Rising 45 stories from the water's surface, the Jack/St. Malo production unit inched away from a South Texas fabrication yard with the help of a fleet of tug boats hauling it to sea. Onlookers lined docks, cameras hoisted high, to capture the launch of the hulking red-and-gray steel structure, the largest facility of its kind to pump oil and gas in the Gulf of Mexico.
The enormity of the $7.5 billion project, more than a decade in the making, encapsulated the exhilaration permeating the oil industry in late 2013.
A barrel of crude sold for more than $90. By the time the Jack/St. Malo pulled its first batch of oil from deep beneath the ocean floor a year later, oil prices had collapsed to $60, pulled down by a U.S. onshore boom that flooded the world with more crude than it could use.
The downturn has been swift and brutal, slashing profits, forcing cutbacks and putting thousands of people out of work.
While oil companies have no plans to sail away from the massive deep-water investments they've already made, which are poised to propel Gulf of Mexico production to record-high levels in 2016, they are much less enthusiastic about hunting for new reservoirs, a dramatic reversal from the recent zeal to push into deeper, more challenging waters.
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This week, tens of thousands of offshore professionals will converge on Houston for the annual Offshore Technology Conference, as their industry tries to weather the choppy seas of volatile oil prices while continuing to develop safer, more sophisticated tools for deep-water exploration and production in the world's harshest environments.
As usual, the OTC will be a lavish spectacle that fills NRG Center and adjacent outdoor areas with eye-popping displays of mighty offshore hardware, company booths bigger than houses and intricately detailed replicas of rigs, platforms and other vessels.
Looking to cut back
In their shadows, however, will lurk a spectre of austerity.
For the first time in years, attendees ogling the shiny exhibits and sipping midday margaritas will also be talking about ways to pare back, said Chris Ross, a finance professor at the C. T. Bauer College of Business at the University of Houston.
The parsimony could reap rewards.
With less money to go around, the belt-tightening is ushering in a new era of teamwork, as oil firms navigate the slowdown by forming alliances to rein in costs that rose when budgets were looser, and develop new technologies to get resources out of the most formidable territories.
''When everything is blowing and going ... you don't spend a lot of time thinking about what is the most efficient and effective way to do things,'' Ross said. ''This is an opportunity to take a good hard look at how we do business and figure out better ways. And that requires collaboration.''
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A seductive promise
In the flurry of excitement in recent years about surging U.S. onshore production from dense shale formations, some attention shifted from the floating cities and Space Age technologies engaged in the herculean task of pumping hydrocarbons from miles beneath the seabed.
While smaller independent oil companies rushed to buy up land and scramble rigs to stake their claim in the domestic drilling resurgence, the less-nimble Big Oil corporations stayed a proven course - investing huge sums of money to hunt for fossil fuels in the earth's frontiers, including deeper and deeper water.
The sea continues to hold a seductive promise not found in the rural stretches of South Texas and North Dakota where the shale boom took hold.
Hundreds of thousands of barrels unlocked from a good subsea reservoir can pad a company's balance sheet for a generation, while shale wells unleash oil for about a year before declining.
Imran Khan, a Gulf of Mexico analyst at energy analyst firm Wood Mackenzie, said big oil companies have to place big bets to increase production from existing reservoirs and find new ones.
''At the end of the day,'' Khan said, ''you have to satisfy investors, which are looking at production growth and reserve replacement. And you're not going to get that just from shale.''
Five new deep-water projects will become operational this year, pumping a collective 175,000 barrels of oil equivalent per day, according to Wood Mackenzie.
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''You've got so much money invested, it probably makes sense to complete it,'' said Bill Arnold, a professor in energy management at Rice University. ''Unless you have a defeatist attitude about prices ... you would have the expectation that prices will rebound at some point and certainly within the time frame of new investment.''
Chevron, for example, may fetch less than originally expected for oil it draws from the Jack and St. Malo fields 280 miles southwest of New Orleans, but with the major expenses behind them, the multinational company stands to score big profits from the project.
Still, the prolonged crash has soured the search for new reservoirs as offshore exploration becomes the first sacrificed because it requires huge sums of cash for projects that don't pay off for years.
''In deep water, you have to drill three or four wells to find a discovery sometimes,'' Khan said. ''Given where oil prices are at, there's less appetite for risk from some of these players.''
Activity in the Gulf
The Gulf of Mexico fared better than other deep-water arenas because of its predictable regulatory structure relative to less politically stable areas of the world, and its extensive network of pipelines, platforms and other infrastructure. Work in deeper water typically involves drilling and producing from anchored floating facilities, as distinct from jack-up rigs that extend legs to the ocean floor and usually work in water just a few hundred feet deep.
In the past five years, the number of floating rigs nearly doubled to 61 at the start of this year, said Cinnamon Odell, senior rig analyst at IHS.
A recent auction of federal leases attracted bids from 42 companies seeking to snap up blocks in the Gulf of Mexico, underscoring ongoing interest in deep-water development despite the industry's troubles, said Michelle Michot Foss, who heads the Bureau of Economic Geology's Center for Energy Economics at the University of Texas.
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But even in the Gulf, exploration activity this year probably will remain flat, or even fall if crude prices drop again after rising significantly since hitting six-year lows in March, said Jackson Sandeen, senior research analyst at Wood Mackenzie.
In March, BP terminated two contracts for rigs in the Gulf of Mexico. French oil company Total ended a contract for a relatively new ultradeep-water rig six months early. Although few companies have the kind of deep pocketbooks of BP and Total to afford the hefty penalties associated with early terminations, several rig contracts won't get renewed as they expire starting this summer.
Already, 20 of the most technically sophisticated floating rigs have been idled worldwide, according to investment banking firm Tudor, Pickering, Holt & Co. It says half of the new rigs slated for delivery by next year aren't under contract.
Rig contractors and services companies have started offering discounts, a life buoy for an industry that had grown increasingly complex and expensive as oil companies trended toward deeper and deeper water in recent years.
''The fees for day rates on drilling vessels were just white-hot a year ago, and those have eased off dramatically because companies would much rather have their equipment working than stacked somewhere,'' said Rice's Arnold.
A plunge in rates
In some cases, rates have plunged from as much as $600,000 per day to $300,000, said Byron Pope, managing director who analyzes oil field services at Tudor, Pickering, Holt & Co.
But overall services costs aren't falling as fast as they are in onshore drilling plays, largely because a small group of companies dominate the offshore space, lessening the competitive incentive to cut back, said Khan, with Wood Mackenzie.
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As profit margins tighten, competitors are teaming up to tackle financial and technological challenges long plaguing the industry.
Even before oil fell, companies were scrambling to standardize the notoriously difficult task of offshore extraction. In July, subsea equipment maker FMC Technologies joined forces with four of the largest U.S. oil companies to develop equipment designed to withstand the intense heat and pressure of deep-water reservoirs.
BP, Chevron and ConocoPhillips are jointly developing two of BP's discoveries in the Gulf of Mexico, a marriage that allows the firms to share the financial burden while potentially expediting the process to pump oil from the Gila and Tiber fields.
In March, FMC created yet another alliance, a joint venture with engineering firm Technip aimed at slashing costs while extracting as much fossil fuel as possible out of a field.
''Operators need to have a different approach than they've had in the past to make these deep-water fields more economic,'' Pope said.
