Climbing a mountain requires pauses on the way to the summit to reassess the route and re-energize. Global oil markets are doing just that. Industry executives must consider the latest oil market forecasts and customer reactions to their plans.
Recently, the offshore industry was in the news for its M&A (mergers and acquisitions) activity, revised oil demand projections, and revised customer spending intentions. These events have created uncertainty among investors who have slammed share prices. Is it a temporary fog before clear skies return?
The major industry event was the acquisition of Diamond Offshore’s 12-rig fleet by fellow driller Noble Corp. The additional rigs will boost Noble’s fleet into fourth place from its prior seventh-place ranking, surpassing Transocean. Importantly, the deal immediately boosts Noble’s cash flow per share allowing it to increase its dividend as a shareholder reward.
Although the Noble/Diamond transaction was small ($1.6 billion), compared with other deals such as this spring’s ConocoPhillips’ $22.5 billion purchase of Marathon Oil, and last year’s blockbuster ExxonMobil/Pioneer Natural’s $60 billion merger and the $52 billion Chevron/Hess mergers, it was significant for the industry. It further consolidated the global offshore drilling rig industry, creating a bigger, financially stronger company to counter the increased contract bargaining power of its international oil customers.
Recently, investment bank Barclays’s energy research team updated its 39th yearly exploration and production (E&P) spending survey. While the overall message was a slower spending increase than expected at the start of 2024, the bright spot is offshore spending. It should grow by 18% this year, up from the 13% increase that was projected last January. Additionally, 2025’s offshore spending will likely grow by high single-digit percentages — another good year.
International E&P spending will also rise, albeit more slowly than originally expected. This year’s North American onshore spending’s modest decline will be larger. These revised spending trends will force oil service company executives to adjust their business plans. Only offshore service companies have a path to higher revenues and profits.
A potential threat to that path is a decline in oil and gas consumption. Although the International Energy Agency (IEA) cut its 2024 oil demand forecast, the Energy Information Administration raised its projection, and OPEC+ reaffirmed its healthy growth forecast. The biggest news, however, was the IEA’s agenda-driven study claiming global oil consumption will peak in 2029 and that the world will face an eight million barrel-a-day oil glut a year later. Will the industry blindly head off a cliff? I doubt it.
