NEW YORK — Big Oil is ready to go back to work in the Gulf of Mexico, even with the U.S government promising to rule the waters with a heavier hand.
Chevron, Exxon, and Royal Dutch Shell are willing to endure the additional time to secure permits and extra costs that will result from new government regulations because they’ve come to depend on deepwater drilling to replenish their reserves. The companies outlined plans for the gulf this week as most of them reported improved third-quarter earnings.
These big oil and gas companies know the geology of the gulf much better than other parts of the world. Taxes and royalties for projects in U.S. waters are considered to be much lower than foreign operations, and it’s much easier and cheaper to deliver the oil to the consumer.
“It’s one-stop shopping,” said Fadel Gheit, an analyst with Oppenheimer & Co. “When you’re working in the gulf, you’re sitting in the belly of the largest energy-consuming economy in the world.”
Wells in the gulf can be very profitable. Drilling projects there typically break even when oil sells for $50 to $60 a barrel. It’s currently trading near $82 a barrel.
The oil companies’ reliance on the oil-rich deposits below the gulf grew as they became more adept at pumping crude from the sea floor. In March, a month before BP’s well ruptured, the industry produced 52.6 million barrels of oil from gulf wells.
That’s the highest total for that month in records dating from 1981.
Shell’s got 7 percent of its total oil and gas so far this year from wells in the gulf. And before the Deepwater Horizon explosion in April, BP’s wells accounted for about 10 percent of its overall production.
The U.S. drilling moratorium brought well-drilling activity to a relative standstill over the summer. New production wells were put on hold.
As a result, Chevron expects gulf production to fall as much as 10,000 barrels a day in the second half of the year. Shell predicts a similar drop and expects a further decline of 10,000 barrels a day in 2011.
“There could be further impacts into 2012,” said Shell’s chief financial officer, Simon Henry. “We just don’t know yet.”
All the companies that reported third-quarter earnings this week, except Chevron, said profits improved, thanks to higher oil and gas prices.
