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Business

What $50 Crude Means For Offshore Oil Production

Rigs in the shallow waters of the Gulf of Mexico are falling silent. But farther away from shore, it’s a different story.

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Representatives of Sikorsky Aircraft recently met with customers at West Houston Airport to show off the company’s latest model helicopter. The manufacturer is based in Stratford, Connecticut, but it does a lot of business with the offshore oil and gas sector. So in 2014, the company decided it would open an office in The Woodlands.

“Rather than being a week’s planning to come down and visit with one of our customers to talk about something they need, we’re an hour away,” says David Martin, Sikorsky’s vice president for energy.

When Sikorsky planned the move, crude oil was selling at close to $100 per barrel. By the time the office opened, it had fallen to roughly half that.

“The Gulf of Mexico shelf is tracking a similar pattern to the onshore shale plays, where the rig activity is falling off a cliff,” says Ian Macpherson, a director at Houston-based investment bank Simmons & Company.

Sikorsky.jpgA new Sikorsky helicopter flies near the West Houston Airport/Courtesy Sikorsky Aircraft.

Producers generally need crude oil to sell for at least $70 to $75 per barrel in order to make offshore operations pay. But geography and depth make a difference.

The shallow waters of the Gulf of Mexico are dominated by smaller exploration and production companies, which focus on wells that will produce oil quickly. If crude isn’t at least selling for the breakeven price, it makes no sense to drill.

By contrast, getting crude from deepwater deposits may take as long as 10 years. Companies able to commit that much time, and money, are better able to ride out the ups and downs of the market.

“We have 50 deepwater rigs running today versus 45 or 46 last year,” Macpherson says, “and there’s decent visibility for it to hold in that area throughout this year.”

That long-term focus is the major reason Sikorsky isn’t second-guessing its move to The Woodlands.

“You know, a helicopter will go into service and last 20 years,” Martin says. “So it makes it a very long cycle business.”

Eventually, the price of oil will go up again. The aircraft maker wants to be here for its customers when they’re ready to buy.

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Andrew Schneider

Andrew Schneider

Politics and Government Reporter

Andrew Schneider is the senior reporter for politics and government at Houston Public Media, NPR's affiliate station in Houston, Texas. In this capacity, he heads the station's coverage of national, state, and local elections. He also reports on major policy issues before the Texas Legislature and county and city governments...

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