< Return to Bulls pageGeopolitical Risk Drives the Trend Towards Deepwater Production
Over 80% of the world’s oil and natural gas reserves are held captive by National Oil Companies. It’s widely known that there’s significant geopolitical risk associated with National Oil Companies, and the political regimes behind them. Think Iraq, Iran, Venezuela, etc. Most excess capacity resides with OPEC, but particularly with countries that have the most political instability (e.g. Sudan). As Chavez kicks out the Major Oil Companies from Venezuela and Putin nationalizes Russia’s O&G Machine, major oil companies have to look elsewhere to build out its reserves. Deepwater represents the last reserve frontier, yet doesn’t come with the incremental geopolitical baggage as land-based drilling. With oil north of $80, the economics are favorable to support continued build out of deepwater production systems. In fact, if oil prices drop 25 to 30% to $55 to $60, the pricing level where OPEC has historically cut production to defend a price floor, the economics continue to support deepwater exploration, and justify the investment in complex subsea systems.
