Petroleum Economist

Stuttering outlook for Gulf of Mexico

Despite ever-rising oil and gas production, drilling activity in Gulf is looking weaker

After a challenging 2018 that saw project momentum in the US Gulf of Mexico (GOM) falter amid weaker oil prices, the outlook for drilling activity in 2019 appears diminished. The November price declines could have a chilling effect on investment, amid rising project costs. It marks a contrast with the situation in early 2018, when oil prices were high and deep layoffs, sustained cost-cutting, new technology, and optimisation had stripped the industry down to lean and mean. Sustained relief on commodity prices, which rose above $60/bbl and even above $70/bbl, was felt and welcomed. Also welcomed were changes in the US tax landscape. The December 2017 tax restructuring reduced corporate income tax rates and revised capital expenditures. Higher spending was expected to result from taking deductions for capex in the year they occur.

Another potential upside was the US' role as a major energy exporter. In late October 2017, US oil exports hit a high of 2.13mn bl/d, a figure surpassed multiple times during 2018, reaching an all-time peak of 3mn bl/d on 22 June. Meanwhile, US natural gas exports, already greater than imports, were expected by the US Energy Information Administration (EIA) to grow with less imported Canadian gas, more gas to Mexico, and increasing LNG exports.

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