Port Fourchon looks to future, despite oil price slide
While the free-fall in oil prices has tempered the unbridled bullishness that generally characterized the deepwater Gulf of Mexico over the past couple of years, oversized support vessels continue to sail from Louisiana’s Port Fourchon, and heavy-duty trucks are still rumbling over its ever-expanding arteries.
“We’re still blowing and going, but at a more measured approach,” says Port Fourchon Executive Director Chett Chiasson, who, while speaking from the perspective of officials in charge of the premier deepwater hub in Lafourche Parish, could just as easily be describing the general position of the companies that call it home.
Indeed, despite the elongated investment horizons intrinsic to deepwater and ultra-deepwater projects—the bread and butter for this once inaccessible swamp now widely regarded as “The Gulf’s Energy Connection” (Fig. 1)—activity is moving at a notably slower pace in some sectors, while across-the-board pricing pressures are striking hard at the balance sheets of most of the port’s 80 tenant companies. “It’s really slowed down in our market,” says Wayne St. Pierre, manager of InterMoor’s 25-acre Port Fourchon mooring and production-related installation facility. “We were expecting some good growth, and then the oil prices dropped.”
On the drilling side, however, Chiasson said in early February that most reports have the deepwater rig count remaining relatively stable, owing in no small part to federal lease commitments. “From everything we can gather, drilling in the deepwater Gulf of Mexico is anticipated to remain about the same,” he said. “It may fluctuate slightly, but it is expected to stay above 40 rigs. Whether or not that changes is the question, but from what we’ve been told, operators will continue to be busy.”
In what certainly will raise some eyebrows, given today’s commodity price environment, Wood Mackenzie offers a surprisingly sanguine outlook, telling Bloomberg on Feb. 18 that it expects drilling activity in the Gulf to actually increase by more than 30% in 2015, compared to last year. In November, Wood Mackenzie also estimated deepwater Gulf of Mexico production would reach the 1.9-MMboed milestone in 2016—a prediction bolstered by no less than three significant fields coming online this year.
In the meantime, as of March 9, Rigzone listed 32 semisubmersibles and drillships actively drilling in the outer boundaries of the Gulf of Mexico, not including the rigs actually under contracts, most of which are being negotiated downward.
“Exploratory drilling might slack off, but I don’t believe the deepwater Gulf is going to be all that affected,” Ricky Guidroz, district manager of Weatherford’s Tubular Management Services, said at the company’s nearly two-year-old, automated tubular bucking facility in Port Fourchon, Fig. 2. “We have a lot of guaranteed work this year, and we really expect to get very busy in March. In the beginning of the year, operators usually are in completions, and we don’t deal with a lot of completion work.”
PRICING PRESSURES MOUNT
As Guidroz said, the deepwater sector, at least for the time being, has managed to sidestep the wholesale economic battering that has ravaged its near-shore counterpart, leaving a fleet of smaller vessels tied up and jackups stacked in its wake, Fig. 3. Nevertheless, with no significant reversal of oil prices envisioned for the near-term, deepwater operators are demanding dramatic cuts in capital expenditures, which reach directly into the budgets of the port’s service company tenants.
“I certainly would anticipate some slowdown in some of the construction our tenants plan to do,” Chiasson said. “They’ve already committed to doing some things, so maybe they’ll continue, but it won’t be as rapid. It’s slowed somewhat, but we know things are going to perk back up. We’re positive about what’s going to come in the future.”
The near-term, however, could be an altogether different story, says Chad Verret, executive V.P. of Harvey Gulf International Marine of Galliano, La. “Obviously, in the first quarter, everybody’s drilling budget is being cut, and I think it will be hard for them to allocate new funding. So, I think 2015 will be a lean year,” he said. “We’ll do a lot less work with less money, but my hope is that by the end of the third quarter, we start to see a ramping up of oil prices.”
