Depending on perspective, the U.S. offshore industry is either equipped to weather the current storm or the hovering dark clouds portend longer-term complications. The price war between Russia and OPEC+, combined with the destruction in demand as a result of the COVID-19 pandemic, dealt a blow to North American shale, perhaps exposing a vulnerability. But the dynamics of the offshore industry—particularly the Gulf of Mexico (GoM)— might prove to be more buoyant amid the current price volatility.
“The region is resilient at low oil prices, and nearly 82% of oil production has a short-run marginal cost of $10/bbl Brent,” said Mfon Usoro with Wood Mackenzie’s GoM upstream research team. “On top of this, over 60% of rig contracts are short-term, which gives operators the flexibility to defer capex and maintain positive cash flow.”
Despite the low prices, the GoM will still produce a lot of oil this year—about 2 MMbbl/d, according to Wood Mackenzie. However, that figure is about 200,000 bbl/d less than what was initially forecast by the analyst.