any tract receiving a bid. The BP/Talos bid was $1.8 million or just 40% of BOEM’s MROV. BOEM’s tract evaluation is interesting given that the other bid on this wildcat tract (by Chevron, $1.185 million) was considerably lower than the rejected BP/Talos bid.
The Sale 257 bid that I thought might have been rejected was for lease G37261. This lease was never issued per the lease inquiry data base and the final bid recap. BHP’s bid of $3.6 million for that tract (Green Canyon Block 79) was more than 5 times BOEM’s MROV of $576,000, and was accepted per the decision matrix. Why was the lease never issued?
Both Green Canyon 79 and 777 should again be for sale in legislatively mandated Sale 259, which will be held in just a few weeks on March 29, 2023, just 2 days prior to the deadline. It will be interesting to see what the bidding on those tracts looks like.
Meanwhile, Exxon and BOEM are still mum about the 94 Sale 257 oil and gas leases that Exxon acquired for carbon sequestration purposes.Note the large patches of blue just offshore Texas on the map above. These leases were all valued by BOEM at only $144,000 each, which is equivalent to the minimum bid of $25/acre. This valuation reflects the absence of perceived value for oil and gas production purposes. Exxon bid $158,400 for each tract, $27.50/acre or 10% higher than the minimum bid. Given that (1) the Notice of Sale only provided for lease acquisition for oil and gas exploration and production purposes, and (2) it was common knowledge that these tracts were acquired for carbon sequestration, should these bids have been rejected?
Last year, BOE featured 5 deepwater platforms that were under construction: Shell’s Vito and Whale, Murphy’s King’s Quay, bp’s Argos, and Chevron’s Anchor. These floating production units are noteworthy for their lighter, smaller designs. King’s Quay was the first to produce, beginning last April. The spotlight is now on Vito which began producing today. Vito’s peak production should reach 100,000 boe. The other 3 platforms are expected to begin production this year or next.
The Honor Roll companies for 2022 (listed alphabetically) are Anadarko (Oxy), bp, Cantium, Chevron, Contango, Hess, LLOG, Murphy, and Shell.
Our criteria:
Must average <0.3 incidents of noncompliance (INCs) per facility-inspection.
Must average <0.1 INCs per inspection-type. (Note that each facility-inspection may include multiple types of inspections (e.g. production, pipeline, pollution, Coast Guard, site security, etc). On average, each facility-inspection included 3.25 types of inspections in 2022. Here is a list of the types of inspections that may be performed.)
Must operate at least 3 production platforms and have drilled at least one well (i.e. you need operational activity to demonstrate compliance and safety achievement).
May not have a disqualifying event (e.g. fatal or life-threatening incident, significant fire, major oil spill). Due to the extreme lag in updates to BSEE’s incident tables, investigation and news reports are used to make this determination.
Pacific and Alaska operations will be considered separately.
Foremost energy experts like Daniel Yergin understand that oil and gas will be critical to our economy and security for decades, and that offshore production is an important component of our energy supply chain. Unfortunately, our massive outer continental shelf has, from an oil and gas standpoint, been effectively reduced to the central and western GoM.
Opportunities in the GoM are being seriously constrained by the extended pause in leasing. A lease sale has not been held for 615 days, the longest US offshore leasing gap since the 1950’s.
Reserve replacement and sustained production are dependent on exploration. The charts below illustrate the decline in GoM exploratory drilling and the reduced activity by some of the more important operating companies.
Per BSEE data, the number of exploratory well starts averaged only 3/month for the last 18 months (chart 2). This level of activity is the lowest since the early days of deepwater operations (chart 1). There was even more drilling during the post-Macondo moratorium (2010-2011).
ConocoPhillips and Exxon have not drilled a GoM exploratory well since 2016 and 2018 respectively. Activity by other operators has also declined significantly (chart 3). BP has not spudded an exploratory well since Sept. 2021.
Operating companies (listed alphabetically): Arena, Anadarko (Oxy), BHP, bp, Cantium, Chevron, Hess, Murphy, Shell, and Walter
Criteria:
Must average <0.3 incidents of compliance (INCs) per inspection. (This is less than half the GoM 2022 YTD average of 0.64 INCs/inspection.)
Must operate at least 3 production platforms.
Must have drilled at least one well.
Pacific and Alaska operations will be considered in a separate post.
Comments:
Impressive performance by Hess: 21 inspections and no INCs
Cantium and Walter averaged less than 0.1 INCs/inspection. The INC rates for Anadarko (Oxy), BHP, and BP were only slightly higher.
Among the Honor Roll companies, Shell (highest production, 9 deepwater platforms, and 13 well starts) and Arena (115 shelf platforms and 12 well starts) were the deepwater and shelf activity leaders.They thus had the highest INC exposure.
Although CSI and FSI INCs are typically more significant than W INCs, that is not always the case, so the INCs have not been weighted by type.
