The offshore industry is much like the farm workers in the 1950s Broadway musical, “The Most Happy Fella”. The industry, much like those famers, is “standing on the corner, watching all the girls go by.” Only this time, it’s watching all the voters go by.
Will it be Biden or Trump? One suggests a continued revival of the oil and gas industry, while the other offers a bleak future, if any at all. We have no idea what the U.S. election outcome will be, or when it will be known. What we do know is that the uncertainty gripping the offshore market will continue — at least for a while. How long? It may be months, or possibly years before this industry recovers. The election results will provide guidance about the industry’s long-term outlook.
In the meantime, offshore contractors continue to wrestle with too much equipment and too little revenue. Pacific Drilling’s recent Chapter 11 filing is just one more cog in the industry wheel to fail. Will oil prices recover to 2018 highs? Boy, what $70 a barrel would do for the industry! Could it happen? Sure. Will it happen is the more important question, and that may depend more on what happens in today’s voting booths than what is ongoing in oil company board rooms.
A government policy to rapidly transition the U.S. economy to zero carbon emissions, despite the physical limitations on the speed of such a move, will alter the energy investment landscape. High-cost oil and gas resources will fall to the bottom of the pile of prospects in producer exploration and development plans. Unfortunately, much of our offshore oil and gas falls into that pile.
On the other hand, all the resources close to existing producing infrastructure will have a cost advantage and may actually see their timetables accelerated. “Get all the value as quickly as you can” will become an important operating philosophy during such a massive industry transition. That philosophy might actually accelerate drilling and development, as extracting the value quickly becomes an important motivator.
Navigating the industry’s future will be no less challenging than it has been for the past several years. Restructuring companies to be lean, efficient and smaller, with balance sheets with little or no debt will become the model for survival. Getting the entire industry to that status will be messy and take time. None of that is good for morale or stress-levels. Grin and bear it is not helpful advice. Instead, go listen to “Standing on the Corner” — you will feel better.