Likewise, the slide in oil prices failed to deter family-owned Gauthiers, which designs and manufactures a range of different-sized, DNV 2.7-1-certified, offshore containers, baskets, high-weight skids and other support equipment, primarily for the rental market, from setting up shop in Port Fourchon this year. The 35-year-old Lafayette-based company in late January moved into a temporary site at Chouest’s Martin Terminal North Dock, and plans to relocate later this year to a permanent distribution base elsewhere in Port Fourchon. The company also intends to add cuttings boxes this year to the equipment that it customizes for sale.
“We have a positive outlook, and we think by the end of the year, we will have built 1,000 units for offshore, and we also hope to hire about 10 people here by the end of the year,” said V.P. of Business Development Garret Gauthier. “Certainly, we build to spec for buyers, but our hope is to build the biggest stock of DNV-certified, off-the-shelf equipment on the Gulf Coast.”
In the meantime, tenant companies’ cost pressures have officially filtered down to the port. In a reversal of previous policy, the port commissioners, in a special single-item meeting on March 18, approved a 20% discount on all current, basic rent on Port Fourchon land leases. Effective April 1, the blanket reduction is for one year, unless the oil price reaches $70/bbl for 60 consecutive days before the end of one year, according to the commissioners.
“The point is, we understand there is some issue in the industry right now because of the oil prices, and we’re going to have to look at that,” Chiasson said. “Our tenants are being pressed by some of the operators to cut costs, and that trickles down to us.”
Chiasson said the only precedent for wholesale reductions was during the 2010-2011 drilling moratorium, as the elected port commissioners historically have not lowered rentals because of market downturns.
“WE’RE NOT STAGNANT”
While it may not be business as usual, especially compared to the last two years when universally held sentiment had the deepwater Gulf on an unabated, upward trajectory, Chiasson said port planners are looking well beyond today’s economic malaise. “We have a lot of plans and a lot of commitments that are necessary for the future. We’re looking at where we need to expand to meet the demand, and the demand will definitely be there. We’re certainly not stagnant. We’re always looking at what the future is going to hold.”
That future eventually could include servicing the deepwater activities of Mexico’s newly accessible petroleum industry, and the development of Louisiana’s only deepwater rig repair and refurbishment facility. In the interim, Chiasson said the port’s 14-year-old Northern Expansion project is continuing full-bore, with most construction currently directed at helping tenants prepare to build out their earlier acquired leases, Fig. 4. As it now stands, the port oversees more than 66,000 linear ft of waterfront and just over 1,100 leased acres. “Slip D will add another 300 acres of property,” Chiasson said, referring to the latest cog in the 800-acre expansion project. “We’re still moving forward with Slip D, which would add another 10,000 linear ft of waterfront.”
The first 2,000 ft of the completely undeveloped slip was held under a right-of-first refusal, even before the first permit was in hand. Chiasson said he expects the newest expansion project to be fully permitted, in time to allow initial bucket dredging to begin in late summer, a process that essentially outlines the slip. After the final hydraulic dredging has been completed and the slip sufficiently settles, it should be completely prepped to allow building to begin in late 2016 or early the following year. Notably, to service the larger support vessels, Slip D will be 1,000 ft wide, 300 ft wider than its peers within the Northern Expansion.
Elsewhere, sweep dredging began in early February for a newly-completed 1,400-linear ft bulkhead for Schlumberger on Slip C, the final step before the tenant can begin build-out. Also, at the head of Slip C, Bollinger Shipyards of nearby Lockport is building out its new 46-acre, Fourchon North full-service shipyard, which is slated to accompany two 10,500-ton, one 5,000-ton and one 2,000-ton dry docks. In addition, privately held offshore waste management company Ecoserve, which acquired the environmental services business of Newpark Drilling Fluids, also is establishing a foothold on rapidly developing Slip C, Chiasson said, Fig. 5. After completing its bulkhead, the Lafayette, La., company’s lease comprises 1,600 linear ft of waterfront. Also, after Harvey Gulf Marine gave up one of its Slip C leases, that tract was split equally between behemoth Edison Chouest Offshore and Hornbeck Offshore, giving each 950 linear ft of waterfront.
