In the previous part of this series, we saw that President Donald Trump is preparing an executive order that will open new areas of the Arctic and Atlantic oceans to oil and gas drilling. Trump can only set these policy changes in motion, but the real work falls to bureaucrats in the Interior Department, and it could take years. This process means the short-to-medium-term outlook of the offshore drilling industry doesn’t really depend on this order. If the order is executed, it could benefit oil companies and offshore drillers (XLE) in the long run.
Offshore drilling outlook
According to Transocean (RIG), 2018 looks encouraging. Assuming oil prices continue to rise as expected, Transocean believes customers will have improved balance sheets by 2018 and that IOCs (international oil companies) will have sufficient liquidity to sanction projects.
Diamond Offshore (DO) believes the next few years will be challenging for the offshore drilling market. It foresees the industry recovering in either 2019 or 2020.
According to Rowan Companies (RDC), oil prices improved in 4Q16 and OPEC’s (Organization of the Petroleum Exporting Countries) production cuts supported oil prices. As a result, tendering activity was pushed to late 2017, especially for jack-up rigs. The floating market seems to be pushing off in 2018.
Views on different markets
Noble (NE) recently gave its views on different offshore drilling regions. According to Noble, in the Gulf of Mexico, jack-up requirements are likely to remain flat while floater demand is expected to pick up—especially in 2H17, assuming oil prices are around $50 per barrel.
According to Noble, drilling activity along the Northwest Coast is rising. However, Brazil is recording lower activity than it has in the past. Muted activity has been recorded in West Africa.