Sheila McNulty Chevron takes first step into Gulf of Mexico, but others will follow

Chevron’s announcement that it will lead a $7.5bn investment in the deepwater Gulf of Mexico underlines how eager the industry is to get back out there despite BP’s accident.

Certainly the new permitting process will have its challenges, but the majors need the gulf to bolster production in a world of increasingly inaccessible resources.

Wood Mackenzie, the energy research firm, underlines in a recent report how important deepwater has become to the industry:

A push into deeper water has been one of the key industry themes of the last 20 years. Over 130bn barrels of oil equivalent have now been discovered in these frontier regions, with $130bn of  value created by explorers in the last decade. Oil production from deepwater fields will contribute 7 per cent of global output in 2010, up from 2 per cent in 2000, and the proportion is expected to increase to over 10 per cent by 2020.

Wood Mackenzie values global deepwater developments at $565bn and says the four hotspots of Brazil, the Gulf of Mexico, Nigeria and Angola alone account for 80 per cent of this total.

Credit Suisse Global Research responded to Chevron’s announcement by noting it always felt the US’ second biggest oil company would get back to work in the Gulf, one of Chevron’s core areas. From the report:

Uncertainty around liability caps, environmental permitting, BOEM organizational capacity, and rig certifications may slow overall activity. The following chart highlights those producers with most value share in the GoM who have most to gain from a return to the Gulf. For Chevron, the share of NAV is ~10%.

Value of Discovered Resource as a % of EV – US GoM
Source: Factset, Credit Suisse

Chevron has taken the first step. But as the chart shows, a number of other companies have much to be gained by following in its footsteps. The process of drilling in the deepwater gulf may take longer, cost more, require redundant safety systems and mean much extra paperwork to satisfy regulators than it did before the Macondo well explosion. But it is a major growth area. And the industry will tap it.