First Oil: Sorting through the muddled mess

Just when we think the political/regulatory climate for the U.S. upstream industry might become clearer, there is, instead, a muddled mess. That’s about the only way one can describe what happened in the U.S. mid-term elections, held on Nov. 8. Instead of a Congress completely controlled by the party opposite that of the President, which would have forced him to make some concessions on energy policy, the voters have opted for a divided government. 

By divided, we refer to the Republicans controlling the U.S. House, as of January, and the Democrats retaining control of the Senate, as well as the Executive Branch, headed by President “Jabbering Joe” Biden. There had been predictions that the U.S. mid-term elections would see the Republican Party gain anywhere from 20 to 35 seats in the House of Representatives, with some outlier prognostications of up to 45 seats. That did not happen. Instead, it appears, as of the time of this writing, that the Republicans will end up with 222 seats in the House versus 213 for the Democrats. Ironically, this is the same margin as the Democrats have held in the current session of Congress. Thus, the GOP will have a net gain of nine seats, hardly the red wave that many analysts had expected. 

Over in the Senate, both parties have held 50 seats in the current congressional session, with Vice President Kamala Harris breaking tied votes in favor of the Democrats. Just like in the House, there had been numerous predictions that the Republicans would pick up anywhere from one to four seats.

That also did not happen. Instead, the mid-terms resulted in 50 seats for the Democrats and 49 for the Republicans, with one Senate seat in Georgia hanging in the balance, until a run-off election on Dec. 6 resulted in incumbent Raphael Warnock (D-Ga.) holding on to his seat. So, the Republicans did not better their standing in the Senate and even lost one seat. Of course, Sen, Kyrsten Sinema (D-Ariz.) complicated the picture further, when she announced on Dec. 9 that she would register as an Independent but still caucus with the Democrats.

This editor most likely could fill two more columns of this size discussing how certain races were won or lost and what motivated voters in various states. But the fact of the matter, to paraphrase former President Bill Clinton, is the result is what it is. 

Why do I devote some of this column to the U.S. mid-terms? Well, because politics and regulations, particularly on the federal level, affect so much of the upstream industry’s health and performance. We’ve seen what nearly two years of Joe Biden’s goofy energy policy moves have done to the E&P landscape in the U.S. Anything that can rein him in is a good thing. It would have been better, if the Republicans had captured the Senate, too. As it is, if the Democrats take that 51st seat, Biden will be able to nominate all kinds of kooky Executive Branch appointments, including in the Energy and Interior Departments, plus the EPA, and his party will rubberstamp those positions for him. 

At least in the House, the Republicans will have the power of the purse strings and be able to withhold funding for really stupid programs and legislation. With Republicans controlling the House, we’re not likely to see such laughable, ridiculous legislation as the poorly named Inflation Reduction Act. On the other hand, the majority in the House will have to keep an eye on Executive Branch mischief that can still occur, like Executive Orders and clever rulemaking updates by individual departments. 

What now, for activity?  Speaking of muddled messes, one has to wonder where both U.S. and International drilling and development are headed, given recent political developments, as well as economic and supply chain factors. In the U.S., the Baker Hughes rig count (which may not be quite the activity indicator that it used to be) has hit an extended plateau. From the end of December 2021, when the U.S count was 586, the number of active rigs rose a fast 167 units, or 28.5%, by the end of June. Since the mid-year point, the U.S. count has only added another 31 rigs, or 4.1%, for a total of 784 units on Nov. 23. 

There are many reasons for this plateau, but in general, the growth of U.S. upstream activity is being slowed by high costs for equipment and services (inflation), personnel issues, and supply chain shortages, including spare parts. And let us not forget that some of the larger U.S. independents are still practicing fiscal discipline. The very short-term question is whether the rig count can hit 800 by the end of this year. To do so, it will need to gain another 16 units, which is not a sure thing. Beyond the end of December, the picture remains “muddled.” 

Meanwhile, outside the U.S and Canada (which is having its own rig count problems), international activity is somewhat muddled, as well. Middle Eastern rig count is up 15.6%, South American activity is up 19.0%, and the Asia-Pacific region has risen 6.7%. On the down side, Africa is off 3.4%, and Europe has decreased 6.1%. 

In general, it seems that activity is holding up better in countries where national oil companies are running the upstream sector or are major players. They are not obligated nearly as much to cater to the financial community and are freer to pursue projects for the long-term picture. And we should particularly note that in Europe, the government-driven transition to renewables is much more in force, hence oil and gas activity, particularly onshore, is on the wane. We’ll have a better idea of where things are heading globally, as we assemble our winter forecast in January. 

Congrats to Hibernia for hitting 25 years. We would be remiss if we did not congratulate our many friends and other professionals in the Newfoundland and Labrador (NL) offshore industry for achieving the milestone of Hibernia oil field producing for 25 years, Fig. 1. It is a testimonial to the vision and perseverance of the industry and governmental officials, who back in the day, were able to conceive East Canada’s first development project and then doggedly bring it to completion and operation. 

FIG. 1. The mighty Hibernia platform celebrates 25 years of producing oil offshore Newfoundland and Labrador. Image: Hibernia Management and Development Company Ltd.

Indeed, the industry held a special celebration of Hibernia’s first 25 years with a gala celebration at the St. John’s Convention Centre on Nov. 16. As Energy NL CEO Charlene Johnson so rightly stated at the event, “In the beginning, there were doubters. You may have been less likely to find supporters than doubters. From the national media to the corridors of Ottawa, including the federal auditor general, Hibernia was not given a chance.” 

But the NL offshore industry pushed forward with Hibernia and persevered, despite the naysayers, noted Johnson. “They doubted our commitment. They doubted our capabilities. Were they ever wrong. Just look around this room and see how wrong they were. Not only did we do it, but it has been a brazen success!” 

That success has continued through development of Terra Nova field (FPSO), White Rose field (FPSO), and Hebron-Ben Nevis field (large platform). And now, the West White Rose field development is underway, while the Bay du Nord project awaits final sanction from Equinor. The industry and activity spawned by Hibernia field are truly impressive. Congratulations, again, to all our friends in NL’s offshore industry and provincial government!

About the Authors

Kurt Abraham

World Oil

Kurt Abraham kurt.abraham@worldoil.com