Gulf of Mexico well costs up 10 percent, ConocoPhillips exec says

Drilling activity in the Gulf of Mexico is nearing levels not seen since the massive oil spill in 2010, though stiffer regulations have pushed up well costs by about 10 percent, a ConocoPhillips executive said at an industry event Wednesday.

Executive Vice President Matt Fox said time spent testing blowout preventers, the emergency equipment used for out-of-control wells, to meet new government mandates is the primary cause of higher well costs.

“The industry as a whole is experiencing a lot of flat time on BOP testing,” said Fox, the company’s executive vice president of exploration and production. “It’s a teething problem as we get through some of the newer regulations. It’s a phase.”

Fox spoke Wednesday at the North America Prospect Expo, or NAPE, at the George Brown Convention Center in downtown Houston. The seasonal event serves as a marketplace for traders of oil and natural gas prospects.

ConocoPhillips recently became the nation’s largest independent oil and natural gas exploration and production company after its refining arm spun off into a separate company, Phillips 66.

Fox said the new company structure is driving its investments in new directions, including greater emphasis on the deepwater Gulf of Mexico.

“We were criticized for having a very weak deepwater position. And the criticism was valid, frankly,” Fox said.

ConocoPhillips has bought into more than 1 million acres in the deep-water Gulf of Mexico over the last three years, to become the sixth largest acreage holder there. The company has interest in three wells being drilled there and plans to drill five to eight more annually for at least the next two years, Fox said.

The company has a goal of 3 percent to 5 percent production growth annually. Through 2016, ConocoPhillips plans to add to its daily production about 90,000 barrels from major projects in the North Sea, 80,000 barrels from deep-water Malaysia and 80,000  barrels from oil sands, Fox said.

“This is a new E&P game,” Fox said. “It changes the way we have to think about our business.”