Whether Hurricanes, Diving Oil or Political Upheaval ...
GOM is Prepared
Unknowns Challenge U.S. Offshore Industry
By Matt Gresham
In mid July of 2008, oil prices shattered all-time records and hovered around $140 per barrel. Analysts had dire warnings of $200 per barrel oil. Gone are the days of "cheap" oil, cable newscasts screamed. Exactly a decade ago, oil prices slumped below $10 per barrel in December of 1998. Analysts then decried prices would never again rise to $40 per barrel, markets were saturated. Sound familiar? It seems commodity analysts' predictions change as much as the nightly weatherman's. Today, as the oil and gas industry embarks upon 2009, most companies again are left with more questions than answers about the future of the industry and concerns of unknown initiatives and policies soon to be formed by a new administration in the White House. This uncertainty comes on the heels of nearly three years of record profits. "The last three years have been record years even for us," said Joe Bennett, executive vice president and chief investor relations officer for New Orleans-based Tidewater Inc. "When oil prices rose to $70, $100 and over $120, everyone - including us - thought the chances of seeing $50 per barrel oil again was pretty slim. But no one expected the credit markets to fall apart." Ken Wells, president of the Offshore Marine Service Association (OMSA), said 2009 could provide critical answers for both E&P companies and the offshore service industry. "Some of our members had their best years and quarters ever recently," Wells said. "At trade shows, just about everyone you talk to said they were very busy and still signing long-term contracts. But, there are certainly enough people smarter than me that say the industry doesn't run on $40 oil." Wells cited three dynamics affecting the domestic offshore industry going forward. First, deep-water projects have timelines that extend well beyond these uncertain economic times - billion-dollar projects budgeted for decades. Secondly, the economic downturn has caused a need for companies to boost cash flow and they want to make sure their existing infrastructure is producing. The big question mark rests with mid-level projects, Wells said. "Are the independent producers going to be able to obtain the credit to put their plans into action and are they going to find the Gulf of Mexico a good value and a place where they can cut their expenses," Wells asked. "No one is in a position to answer that right now." While the offshore oil and gas industry is a bottom-line business, long-time business relationships are valuable during downturns, Wells explained. "These times are going to test whether customer relationships are still strong," he said. "Relationships have always been important in this industry and there are [offshore service] companies that signed on for longer term contracts at the expense of [higher] rates. Now they are
Right: The Noble Clyde Boudreaux semisubmersible drilling rig was refurbished in Mississippi and then travelled approximately 580 miles to the future home of the Shell-operated Perdido Regional Development spar. First production from Perdido is expected around the turn of the decade, with the facility capable of handling 130,000 beo/d.
(Photo courtesy of Shell)
36 MTR
January/February 2009
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