U.S. Gulf Buoyed After Recent Lease Sale

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land Texas)

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Summary

Seadrill announced contracts for its drilling rigs in the U.S. Gulf. Offshore is the only source of meaningful oil production growth, despite a lackluster lease sale.

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Seadrill, Shell Up Their Offshore Game

Deepwater-focused Seadrill Limited (London, England) said Tuesday it awarded two months-long contracts for its drilling rigs off the U.S. Gulf Coast, the only source of oil production growth to next year.

Seadrill said it awarded LLOG Exploration (Scott, Louisiana) a contract to use the West Neptune rig for drilling off the U.S. Gulf Coast. The ultra-deepwater drillship can operate in waters as deep as 12,000 feet, or roughly 7.5 miles. The vessel is already in the U.S. territorial waters of the Gulf.

To an undisclosed operator, Seadrill delivered a contract for a two-month program in the Gulf for its Sevan Louisiana rig. It's a semi-submersible platform suitable for waters as deep as 10,000 feet. Sevan Louisiana is also in U.S. territorial waters.

Seadrill in the third quarter reported that its operating revenue declined $14 million from the prior quarter to $363 million. The company blamed the downturn on fewer rig-operating days and market factors.

"As industry fundamentals improve and global tendering activity accelerates, Seadrill remains well positioned to create shareholder value and support long-term demand for energy services through a disciplined commercial strategy that drives sustainable growth," President and Chief Executive Officer Simon Johnson said at the time.

Talos Energy (Houston, Texas) and Seadrill already completed work at the Sunspear offshore development this year. Tied back to existing Gulf infrastructure, the facility was churning out only around 10,000 barrels of oil equivalent per day in shallow waters.

Elsewhere, LLOG Exploration and Seadrill completed work in 2018 for the Buckskin deepwater program in the U.S. Gulf. Efforts there are focused on a basin that could hold as much as 5 billion barrels of oil.

LLOG, meanwhile, may be the target of a $3 billion takeover bid from Shell (London, England), the Reuters news service reported last week in claiming an exclusive. For its part, Shell said Tuesday it reached a final investment decision (FID) on a waterflood project at its Kaikias field in the U.S. Gulf.

Waterflooding is a secondary method of oil recovery that's used to repressurize a depleted reserve enough to move oil to adjacent production wells. First injections in 2028 are expected to expand the life of the offshore Ursa prospect, Shell said.

Shell described Ursa as one of the most prolific basins in the world, churning out more than 800 million barrels of oil equivalent since it was discovered in 1999.

Growth Phase for U.S. Gulf

Developments off the U.S. Gulf Coast follow the first lease sale for drilling rights offshore under President Donald Trump's signature spending bill. The Trump administration said 30 companies submitted 219 bids totaling $371 million, somewhat lackluster relative to previous sales.

U.S. offshore, however, is the only source of meaningful oil supply growth annually. The U.S. Department of Energy expects offshore crude oil production to average 1.95 million barrels per day in 2026, about 2.6% above full-year 2025 levels.

That pales in comparison to the 11.3 million BBL/d from shale this year, though production there is on pace to decline by 1.5% by next year. Gulf barrels, meanwhile, have a lower environmental footprint than inland shale.

By the Numbers

• 2.6% annual increase in offshore oil
• 800 million barrels of oil equivalent from Ursa development
• 219 bids for recent offshore lease sale

Key Takeaways

• Seadrill, Shell ramp up Gulf activity
• Offshore is on pace for a production expansion
• Gulf barrels are lower carbon, relative to shale

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