The onshore shale boom and the revived political battle over fracking have diverted attention from the offshore Gulf of Mexico — consider it a “forgot about Dre” moment.
Why it matters: Analysts see more growth in coming years, but the offshore Gulf’s long-term future may depend partly on the election.
Driving the news: Chevron yesterday announced the first production from its big Anchor project in the deepwater Gulf.
- The oil giant’s sixth Gulf facility has capacity to produce 75,000 barrels per day and 28 million gross cubic feet of natural gas daily.
- Chevron operates Anchor and has a 63% interest in the project, which it said could produce for up to three decades.
- Overall, Chevron sees its Gulf production growing by around 50% to reach 300,000 barrels of oil-equivalent (boe) in 2026.
The big picture: The region provides roughly 15% of U.S. oil production. That share was once much higher before the onshore shale boom in the Permian Basin and elsewhere.
- Yet absolute oil production in the region has generally grown over the past decade (check out the chart above) and been pretty stable — with some big exceptions — for a long time.
- “We often call it kind of forgotten basin,” Bob Fryklund, chief strategist for S&P Global Commodity Insights’ upstream energy group, tells me.
What’s next: The research firm Wood Mackenzie sees a nearly 30% increase in deepwater output from 2023-2026, peaking around 2.7 million boe (mostly oil).
- That’s partly due to projects like Anchor that use tech that enables operation under extreme conditions — Chevron said it can safely operate up to 20,000 psi and at reservoir depths of 35,000 feet.
- Just looking at oil, S&P sees deepwater output rising above 2 million barrels per day and then plateauing for five to seven years. Woodmac, for its part, sees a steep post-peak decline.
- Fryklund says companies are attracted to good infrastructure and the relatively lower per-barrel emissions, among other upsides.
How it works: Deepwater gulf leases take years to develop and bring online.
- Consider the Kaskida project, which BP greenlit two weeks ago after years of assessment, won’t start producing until 2029.
- But output levels years in the future could partly reflect what happens in November 2024.
- Biden officials have greatly slowed offshore lease auctions, planning just three from 2024-2029. Donald Trump is running on a pro-drilling and deregulatory platform.
State of play: A Woodmac note calls Chevron’s Anchor project a key moment in wider industry efforts to tap massive, ultra-high pressure reservoirs in the geological formation called the Inboard Paleogene.
- Woodmac analyst Mfon Usoro estimates companies could “unlock” over 2 billion boe, calling first oil from Anchor a “major technological milestone.”
- Chevron’s Nigel Hearne, in a statement, said Anchor will “enable similar deepwater high-pressure developments for the industry.”
Threat level: “Success in the play could extend the life of the basin. However, if results fall short, it could mark the beginning of production decline in the basin and a blow to resurgence in exploration for additional barrels in the play,” Usoro said.
The other side: Environmentalists see high stakes in other ways.
- They strongly oppose new offshore leasing and development, citing risks like the catastrophic 2010 BP spill and concerns about locking in future fossil production.
The bottom line: “There’s still optimism in the Gulf,” says Fryklund, noting remaining heavyweights alongside “scrappy” private equity players.
