Offshore vs. onshore production

The New Year looms, and with it comes a spate of unanswered questions. The two main questions for the workboat industry are if the price of oil will sustain and encourage offshore exploration and development in U.S. waters and whether new opportunities will surface for operators to expand U.S. onshore production. The answer to the first question is “maybe” and the answer to the second is “probably.”

Our friends at OPEC and their non-OPEC partners continue to work in our favor. They agreed late last month to extend their commitment to maintain production cuts of 1.8 million bbls. per day through the end of next year, a move that could push U.S. crude prices toward $60 bbl. (I’m guessing more than $60 since we are almost there now). That’s good news, but it is dependent on U.S. shale production.

At $60 or more per barrel, the temptation is strong for shale operators to up the ante with new drilling, completions and production. As noted in a recent Houston Chronicle article, “as oil prices climbed in the third quarter, U.S. producers locked in higher prices through long-term contracts for almost 900,000 barrels per day, more than double the amount contracted in the previous three-month period,” according to energy research firm Wood Mackenzie. “For most of these guys, $60 oil means they have the cash flow for the first time in many years, after cutting and cutting,” said Wood Mackenzie analyst R.T. Dukes.

While a number of companies have sworn off expanded exploration and development expenditures in the wake of higher prices, their resolve is questionable.

The second question regarding new opportunities for operators on U.S. properties is easier to answer. Interior Secretary Ryan Zinke, acting for the Trump administration, recently directed the Bureau of Land Management to ramp up sales of oil and gas leases on federal land. He wants leases sold at least every 90 days and drilling permits processed in 30 days, a procedure that, with proper environmental reviews, requires substantially more time, said The New York Times.

It’s a continuing conundrum. The price of oil goes up, shale developers ramp up. Oil prices goes down, and offshore interests lose.

About the author

Dr. William J. Pike

Dr. William J. Pike has 45 years experience in the upstream oil and gas industry, including more than 20 years in oil and gas drilling and production operations, both onshore and offshore. He has worked in the U.S., Canada, Britain, Europe and Russia as a technical and economic advisor to the energy industries and various governmental agencies. Pike was editor-in-chief and editorial director for Hart Energy Publishing’s E&P magazine and was also the editor of the Journal of Petroleum Technology, the official publication of the Society of Petroleum Engineers. He holds a doctorate in energy economics from the University of Aberdeen in Scotland.

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