Chiasson said an undeveloped 1,671-linear-ft track in Slip C is under a right-of-first-refusal, but as with many of its tenants, the port is proceeding cautiously with its development. “Basically, the way things are now, we’re undecided whether to go full force to build that out this year or wait until next year. It’s budgeted, but that’s something we’re looking at now,” he said.
Apparently, there is no slowing down in the cards for Chouest, which holds three leases encompassing roughly 90 acres and about 7,000 linear ft of waterfront. The company is completing work on its covered C-Port 3 (Fig. 6) deepwater supply facility on the more mature, totally leased Slip B. Even as it finishes up C-Port 3 on the east side of Slip B and completes, what Chiasson describes, as “some land-side build-out on the west side of Slip C,” the Galliano, La., marine conglomerate is formulating plans for C-Port 4.
Elsewhere, the focus on expansion is not restricted to the marine side, as both the port and its largest tenant, Chevron, are in the midst of significant developments at the Port Commission-controlled South Lafourche Leonard Miller Jr. Airport. By mid-year, Chevron hopes to begin shuttling passengers out of its estimated $30-million facility that reportedly will consolidate its entire Gulf of Mexico aircraft fleet. Chiasson said the major has said the new facility will accommodate some 40 aircraft and upwards of 6,000 incoming and outgoing passengers a month.
As for the Port Commission, “we plan to build a couple of hangars for new aircraft this year and we’re also in the design phase for a new terminal,” Chiasson said, adding work is nearing completion on doubling the parking apron at what is described as the fastest-growing airport in Louisiana. Future plans for the newly rebranded Galliano airport include seeking out funding sources to build an access road, which would connect directly to Louisiana Highway 3235, a main throughway to Port Fourchon and elsewhere. An access road, Chiasson said, also could finally pave the way for construction on the adjacent, undeveloped 1,200-acre industrial complex.
MORE OIL COMING
Meanwhile, more fodder is being added to the nation’s already over-fed storage tanks and pipelines with the long-awaited initiation of production from a number of deepwater fields, led by Chevron’s widely celebrated Jack/St. Malo ultra-deepwater giant in the Lower Tertiary of Walker Ridge. Located in 7,000 ft of water and co-developed with susbsea completions tied back to an FPSO unit, the twin discoveries, which began production in early December, are designed for a total capacity of 170,000 bopd and 42.5 MMcfgd. Chevron has said that it can recover more than 500 MMboe over the more-than-30-year production life of the field.
Wood Mackenzie singled out the Jack/St. Malo field as the primary contributor to its forecasted, 21% year-over-year increase in Gulf production this year. The consultancy also pointed to Anadarko-led Heidelberg field, which is scheduled to begin production next year in 5,000 ft of water on Green Canyon Block 860. When combined with the Chevron fields, this will add 155,000 boed in 2016.
Not included in that forecast was the December start-up of production from two wells on Stone Energy’s Cardona deepwater field in Mississippi Canyon. The wells were tied back to Stone’s Pompano platform, with initial production of 12,000 bopd. Two additional development wells are expected to be drilled in 2015, Stone says.
Also not figured in the Wood Mackenzie equation is LLOG Bluewater’s Delta House floating production system (FPS), with first oil expected to flow this summer. Located in 4,450 ft of water in Mississippi Canyon Block 254, the FPS is designed for a peak capacity of 100,000 bopd and 240 Mcfgd, says LLOG Bluewater, a JV of LLOG Exploration and Blackstone Energy Partners.
In December, InterMoor completed the Delta House hook-up, which took in the design, fabrication and installation of 12 suction pile anchors and 12 preset chain/polyester mooring lines. The piles, which will be used as permanent anchors for the project, are 85 ft long, 16 ft in diameter and weigh approximately 165 m tonnes, according to InterMoor.
