Offshore vs. Onshore: Are We Heading for Another Oil Crisis?

A businessman in a suit clutching a yellow construction hat. There are oil drills in the background.

Photo credit: Shutterstock

It’s been a rough year for the offshore oil drilling market, with investments way down and interest turning to short-cycle supplies that peter out quickly but provide returns more quickly. With 90% of the global supply still in long-cycle oil projects, however, it’s imperative that these projects get the investments they need. If they don’t, Hess Corporation CEO John Hess suggests we’re headed for a significant future gap between supply and demand.

Hess Corporation, whose board includes energy experts such as Marc Lipschultz and James Quigley, is like many modern energy companies in that it has its fingers in many pies. Unlike many of its contemporaries, however, Hess is still concerned with its longer term investments, including offshore drilling.

“While the spotlight has been on shale, the lights are off on offshore deep water assets,” said Hess at this year’s CERAWeek in Houston. “We’re not investing enough to keep the offshore development pipeline full, and that’s going to start showing itself three [to] five years from now.”

To combat this potential problem, Hess Corp. is diversifying its investments. “We’re investing through the cycle,” Hess explained. “While most people don’t think that offshore can make economic sense at these prices, there are exceptions, and we’re very fortunate to have one of those exceptions in offshore Guyana.”

Hess Corp.’s Guyana investment is a 30% ownership of the Exxon-operated Liza discovery offshore Guyana, which is viable at $40/barrel. This discovery has been confirmed as one of the largest in the world in the last 10 years.

In addition, Hess Corp. continues to develop its other offshore investments in the North Malay Basin of Malaysia and Stampede in the deepwater of the Gulf of Mexico. These are expected to come online in 2017 and 2018, respectively.

In general, however, the market is turning toward short term projects that produce higher yields more quickly. Chevron, for example, is focusing on shale and subsea tie-backs, though they haven’t completely gone off long-cycle offshore fields—deepwater assets still make up 10% of Chevron’s overall portfolio. The trouble is that the market is far from certain, and the expenses involved in short term oil projects are far less than those of long term offshore drilling, which can take years to show returns.

While the future of the offshore market remains unsteady, the companies involved are making an effort to stay viable and on the cutting edge. Noble recently partnered with General Electric to create a data-driven product that will increase efficiency for offshore rigs, potentially making the process more financially appealing. The product is set to be tested in a fleet pilot program on four Noble drilling rigs. The manufacturers are estimating that they’ll see a 20% reduction in repair and maintenance expenditures as well as gains from drilling processes and predictive asset management.

Given the current fluctuations in the market, it remains to be seen whether or not these innovations and warnings be enough to prevent a potential future oil crisis.

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