Big Oil resets sights on Gulf of Mexico

Associated Press

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 earnings for the third quarter.

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 per barrel. It’s currently trading near $82 per 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 back to 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.

All the companies that reported third-quarter earnings this week, except Chevron, said profits improved thanks to higher oil and gas prices.