I recently read two news articles focused on vastly different aspects of the oil and gas industry that seemed to be unrelated on the surface. The first was about declining shale oil production in the US and the second about Shell refocusing on investment in fossil fuels. However, when each is more closely considered, it becomes clear that both news-worthy aspects have similar, positive impacts on the offshore USGOM oil and gas industry.

The forecasted decline in shale oil production in the US is noteworthy because, next month will be the first month in 2023 that US oil production is set to decline. But more striking, is the fact that declines in the Permian Basin, a hot-bed of shale oil production, are leading the declines. Production in the US onshore shale is a result of declining investments as these disparate companies are shifting focus from growing production to returning capital to investors. Though oil prices have rallied recently, they remain down nearly 25% from this time last year. This trend in falling onshore capital expenditure and production declines is likely to persist.   

Completely unrelated to falling onshore production, Shell has recently announced plans to seek options to spin-off its renewable power business through outside investments. Shell had been much more focused on reducing carbon emissions, often times at the expense of generating returns for shareholders. This further reinforces their focus on investment in fossil fuels to boost returns in order to reward shareholders and support realistic carbon emission reduction objectives.      

So what exactly do these stories have in common?  Both the production declines as well as Shell’s refocus on fossil fuel production will result in more drilling and production activity in the USGOM. The onshore production declines will have to be filled from other basins and the US Gulf is best positioned to generate additional capacity. In particular, the USGOM still has vast areas that are yet to be explored but are very likely to have very large reserves. The costs of exploring, developing, and producing areas of the USGOM are among the most cost-effective in the world. The infrastructure and high-level of statutory and regulatory controls make it the most green oil and gas production basin in the world. This allows for achieving production objectives while also supporting realistic carbon reduction initiatives. Finally, the stable economic and political climate of the US mitigates many of the exogenous problems faced in other rich oil and gas areas of the world.   

For these reasons and beyond, I remain very bullish about our industry.