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got too low. Not this time. The Saudis are no longer willing to cut production (and lose market share) unless everyone else – inside and out of OPEC – follows suit. 30% Problem is, too many OPEC partners, i.e.

That’s the minimum level of capital ex- Venezuela, Russia and Iran, desperately penditure cuts facing owners and opera- need the cash from oil sales. However, tors of offshore rigs, vessels and various the Saudi gambit is expected to force a support services, as they scramble to strong cutback in costly U.S. shale pro- keep equipment working and their heads duction, as smaller, over leveraged com- above water during one of the worst oil panies ? nd it impossible to both get fund- downturns in 30 years. ing and to make money when oil hovers

From a high of $108 per barrel in June in the $40-$50+ range. of last year, prices plummeted roughly The impact is already reverberating 60% as supply surpassed weakening de- throughout the shale industry, as rigs are mand, crashing in November to around cold stacked by the hundreds in record $44 a barrel. The pricing collapse caught numbers, workers are laid off, existing all sectors of the industry and ? nancial wells are depleted and boomtowns start markets by surprise, pulling down with to panic. In six months or so, some in- it market valuations, quarterly earn- dustry watchers are predicting that a big ings and day rates. OPEC, for example, enough drop in U.S. oil production will earned about 14% less last year than in intersect with growing demand, pushing 2013, and experienced its lowest pro? ts prices ? rmly back onto an upward track. since 2010, according to the U.S Energy

Information Administration (EIA). Oil The Multi-Billion-Dollar Question company stocks have taken a beating, Until then, how low can oil go? That’s forcing a reassessment of spending and the question being asked everywhere. project plans. Rig counts have hit historic West Texas Intermediate (WTI) has four-year lows, while long-term projects dropped as low as $43 this year, and have undergone reevaluations, and in more than a few pundits think crude will some cases, been put on hold. head a lot lower, possibly to $30 or there-

The ballooning supply of oil, mean- abouts, with some even suggesting $20 while continues to outstrip demand, hit- or less on the extreme end, before it starts ting an 80-year high in the U.S., which, to inch its way back out of the worst in late February, exclusive of the Strate- crash since the mid-80s. (Brent crude has gic Petroleum Reserves, had 417 million mostly bounced around in the mid to up- barrels of oil in storage. U.S. production per $50s.) recently rose to a record 10.3 million bar- If the specter of $20 oil comes to pass, rels a day, and has consistently surpassed it will have serious repercussions in the 9 million barrels a day since November offshore marine markets beyond the - something that hasn’t happened since across the board belt tightening that has the 1970s, according to the U.S. Energy already spurred layoffs, as well as idled

Information Agency (EIA). rigs and vessels.

That prodigious production has had the What could push prices down further? effect of positioning the U.S as one of the Well, a cresting oversupply, as noted top oil producers on the planet, and oil’s above; a longer than expected slowdown new swing player. Along with unabated in U.S. shale, and/or continued lower oil production elsewhere, notably in than expected demand from India, China

South America, the success of the U.S. and other parts of Asia. shale ? elds has helped to drive supply Still, certain as death and taxes is the levels into uncharted waters, and danger- fact that eventually oil prices will rise ously close to the available storage ca- again. The problem for the offshore in- pacity for excess crude. dustry is that it won’t be any time soon,

If production ends up exceeding stor- nor possibly in the next year or two. Oil age capacity, it will force a sell off, and pundits and players seem to think $100 that in turn, could push prices lower. a barrel oil is ? ve years or more down

Adding to that downward pressure is the the road.

expectation that Iran; which is believed Shorter term, there is some talk of high to be hoarding an enormous stockpile of $50s to low $60s by year-end and per- its own – would open its ? oodgates if haps closer to $70-$75 a barrel by the end sanctions are lifted, allowing it to sell oil of 2016 or 2017. to the West. But it doesn’t sound like oil company

OPEC, particularly the Saudis, have for CEOs are buying that, and these are the decades played the arbiter of the oil mar- guys making the big money decisions. ket – cutting production whenever prices An ExxonMobil executive told CNBC www.marinelink.com 45

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