ExxonMobil is switching to U.S. shale drilling from long-term projects like offshore development. The company plans to spend $5.5 billion for drilling in the Permian Basin in 2017, a hefty boost for onshore contractors.

Shell Offshore Inc. and MOEX North America LLC have made the final investment decision on the Kaikias Field in the Gulf of Mexico. “Kaikias is an attractive near-field opportunity with a competitive go-forward breakeven price below $40 per barrel,” the companies reported. That would make it competitive with several onshore shale plays.

There’s just not that much spending going on for drilling in deep water. The Baker Hughes rig count for the week ending Feb. 24 showed 17 offshore units working, down from 27 for the same week in 2016. The January international rig from Baker Hughes on Jan. 14 tallied 206 rigs at work compared to 302 rigs in January 2014.

Offshore remains a tough environment. Seadrill with $14 billion in debt is in the process of negotiating a restructuring agreement with its lenders. The company faces bankruptcy if it fails to reach an agreement.

Paragon Offshore Plc CEO and president Dean Taylor said, “After confirmation that our previous plan of reorganization was denied, the company regrouped, developing a revised business plan that focuses our future activity on Paragon’s core regions in the North Sea, Middle East and India.”

Using this business plan as its basis, the company reached agreement on this term sheet with its secured lenders, which virtually eliminates all of the previous debt from the company’s balance sheet (about $2.4 billion) while providing sufficient liquidity to position the company for a longer term recovery in the offshore drilling industry, Taylor explained in the company’s fourth-quarter 2016 and full-year 2016 results reported on Jan. 18.

But not all offshore contractors are in dire straits. Transocean “produced impressive operational and financial results in the fourth quarter,” said CEO and president Jeremy Thigpen Feb. 23 in the company’s fourth-quarter and full-year 2016 results. “As a direct result of our strong performance in 2016, we generated cash flows from operations of $1.9 billion, which, when combined with the multiple financing transactions consummated throughout the year, further strengthened our liquidity.

“Looking forward, improving market fundamentals along with a steady flow of customer inquiries are increasing our confidence that the offshore drilling market trough is near.”

“Our industry continues to experience weakness. But it is not too early to turn an eye toward industry recovery,” David W. Williams, chairman, president and CEO of Noble Corp. Plc, said while reporting fourth-quarter and full-year 2016 results on a company call Feb. 9.

With steady prices perhaps the offshore drilling industry can be riding the crest of the wave in 2018 instead of wallowing in the trough.

Contact the author, Scott Weeden, at slweeden@hartenergy.com.

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