Byron Energy curbs Gulf of Mexico output due to sharp decline in oil price

Oil and gas company Byron Energy has decided to ramp-down production from the SM71 field in the U.S. Gulf of Mexico due to a sharp decline in demand and glut in both international and local supplies.

Byron’s partner in the field, Otto Energy, said on Tuesday that the Louisiana Light Sweet (LLS) premium started trading at a material discount to the West Texas Intermediate (WTI) for the first time in a long time, with the discount currently at approximately $7.60 per barrel.

The company added that it would be trading generally negatively through the remainder of 2020 before climbing back into positive territory.

SM71 is currently producing around 3,000 barrels of oil per day and 10.5 million cubic feet per day of gas on a gross basis, with cash operating costs for the SM71F platform at around $0.4 million per month.

Byron, as the operator of the SM71 field, decided it would shut in the SM71 F1 well and reduce production from the F3 to 1,850 bopd, effective immediately. Currently, these wells are producing around 1,000 bopd and 1 mmcfd and 2,100 bopd and 0.8 mmcf respectively.

The shutdown of the F1 well and reduction of production from F3 will, according to Otto, maximize long-term value by linking production to volume commitments under the forward sale agreement during this period of depressed prices.

Otto added that this would reduce overall SM71 field production to approximately 1,900 bopd and 9.5 mmcfd.

SM71 production rates will be adjusted continuously dependent upon any favourable changes in price. Otto expects significant volatility in the spot LLS oil prices in the near term as oil futures contracts are closed out and reflected in regional spot pricing.

It is worth reminding that the SM71 F5 wellbore has recently been temporarily abandoned in a manner that allows it to be efficiently side-tracked in the future when the uncertainty relating to the COVID-19 pandemic has dissipated and also at a time where oil prices are substantially higher.

Otto Energy stated that abandonment operations were complete and that the rig would be released as soon as the weather conditions allow.

Otto currently has a 50 per cent working interest and a 40.625 per cent net revenue interest in SM71. Byron Energy holds the remaining interest in SM71.