A month ago, news broke that offshore drilling giants Seadrill and Transocean were in talks to merge, aiming to capitalize on the growing investments in the sector. This news came shortly after Portugal’s Galp launched its second offshore drilling campaign in Namibia, following a major discovery, and as Suriname is on track to replicate the success of neighboring Guyana. Offshore drilling is back—and it’s here to stay.
Earlier this month, Wood Mackenzie reported a significant increase in offshore drilling activity over the coming years, with production from the deepwater sector expected to rise by 60% by 2030. Another forecasting firm, Rystad Energy, estimated that investments in offshore oil and gas drilling would reach $100 billion annually in 2023 and 2024, with a projection of $104 billion for 2024. This marks the beginning of a booming industry.
For several years now, deepwater drilling has been a key focus for major oil companies. As oil fields in shallower waters mature and production declines, deepwater projects have become a critical avenue for maintaining oil output amid rising global demand. While shale has provided an alternative, there is limited space in the Permian Basin, and vast untapped reserves remain beneath the world’s oceans.
Guyana stands out as a prime example, with Exxon, Hess, and CNOOC making a series of major discoveries offshore. The neighboring country of Suriname is following suit, and TotalEnergies recently committed $10.5 billion for drilling operations there.
Namibia is also emerging as a new hotspot for oil and gas exploration in Africa. Major oil companies are reporting discoveries of billions of barrels of crude and trillions of cubic feet of natural gas, prompting continued drilling efforts. As shale oil production faces long-term decline, offshore oil is positioned to take its place.
The Financial Times reported this week that, by 2025, offshore oil is expected to surpass U.S. shale in contributing to non-OPEC oil supply. By 2030, deepwater oil will likely be the primary source of non-OPEC oil growth, according to Rystad Energy’s senior partner Espen Erlingsen. He predicts that the 2020s will be a defining decade for deepwater drilling.
While U.S. shale may still hold surprises in the coming years, reports suggest that production is nearing its peak. Despite initial projections of a decline, shale production has continued to exceed expectations. However, the offshore oil investment surge suggests that shale’s era of rapid growth may be coming to an end. The 2024 investment figure represents a 50% increase from 2020, which was a particularly challenging year for the oil sector.
The increasing investments in offshore drilling signal a hopeful outlook among energy companies, even as they pledge to reduce emissions. Advances in technology are making offshore drilling safer, cheaper, and more environmentally friendly, with the promise of long-term production.
Shell’s general manager for U.S. growth assets, Ireti Omo-Toso, recently told the Financial Times that the company’s Vito platform in the Gulf of Mexico represents the future of offshore drilling. “She is faster, leaner, creates fewer emissions, and is more technologically advanced than earlier platforms. She does a lot more for less,” Omo-Toso said.
While offshore drilling remains more expensive than shale drilling, its long-term production potential makes it an attractive option. Offshore wells can continue producing for decades, unlike the more short-lived shale wells.
However, environmental groups are concerned about the growing focus on oil and gas. Some have called for a moratorium on offshore drilling. “Big Oil’s attitude shows a lack of imagination beyond oil and gas,” said Mark van Baal, head of the activist group Follow This. “At a time when the world must transition away from hydrocarbons, these companies are betting on decades-long fossil fuel projects and pouring huge amounts of capital into a market that will start declining before the end of the decade.”
Yet, it is possible that the offshore oil market will continue to grow even after the 2020s. For example, the Stabroek Block off the coast of Guyana is expected to generate $170 billion in profits between 2024 and 2040 for its development partners. Guyana will also earn an additional $190 billion in oil revenue during the same period. With profits like these, it’s clear that oil and gas remain a powerful force in the global economy.
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