Offshore Drilling Moving Out of Shale’s Shadow
Offshore is ready for the limelight again.
After years in the shadow of the US shale patch, deep-water explorers from Royal Dutch Shell Plc to Talos Energy Inc, along with contractors such as Ensco Plc and TechnipFMC Plc, told investors at the Scotia Howard Weil Energy Conference in New Orleans this week they see a revival coming.
That was a stark contrast to a subdued outlook for shale at the event.
“The offshore recovery is under way today,” Jon Baksht, chief financial officer at Ensco, told investors on the 26th March at the conference.
“This isn’t something that we’re waiting for.”
While US shale remains a global hot spot, with multibillion-dollar investment plans from supermajors Exxon Mobil and Chevron, independent producers have been under pressure from investors to focus on delivering returns rather than ambitious growth plans.
At the same time, after nearly half a decade of consecutive spending cuts, the offshore industry is expected to finally boost spending again to develop higher-gushing oil wells.
Offshore Guyana
Hess Corporation, which has assets in shale and in offshore, made the starkest contrast between the two basins during the conference when Chief Executive Officer John Hess showed a slide about what it would take to get the same amount of oil from the world’s busiest shale patch, the Permian Basin of West Texas and New Mexico, versus Guyana, one of the biggest discoveries of its kind offshore.
To suck out the equivalent of 120,000 barrels of oil a day, the Permian Basin would need a US$12.8 billion investment compared to US$3.7 billion for the first phase of the Liza section of the Guyana project, in which Hess is teaming up with Exxon.
Offshore capital spending has been cut in half since oil prices first started to fall in 2014.
This year explorers and producers are expected to boost offshore spending three percent to US$155 billion and another ten percent next year, according to Ensco slides on the 26th March.
That compares to a double-digit drop in spending in North American land this year, Schlumberger and Halliburton, two of the biggest providers of oil services, told investors on the 25th March.
Tim Duncan, CEO of deep-water explorer Talos Energy Inc, considers himself a contrarian for wading farther into the Gulf of Mexico when others were flocking to the Permian, which straddles Texas and New Mexico.
“Investors are thinking about being basin-agnostic again, and that at least gives us the opportunity to reintroduce the Gulf of Mexico,” Mr Duncan said on the 26th march in an interview in New Orleans.
“It’s allowing investors to just rethink under a new lens how they view offshore, and we have to take advantage of that opportunity.”
Oil Auctions
Fracking shale rock for oil and gas can be done in a matter of months. But it may take years to develop a deep-water area, and before any rigs can start drilling, governments around the world need to auction exploration and production permits.
Those auctions have been more frequent lately.
“Take a look back from when we were at this conference one year ago today and we’re up 25 percent just in terms of the number of open tenders that are out there year over year,” Mr Baksht of Ensco said, which is poised to become the world’s biggest offshore rig contractor if its merger with Rowan Companies closes later this year.
“We are seeing that increase in spending and increased activity in the offshore space today.”
So much so that for the first three months of this year, equipment maker TechnipFMC is expecting a quarterly record for inbound orders of subsea gear, an historical proxy for offshore activity because all wells away from land need the valves and pumps that sit on the seafloor.
The return to offshore activity is just a start, though. It is not a full-fledged boom.
There is still a glut of older, unused rigs keeping drilling contractors from having widespread pricing power for pushing up the rents on their vessels.
But for Diamond Offshore Drilling Inc CEO Marc Edwards, simply hearing of spending hikes from other large explorers such as Equinor ASA and Petroleo Brasileiro SA was critical to realising better days are ahead.
“Their exploration budgets are significantly moving north,” he said. “That’s the first sign of recovery we needed in the offshore space.”
Source: Rigzone