The Biden Administration’s temporary moratorium on new federal leases in the Gulf of Mexico has created some uncertainty about the future of drilling activity our region. It’s impossible to know what will happen, but it’s very hard to believe that the moratorium will persist up to the 2022 midterm elections. However, we can make some assumptions about activity levels through 2022 and even a few years beyond – even if the leasing moratorium persists.
The number of deepwater active drilling rigs has fluctuated between 13 and 16 over the last year and a half. Prior to the imposed moratorium, I fully expected this activity to increase into the latter half of 2021 with additional rigs being forecast into 2022 and beyond. However, I do not expect a meaningful decrease in this level activity for a couple of reasons:
• First, there are many existing, un-drilled leases for which new drilling permits are being granted. There is some pent-up demand to drill in these existing leases and we can reasonably expect that, if WTI oil holds steady at no less than $60 / bbl, there will continue to be drilling to explore.
• Second, the oil and gas producers in the deepwater will continue to try to gain efficiencies in developing fields. This has resulted in additional in-field development of new wells that tie back to existing infrastructure. This means that there will continue to be activity as new wells are drilled and developed in existing, producing fields with results in increased production activity at a lower cost basis than exploring and developing a new field.
Over the past handful of years, it seems that every time some positive momentum begins, another unexpected challenge arises. However, I remain optimistic that things are turning in the favor of our industry and JOO as best positioned to take advantage of improving markets.