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Like every year, 2015 will bring its share of surprises and unpredictable events. A year ago, the politics of the mid-term elections dominated much of the energy-related discussion. Notice I said “discussion,” because decisions were hard to come by, with a divided Congress and White House.
On the offshore front, the House of Representatives passed several measures that would open more of the Outer Continental Shelf (OCS) to oil and gas exploration, only to receive veto threats from the White House and no action from the Senate. The oil price remained within a sufficient margin that allowed E&P companies to not only keep exploring the “hot” Marcellus, Eagle Ford and Bakken shale plays, but also offshore in the Gulf of Mexico. Both efforts paid off, as the U.S. produced more oil and gas than it had in decades, and new discoveries were announced in the Gulf.
Despite unrest in Ukraine and the Middle East, oil and gasoline prices did not spike—the opposite occurred. As the world adjusted to the U.S. role as a major oil and gas supplier, the world oil market not only calmed, but started a downward trend, and, much to the relief of consumers, gasoline prices dropped below $3/gal.
After a long, contentious campaign, many new senators and representatives were elected to Congress. They promised greater support for all-of-the-above energy sources and policies, including opening more of the OCS. The U.S. government completed a multi-year environmental impact statement and record of decision that allowed the permitting of seismic operations off the Atlantic coast. This brings the possibility of new data in areas that haven’t been surveyed for over 30 years.
The success of the U.S. in producing oil did not go unnoticed by the market or the world. Other oil-producing nations recognized the shift, but in an about-face from previous policies, when prices started to decline, they kept up production rather than cutting back supply to force prices back up. One can only surmise that the game plan is to make prices so low, that it will no longer be profitable for U.S. companies to develop shale and offshore resources.
Thus, as we enter 2015, we face a different world than we did in 2014. With Republicans set to control all of Congress next year, there is optimism that major policy legislation may actually make it to the President’s desk for the first time in years. Congress may also revise the tax code, providing lower corporate rates and changing some of the deductions that companies and individuals have used for years. It is too early to accurately predict what this tax reform might entail, or what its consequences could be, but the fact that Congress might agree on any such reform is worth noting.
Both the Senate and the House may actually pass legislation that would open up more of the OCS, 87% of which is under a political embargo. In addition, the Department of the Interior may open more of the OCS through the planning process in the next five-year, oil and gas leasing program, which will begin in 2017.
Regulations concerning fracing, Arctic exploration and development, subsea production systems and blowout preventers are slated to be finalized by the Bureau of Safety and Environmental Enforcement in 2015. These new regulations could provide the offshore industry some much-needed certainty. Of course, whether the new regulations are workable depends on what they require. But as a rule, certainty and clarity are a desired outcome by the industry.
While some degree of political certainty and additional support for the offshore sector appears to be on the horizon in 2015, low oil prices could prove to be a huge speed bump. What a twist of fate it would be, if operators become financially unable to participate in this new arena, due to low oil prices. Nobody likes high prices at the pump. Yet, companies need to have enough margin between oil prices and development costs, to survive and continue to produce affordable energy for American consumers. E&P companies have seen the roller coaster rise-and-fall of oil prices before, and can adjust. Most are in it for the long haul and will continue to stay in business, but on a smaller scale. We already saw such adjustments at the end of 2014. Companies, including mine, were, unfortunately, forced to lay off workers. Look for offshore activity to continue in 2015 at a reduced level.
In the long term, oil and gas remain a very good bet. Government and industry projections for 2040 consistently predict that the traditional sources—oil, natural gas, coal and nuclear—will supply over 80% of the energy needed by our nation and the world. Should prices stabilize in the $80-$100/bbl range, most companies will continue a steady, if not robust, business. However, should prices fall below that level for a long time, there will be both good news and bad news. The good news—we will pay less at the pump. The bad news—in the long term, our nation’s ability to strengthen its domestic energy security could be jeopardized, and we will not be actively building up America’s ability to supply the world with oil and gas, which would, in turn, reduce the world’s reliance on crude from hostile regions.
Whichever way you look at it, 2015 will certainly not be a boring year. 
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