As has been previously noted, more inspection data should be readily available online. At a minimum, the specific INC (type) numbers (e.g. P-103, G-110, etc) should be posted so the public can better assess performance. Absent this information, interested parties are left to speculate about the significance of the violations.
While compliance is not synonymous with safety, most experienced observers believe there is a strong correlation. In the 1990’s, John Shultz, a PhD candidate at Carnegie Mellon Univ., studied US offshore facilities and safety data and developed expert and regression models to predict the likelihood of accidents and spills. That was a data rich era in that there were ~4000 US offshore platforms (more than twice the current number) and ~100 well starts/month (>10 times the current rate). In John’s thesis, he found that INCs are a very good predictor of accidents and spills. The offshore world has changed and further study of the correlation between compliance and safety performance is highly recommended.
bp: Only 15% of shareholder votes backed a call for the company to accelerate its energy transition, compared with the 21% in favor in a similar vote last year.
Oxy: Only 17% of investors backed a call for emissions-reduction targets. (I wonder how Buffett voted 😀)
Marathon: 16% supported a measure calling for the company to report on how its transition plans affected workers and communities
ConocoPhillips: 42% supported an emissions-reductions targeting measure vs. 58% last year.
Operating companies that produced >1 million bbls of oil or >1 BCF of gas in 2021 are listed in descending order based on oil production.
Both the total number of well starts and the number of exploratory wells are indicated
An INC is an Incident of Noncompliance (i.e. a violation). W=warning, CSI=component shut-in, and FSI=facility shut-in are the enforcement actions.
All of the below data are publicly available on the BSEE-BOEM websites.
2021 oil (MMbbls)
2021 gas (BCF)
2021/22 well starts total-expl
2021/22 INCs W-CSI-FSI
Shell
149.8
190.8
28-12
11-14-4
bp
114.0
82.7
5-2
6-3-4
Chevron
83.7
42.2
8-8
1-1-3
Anadarko (Oxy)
67.7
57.8
8-6
8-5-1
Hess
27.5
61.7
2-2
7-4-0
Murphy
25.1
50.0
7-7
4-8-1
LLOG
20.4
29.0
3-0
1-1-1
Talos
17.7
23.0
5-0
25-26-14
BHP
14.5
5.9
3-2
2-3-0
Exxon
13.2
2.3
–
1-1-1
Beacon
10.5
15.7
1-0
0-0-0
Fieldwood
10.4
24.7
–
685-235-91
EnVen
9.6
12.6
6-0
2-6-3
Kosmos
9.4
8.4
1-1
1-0-0
Arena
8.6
27.9
32-0
68-45-19
Walter
8.1
36.2
2-2
3-1-2
Cox
6.2
30.3
–
237-169-3
Eni
4.7
13.6
2-0
8-0-2
W&T
5.0
27.2
1-0
65-40-7
Cantium
4.5
5.5
18-0
23-15-2
QuarterNorth
4.2
8.3
–
no data
GoM Shelf
2.3
4.8
–
52-5-2
ANKOR
1.4
2.5
–
0-0-1
Byron
1.0
4.4
–
5-8-2
Renaissance
0.7
1.6
–
20-9-3
Sanare
0.3
4.5
–
38-20-3
Helis
0.2
1.2
–
1-0-2
Contango
0.03
5.0
–
4-0-0
Samchully
0.02
1.2
–
no data
Comments:
“Energy transition” companies Shell and bp still love the Gulf of Mexico, which is a good thing for them and us. Together they accounted for 42.4% of the 2021 oil production.
The top 4 producers, Shell, bp, Chevron (includes Unocal), and Anadarko accounted for 2/3 of GoM oil production, nearly all of which was from deepwater leases.
Those are impressive production numbers for Anadarko (Oxy). No wonder Warren Buffett likes Oxy stock.
The relative number of deepwater exploratory wells is mildly encouraging given our concerns about sustaining production.
Exploratory well determinations are rather subjective and may not be entirely consistent.
Understandably, no exploratory wells were drilled by Arena or Cantium, the companies responsible for most well operations on shelf (shallow water) leases.
Overall, the INC numbers are impressively low for the deepwater operators, with Chevron and LLOG standing out. BSEE does not post the specific violation information (more on this in an upcoming post), so it’s difficult to properly assess a company’s compliance record.
Unfortunately, incident data could not be included on the scoreboard. BSEE’s incident tables are badly out of date, and no 2021/2022 summaries have been posted.
Exxon production is limited to the Hoover Diana spar, which was installed 22 years ago. The largest US oil company has only drilled one GoM exploratory well (2018) in the past 5 years. Currently, their main GoM interest seems to be the sequestration (disposal) of onshore emissions. (More on this topic in an upcoming post.)
Bud's Offshore Energy (BOE) 