“It was all done out of here,” says InterMoor’s St. Pierre. “All the fabrication, load-out, receiving the chains and mooring—it came out of our dock. It was a one-stop job.”
LOOKING SOUTH AND DEEP
If a trace of silver lining can be found within the current lull in activity, as it compares to the nonstop frenzy of the past few years, Chiasson said it may provide an opportunity for the port hierarchy to catch its breath and look ahead, much like it did during the drilling moratorium. “I’m a glass half-full kind of guy, so with things slowing up a bit, it may allow us time to catch up and take this as an opportunity to assess where we need to be in the future,” he said.
In the shorter term, that future could include Mexico and the widely heralded opening of its once-closed petroleum regime to international operators. Chiasson said the proximity of Port Fourchon to Mexico’s potential deepwater plays, such as the highly prospective Perdido Fold Belt in the northwestern part of the Gulf, and very near the U.S. maritime border, makes it an ideal support base. Chiasson said officials of state oil company Pemex came to Port Fourchon in January, where they “basically wanted to look at our port, and see what an oil and gas service port looks like.”
He said Port Fourchon would be a natural option for Mexico, since most of the operators that would likely operate in its deepwater and ultra-deepwater theater are already firmly established nearby. “The operators who would be participating with Pemex already have a dock here and all the consumables, so they would just have to travel another 50 or so miles,” he said. “We’re definitely hoping to become at least one of the service bases they will use for the deepwater operations. It might take a little longer travel time, but in the long term, it would cost Mexico billions to build what we have here.”
In addition to Mexican visitors, Chiasson said President Barrack Obama’s decision to clear the way for eventual drilling off the U.S. East Coast has drawn folks from South Carolina and Virginia to Port Fourchon for a look-see. “They are just interested in seeing how to set up a port, what it looks like and the impact on the community,” he said.
Looking much farther ahead, the port director said preliminary negotiations and potential studies are looking at what could evolve into Louisiana’s only dockside facility for repairing and refurbishing deepwater rigs. Getting to that point will require additional space and a significantly deeper draft. Acquiring the former is the aim of ongoing negotiations, with private landowners, for the rights to about 900 acres on Fourchon Island to the south, which, Chiasson said, “would be our future development.”
As for the latter, coinciding with the land rights negotiations, port officials are seeking approval from pertinent federal officials, namely the assistant secretary of the U.S. Army and the U.S. Corp. of Engineers, to conduct a so-called Section 203 feasibility study to look at increasing the draft from 25-27 ft to either 35 or 50 ft. “Hopefully, we’ll get approval, and once we do, we’ll embark on a two-year study of the feasibility and economics of deepening the draft,” Chiasson said. “Basically, the deeper draft we envision would begin at Belle Pass and meet at Bayou Lafourche.”
The successful acquisition of rights to the Fourchon Island property, in tandem with a deeper draft, would clear the way for Louisiana’s only floater repair facility. “We want to see what we need to do to accomplish that. We already service over 90% of all the deepwater activity in the Gulf anyway, but we can’t service the rigs at a dock facility,” he said. “We just want to investigate if it’s feasible to do that. If so, the 900 acres would be what we would consider our deepwater port to not only repair rigs, but also to service the larger support vessels. That could open the door for companies to build larger vessels, if they see the need is there.”
Chiasson said the proposed feasibility study also would evaluate the possibility of deepening the draft of nearly all of the Northern Expansion area to 30 ft. The only exception, he said, is Slip E, which is not designed to accommodate the deeper draft. “We believe the engineering of the bulkheads in the rest of the Northern Expansion has enough factors of safety that with minimal work, we can increase the draft to 30 ft and all the larger vessels we expect to come in the future,” he said.
That continual focus toward the future comes as little surprise to those who have observed the growth of the port over its nearly 55 years of existence. “The guys with the port did some very creative things 30 years ago, that today have made Port Fourchon the largest oil and gas port in the world,” says Harvey Gulf’s Verret. “If we ever lost Port Fourchon, it would greatly impact oil and gas production in the U.S.”
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