The Commercial Development of Hub Platforms and the Value to E&P Producers

Abstract

Abstract This paper covers the commercial development of hub platforms in the Gulf of Mexico by third party players such as midstream companies. The paper provides an overview of the existing hub platforms in the Gulf of Mexico on the outer continental shelf ("OCS") and in the deepwater trend and also introduces third party ownership of hub platforms. There is also a discussion of the advantages of third party ownership of hub platforms for the E&P producers (the "Producers") and for the midstream companies and the impact hub platforms is anticipated to have on the deepwater production in the Gulf of Mexico. The paper also addresses the opportunity to attract non-recourse project financing for assets such as deepwater hub platforms. Introduction The oil and gas industry faces a number of challenges to explore and develop new oil and gas reserves from the deepwater trend1 in the Gulf of Mexico. One of these challenges is to raise sufficient capital. Figure 1 shows the result of quick study of the capital requirements associated with finding and developing the presently known deepwater discoveries in the Gulf of Mexico. Based on El Paso Energy Partners' database of seventy five active deepwater prospects, including sanctioned projects, with estimated risked reserves of 4.5 billion barrel of oil equivalent, and CERA's2 published finding and development cost of $6.19 per barrel of oil equivalent, the capital required to develop all these prospects and projects has been estimated to be around $28 billion. The seventy five prospects and/or known discoveries that are either under development or being considered for development is approximately the same number of fields that has been developed in the last seven years. The projected deepwater annual exploration and development spending for the Gulf of Mexico is approximately $3 billion. The growth of deepwater production could be accelerated and increased if more third party capital is made available. This can be achieved by third party ownership of deepwater hub platforms, which lowers the economical viability threshold of reserves by capitalizing on third party entrepreneurship and spreading the platform capital and operating cost across multiple Producers and extracting value out of downstream synergies. This paper discusses the pros of midstream companies owning these platforms. The ownership of hub platforms by midstream companies is one (good) example of third party ownership, but there are many other examples of third party ownership such as in the Floating Production Storage and Offloading (FPSO) vessel business, where the FPSO's are leased to the Producers by the companies who build the FPSO's such as Bluewater, IHC Caland and MODEC. This paper explains why deepwater platforms are important assets for midstream companies. Figure 1: Frontloaded Development Capital Schedule (in million $) (Available in full paper) Traditionally, Producers build the platforms for the production of the hydrocarbons from oil and gas leases in the Gulf of Mexico. In the mid nineties, Leviathan Gas Pipeline Partners, L.P. ("Leviathan"), the predecessor of El Paso Energy Partners, L.P., started a trend that has resulted in a change in the development of oil and gas leases.