The double whammy of excess oil supply and the coronavirus has done a number on crude oil prices, which in turn has prompted E&P companies to slash capital spending plans for 2020. Larger independents like Devon Energy Corp., Noble Energy Inc. and Pioneer Natural Resources Co. have chopped spending plans by a third to almost half so far, mainly around their unconventional resource plays and deferring exploration programs. This trio has something else in common. Over the past decade and a half, each exited a dark horse, long-lived asset play that has shown increasing signs of its resilience in these most recent trying times—the U.S. Gulf of Mexico.

As an oil province, the U.S. Gulf has been referred to as the ‘Dead Sea’ by many—and many times over. The region has been through many peaks and troughs since the first well was drilled there more than 80 years ago. Investment in the region has ebbed and flowed with the shifting tides—be it the splash of deepwater royalty relief which spurred a robust exploration phase in the region during the 1990s, or the Deepwater Horizon incident in 2010 that ground activity to a halt. The place producers find themselves today are truly uncharted waters—a perfect storm of oil price destruction due to oversupply and oil demand destruction related to most of the world operating remotely due to the threat of COVID-19.

The situation is dire, but like all crises, it can be viewed as equal parts danger and opportunity. Cautious opportunity.

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