That’s the word from Eric Smith, who’s a professor from Tulane’s Energy Institute, in an interview with WWL-AM on Monday.
“But the thing you have to remember is, Gulf of Mexico oil is a pretty pricey version. And, 49 dollars a barrel doesn’t hack it if you’re trying to do deepwater oil development.”
He says producers are more likely to look onshore, until prices go higher.
“It’s going to take the deepwater people a little longer to get back on an even keel versus, say, the shale oil plays in West Texas,” Smith says. “Those onshore rigs are maybe a $15 million investment, while those drill ships are like a $700 million investment.”
“In the early stages of a recovery, people are operating at the margin,” says Smith. “They’re looking for low-cost investments and that’s sort of ideal for shale plays. But, it’s not really ideal for deepwater operations that take years to bring on-line.”
“Your drilling rigs are at the front end of the whole process. You end up spending anywhere from six to ten years trying to bring a deepwater operation online. You can bring a shale play online in a matter of weeks or months. So, it’s going to take a little longer for those big, expensive rigs to get back to work.”
Smith believes the deepwater Gulf industry will eventually come back, “Because, in the 50 to 60 dollar range, some of the deepwater plays can make money.”
Smith says that since the shallow-water rigs in the Gulf mostly yield natural gas, the price of which is essentially down the drain, you won’t see any activity there for a while. It’s all deepwater, and you need a significant boost in the price to get somewhere with that.
Last we checked just before posting, West Texas Intermediate crude was trading at $50.47 per barrel.
Of course, when the price does eventually climb back up into the 60’s, which will likely happen at some point in the coming months, we’ll find out a lot about what the effect of Gov. John Bel Edwards’ private cabal of plaintiff attorneys seeking to sue the oil and gas industry in coastal lawsuits will be. When the price rises to justify new drilling and it nevertheless fails to happen, you’ll know Edwards and the lawyers are to blame.