Between low demand, soaring inventories, depressed prices, a global pandemic, and now, hurricane season, it seems a perfect storm is forming around the offshore oil industry. The world's offshore oil market, responsible for 30 percent of all the world's oil production, is facing an impossible set of challenges. With oil sitting at half the price of its yearly high, and doubts forming around the future of demand, in addition to the ongoing COVID-19 pandemic wreaking havoc on the global economy, companies are struggling to rein in capital spending and are beginning to rethink the future of key projects.
The crisis has pushed much of the world's oil production onshore in favor of more flexible rigs and lower operational costs.
Many new offshore projects have even been put on hold as the new reality of the oil market sets in. Companies are now scrambling to suspend federal lease deadlines as the near-term looks increasingly uncertain.
The industry's growing troubles come just as Royal Dutch Shell was forced to airlift a number of coronavirus-infected employees from one of its offshore platforms, highlighting the risks associated with confining workers on offshore rigs during a pandemic.
And Shell isn't the only company grappling with outbreaks.
In recent weeks, hundreds of workers at offshore rigs in the Gulf of Mexico, the North Sea, Mozambique, Canada, and Kazakhstan have been infected with COVID-19.
The outbreaks add to the growing list of trials and tribulations the offshore industry is grappling with.
Many firms operating offshore rigs have yet to recuperate from the last oil price collapse in 2014-2015 when prices fell from $100 to below $40, weighing on the entire industry.
“Offshore drillers and offshore vessel providers will generally be unable to pay their total outstanding debt of 2020 based on their cash flow from operating activities, unless they are able to make sufficient capital expenditure cuts,” Jon Marsh Duesund, a partner at energy research firm Rystad Energy explained, adding, “Otherwise, they will have to turn to capital markets for refinancing.”
And with the global economy teetering on the brink, the industry may not be able to secure the funds it needs to stay afloat.