This article was pretty good:
oilprice.com/Energy/Crude-Oil/US-Oil-Drillers-To-Face-More-Pain-Despite-Higher-Prices.htmlSome comments:
Besides any moratorium on drilling on federal lands (Biden), and any restrictions on
hydro-fracking (Harris), there is also the liklihood that access to bank loans by
oil exploration interests may be "cancel cultured" right along with anything else that
our leftist rulers may decree and instruct the media to propagate.
There has already been an inclination from all manner of energy financiers to focus
much more on "green" pursuits and greatly reduce emphasis on fossil fuel resources of
all types in the current anti-oil media climate, but with the left taking over congress AND
the presidency, we should see this accelerate.
What it means, is that oil companies will need to hunker down even more and concentrate
on applying the revenues from rising oil prices to the repair of their balance sheets.
Also, some of the bigs, like Exxon and Chevron, also want to restore investor confidence
with some added dividend money. Thus, I think we can expect drilling to remain pretty
subdued right on through 2021.
Bad news for Transocean? Nope.
Only a very small percentage of Transocean's rigs are in U.S. waters. The vast majority of
them are in waters of countries that are anxious to develop their oilfields in order to
advance their country's financial interests. For every country with a Joe Biden type leader who wants
to wreck their country's independence from oil exporters, there are a dozen other countries
who want to develop their resources and export them to a U.S. that will become increasingly
dependent on them (again). With most land and shallow waterresources already exploited, the
majority of those are offshore and in deeper waters.
The sources of financing for such sovereign nations is still a little tough currently, but
projects to be MUCH more accessible as oil prices rise that they are in the politically correct
USA. Also, major oil companies that are curtailing their drilling budgets are curtailing
them the Least for those kinds of prospects, the vast majority of which are offshore.
Even countries themselves are in that boat. Brazil, for example,
has cut back spending, but has left investment in it's deepwater offshore pre-salt projects
un-touched.
The oil bust essentially started just over 6 years ago, then partially recovered, but without nearly
as much exploration fervor as we saw before 2015. The one exception, was U.S. shale, which boomed
and served to prevent oil prices from heading north of the $70's range that would have spurred
more global exploration.
In 2021, however, U.S. shale looks to remain flat amidst a lot of bankruptcies and need for
balance sheet repair. Also, many would-be lenders to U.S. shale... what few there still are amidst
the green revolution on the left... are loathe to invest more, especially given that a lot of shale developments
didn't tend to be very profitable during the boom. And that was when oil prices WERE north of $60.
Even the exploration we'll see in U.S. shale over the next year or 2 should be barely enough to offset
the fast depletion you generally see in the 10s of thousands of shale wells that are currently producing.
That all adds up to mean that U.S. shale shouldn't do to global oil supply and demand over the next
couple of years what it did to it between 2016 and early last year. That, in turn, should probably prevent a surge
of production in 2021 and likely 2022 that could impede a steady rise in crude oil prices above $80 the
way that U.S. shale did starting in 2016.
Last spring, I shared the notion that the longer the pandemic kept oil prices low in 2020, the more it
would likely be like water building up behind a weak dam... the longer it prevented the flow of water
out of the reservoir, the greater the flood would be once the damn broke.
Well, Covid kept oil prices below $50 for almost 9 months, and THAT was on top of what could barely be
called any kind of a recovery from when the glut began over 6 years ago. The industry is greatly downsized and
indebted... in fact, the Saudi's had to Borrow a ton of money just to pay the Aramco dividend that
essentially keeps the Saudi economy above water. But the world still needs 92 million barrels a day of
oil for the global economy and that should soon rise into the upper 90s over the course of 2021 without
any meaningful increase in exploration. That's a recipe for high oil prices.
As for Transocean, the deepwater offshore rig industry is about half the size that it was before the glut
began back in the Autumn of 2014 and all of RIG's competitors are either bankrupt or in very poor financial
condition. Drilling rigs have been scrapped at a torrid pace, including all the jackups Transocean itself
sold or scrapped during it's (fortunate) restructuring back in 2015/2016 and installation of it's solid, new
management team led by Jeremy Thigpen. Of those that haven't been scrapped, a great number of the remainder
have been "cold-stacked" by companies that can ill afford to re-activate them with money they don't have
unless oil prices rise enough and active rigs become scarce enough (probably at dayrates that are double
those of today) that contracting companies agree to help bear the cost of re-activating them. In fact,
Transocean is really the ONLY offshore driller that has the financial capability to pay to reactivate cold-stacked
rigs without requiring a bidding customer to help pay the costs.
Anyway, I'm not sure how much of what I'm discussing here accounts for the breakout in RIG's stock
price lately, but I had little doubt that these kinds of days would be coming. Despite the fledgling
impact of EVs and other green energy, this oil cycle was still an "inevitability"...
... there was just no telling during the depths of despair last spring when inevitability might
end up coming full circle, and really, no telling just how high the next boom could go.