It''ll be a rough ride…..but deepwater works at $30/bbl (Sort of) #business #offshore #production #oilservicesequipment #projectmanagement

By 17th December 2015 Industry News No Comments

The doom and gloom at my local offshore oil patch watering hole is palpable. No one is not worrying about their job. The reasons are obvious and real.

Oil is trading below $40/bbl.
The Saudi’s seem bent on riding this bull until it stomp’s on them.
Companies big and small, here and abroad, are cutting spending and payrolls.
The first wave of Bankruptcy’s have hit the news.
No one, myself included, does not think it will get worse before it gets better.

Eventually KSA/OPEC will cut back on production or go broke at which point prices will rise. But it will be a different world than it was in 2014 for those of us in oil and gas.

I keep seeing how “all offshore spending will dry up”; and “deepwater does not work if oil is below $60”; and “after 2016 there wont be any work”.

On that I disagree. In 2014 yes, deepwater needed $60 to $80/bbl and you had to have faith in high prices to spend $250MM++ on each exploration well. Thing is it’s not 2014, and there some positive points, with one caveat. We wont go broke, but the golden era might be over for the foreseeable future.

Drill ship rates have come way down, roughly 50%
Steel is at it’s lowest price since 2003 (unrelated to oil price crash).
Manpower costs have come way down, between 15% and 40%.
Governments that rely on oil taxes and royalties are rethinking things like local content rules
Long Lead items that had 18 to 24 month wait times are down to 6 to 9 months – or even “off the shelf”
As companies go broke healthier, and in some cases better run, ones will buy their assets.
Most importantly world oil consumption is still increasing.

What does all this mean? That if $40ish becomes the new normal past June of next year, the offshore industry will adjust to it and the breakeven costs will drop from needing $60/bbl, to needing $30/bbl. It wont be as much fun maybe, and some big companies may not survive the transition, but the work will be there.

In the meantime, space at the old watering hole will be tight………..until the next boom.