U.S. Land To Offshore: Hold My Beer While I Send It [Guest Post]

Note: Each Friday in March, we are passing the keyboard to one of our readers to share perspective from the field. We hope you enjoy the thoughts these hand-picked contributors have to share.

This week, former sell-side analyst Jeffrey Spittel joined us with a terrific look at the division in the recovery between offshore and onshore companies. Here is an excerpt from his update:

Short-cycle U.S. oil production has proven remarkably resilient to a prolonged sub-$50/bbl stress test by virtue of technologically-driven efficiency gains and high-grading across the supply chain. Light tight oil plays are the place to be.

Meanwhile, the offshore oil and gas supply chain more closely resembles me on a ski weekend. Any vestiges of health or vibrancy are fleeting.  While I drag my arthritic carcass to the bar after two hours, the offshore markets are still mired in a deep downturn punctuated by unresolved financial distress and strategic paralysis. And investors are generally staying short or out of the way entirely while the carnage deepens.

The contrarian thesis to this point of view is an admittedly tough sell right now. Operators with diverse upstream portfolios are understandably focusing on their respective U.S. light tight oil acreage – the cash conversion cycle is clearly more attractive than deepwater, oilfield services pricing is still palatable and the ongoing refinement of drilling and completions techniques seemingly portends improving returns. And investors have been following suit with nearly universal fervor.

I can personally attest that there isn’t a remotely comparable sense of urgency in the offshore arena. As capital continues to flow into U.S. land, several key participants in the global offshore supply chain are still contending with untenable balance sheets and pervasive overcapacity. And you can’t begin to address the overhang of idle assets without fixing the capital structure problems first.

There’s a lot more to this story…

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