Is ConocoPhillips' Exit from DeepWater A Harbinger of The Sector Drying Up?

Is ConocoPhillips' Exit from DeepWater A Harbinger of The Sector Drying Up?
ConocoPhillips' declaration that it will be out of the deepwater oil and gas search by 2017 is perhaps indicative of things to come in the sector.

In the wake of ConocoPhillips’ impromptu declaration that its exiting deep-water exploration during an analyst call last week, the sector itself appears to be bleak territory.

Tudor Pickering Holt & Co. said in a Monday note to investors that the industry has been moving away from deepwater exploration.

“In a lower for longer environment, [COP’s departure] is likely the right move as a dearth of industry success combined with long lead investment cycles on development continue to put pressure on capital budgets in an uncertain world,” TPH said, adding that other exploration and production (E&P) companies heavy in deepwater may have to turn to mergers and acquisitions (M&A) to survive.

Since 2013, TPH estimated $90 billion has been spent on deepwater exploration. At today’s market prices, that could buy plenty of cash flow and known development opportunities.

At Evercore ISI, analysts noted that offshore day rates are hitting new lows. Newbuild floater numbers are down and those that are contracted are expected to be delayed.

“The industry continues to seek out the stability needed for a sustainable offshore recovery, and the offshore sector as a whole remains bleak in our view,” Evercore said.

An award-winning journalist, Deon has reported on energy, business and politics for almost 20 years. Email Deon at deon.daugherty@rigzone.com

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