The Offshore Oligopoly: Weak Oil with Industry Strong Structure
Offshore break evens, long-cycle capital, and industry wide consolidation point to a strong decade ahead
Table of Contents
1. Introduction
2. Industry Consolidation & Bankruptcy Cycle
3. Industry Sentiment
4. Project Landscape 2026 & Beyond
5. Offshore Capex Trends
6. Concluding Thoughts
Introduction
If I had to assign an anthem to the current commodity market broadly and the offshore project landscape in particular it would be Waiting a classic by Tom Petty & The Heartbreakers. The progress made since the COVID-19 trough and bankruptcy cycle has been substantial, largely kicked off by Russia’s invasion of Ukraine where the world was reminded of the importance of domestic sources of hydrocarbon. Since then offshore capital expenditure has increased every year from a low in 2021 of $206B to a projected $323B for the full year 2026. As we come off of what can best be described as a lull in the energy landscape broadly, there is a looming threat of an oil glut that dominates popular news outlets but has largely failed to materialize. In addition, the fear of lower oil prices has the market believing offshore capex spending will be muted and extended to some future date when there is a strong underlying commodity price.
At any moment in time there are three relevant narratives that are worth keeping in context. There is what the market thinks, what the industry thinks, and what is actually showing up in the data. My goal for this piece is to give a wholistic view of where we actually are – not because I am so smart and know more than any of the other brilliant folks that follow this space but because I have yet to see someone attempt to tie together the full story of offshore energy to date. Each analyst group tends to focus on their own sector be it onshore vs offshore, deep water or shelf, upstream or downstream, the list goes on.
Just as Munger applies an interdisciplinary approach to decision making and rationality I think one must look through the entirety of the energy landscape to get a true sense of where we are from a fundamental view. The other partially conflicting piece of my belief that we should form an opinion on where we are at in the market at any given time is also as irrelevant in the industry as it has ever been. In past cycles when companies were levered to the gills and a waterfall of new capacity laid in wait, it mattered for the purpose of solvency where the market stood at any given time. For the first time in decades consolidation and a significant bankruptcy cycle have positioned the energy complex and the offshore drilling market in particular in as strong of a position as it has ever been in.
In addition to the drilling market and the onshore majors/super majors the equipment manufacturing and installation market is as strong as it has ever been with massive backlogs and consolidation, most notably Saipem & Subsea7 merging to create an industry leader. While narratives tend to drive stock price fluctuations, we are attempting to take a step back and look at the industry broadly which for us includes three exercises. The first is an overview of industry commentary and what is being said by the executives leading these companies alongside their actual data, followed by project specific data for 2026 and finally capex spending offshore. We hope you enjoy this piece as much as we enjoyed compiling it for you – our hope is that in a world full of folks making decisions hour to hour, day to day, quarter to quarter that this piece offers a refreshing holistic view of the landscape for offshore projects.
Industry Consolidation + Bankruptcy Cycle
On the back of a declining commodity price, poor utilization rates stemming from too much supply, the entire industry went through a bankruptcy cycle of epic proportion. On the back of these bankruptcies and supply being paired back to meet the nonexistent demand for oil at the time, the company balance sheets from overearning in 2022 and Chapter 11 proceedings changed the economics coming out of the crash for the better.
From 2021 to the present day there have been a myriad of mega mergers that have occurred throughout the entire energy complex. Be it offshore drillers, EPC, oil fields services, or E&Ps themselves the markets have consolidated and became stronger on the other end of the downturn we experienced from 2016 to 2021 which has reappeared in some ways in the period of 2023-2025 with many calling for a glut to form. Below is a list of the most notable deals over the last handful of years, followed by our comments on the rationality behind doing them.
