Drilling in Gulf of Mexico federal waters is a bright spot in an industry that has shown resiliency by cutting costs and innovating.

Annual industry gatherings, like the Louisiana Energy Conference that runs this week in New Orleans, cover plenty of arcane topics. But the final question on the agenda is ultimately what attendees are there to find out: “Where are we headed next?”

The U.S. oil and gas industry has been enjoying something of an upswing, though more because of cost-cutting and innovation than to any bull market in oil and gas prices. And as local energy leaders meet for their annual gathering, many are optimistic that cost cuts and operational improvements will keep the industry profitable, even if there are clouds brewing in the global economy.

U.S. crude oil prices have remained choppy through much of 2019, with U.S. benchmark West Texas Intermediate crude futures settling Tuesday down 15 cents at $58.99 a barrel. While big price swings have been common — a rebound last week clawed back some of the 10% decline from the previous week — few market watchers are expecting the industry-crushing price declines that struck in 2016, when oil fell below $30 a barrel.

Saudi Arabia, the world's second-largest oil producer behind the U.S., has worked to stabilize prices by managing its supply, while the collapse of Venezuela's oil industry under the Maduro dictatorship has pulled millions of barrels of oil a day off the market. Both actions have helped put a floor under prices.

But investors and producers are worried about the health of the global economy amid the ongoing U.S.-China trade war. If the economy slows, oil demand likely will fall and send prices lower. Meanwhile, there's always a question about whether OPEC and other big producers like Russia will stick to their plans to rein in production.

Recent price swings look to be driven, at least in part, by concerns that the nearly decadelong economic expansion may be nearing its end, said Scott Schnipper, J.P. Morgan Private Bank’s head of commodities, foreign exchange and interest rates research.

“As we’re looking at this business cycle, which is about to become the longest U.S. economic expansion on record, albeit a slow-paced recovery, we’re asking: ‘How long can it go on? Is the end of the cycle near?'” said Schnipper, the opening keynote speaker at the energy conference on Tuesday.

There are several key indicators he's keeping an eye on, including employment and inflation and what happens to interest rates and borrowing, as well as the China situation. “The punch line is that we think we are late in the cycle and that the likelihood of recession over the next year is now nearly 40%,” Schnipper said.

That likelihood rises to 75% by 2021, according to J.P. Morgan's estimation, a sentiment that a majority of energy executives voting at Tuesday's session agreed with. 

Given this cloudy outlook, why has the U.S. oil and gas industry been looking pretty healthy? A lot has to do with the fact the industry emerged stronger after the beating it took in the last downturn.

This month, U.S. oil production reached a record 12.2 million barrels per day and the U.S. Energy Information Agency is forecasting it will grow by 1.5 million barrels per day this year, enough to meet the entire forecast growth in world demand.

The U.S. has more than doubled oil output in the past decade through technological advances. Hydraulic fracturing, or fracking, has made accessible huge quantities of previously-trapped shale deposits in places like the Permian Basin in Texas and the Bakken formation in the Dakotas. But cost and operational improvements have also taken place closer to Louisiana, in the oil-rich but expensive to drill deepwater Gulf of Mexico.

That was illustrated last week when Royal Dutch Shell started production on its Appomattox floating production platform, one of the largest in the world, which sits about 80 miles off the Louisiana coast, drilling at depths of 7,400 feet. Shell originally gave the green light to the project in 2015, in the midst of the downturn that saw 350,000 oil and gas workers lose their jobs worldwide, more than a third of that number in Texas and Louisiana alone.

The Appomattox has come to be seen as an industry bellwether for a number of reasons. To be viable, Shell had to make hundreds of small and large innovations in order to bring costs down — by 20% even before its investment decision was taken and then by another 40% afterward, according to Rick Tallant, Shell's head of offshore in the Gulf of Mexico.

"A lot of that was structural changes, for example on drilling wells. We learned to drill 40%, 50% faster and 60% cheaper, so we use fewer logistical resources and improve and learn as we go," he said. By doing many things like that across its entire portfolio, Shell brought down costs so the company would break even at an oil price of $30 a barrel, compared with $70 a barrel before the price collapse.

It also means that with the Appomattox in place, Shell can fully develop the prolific Norphlet formation in the Gulf of Mexico, the first in the Jurassic aeolian system and opening up a whole new area of the Gulf with billions of barrels of oil deposits.

As Audun Martinsen, head of oilfield service research at Rystad Energy, explained, it is important that oil companies develop these huge traditional plays that produce more and for longer than fracking fields, where the production cycle is much shorter.

He also noted that the job losses on these big offshore projects were less severe than on the "short-cycle" oil and gas fields, where a sharp downturn in prices can result in a pretty rapid decision to shut down a field. He estimated that the brunt of the cost cuts, especially for offshore drilling, were borne by oil field service companies, such as Schlumberger and Baker Hughes, who had to take big reductions in lease rates for their rigs and other equipment.

Shell's Tallant agreed that the large, highly technical projects see less job attrition. "Certainly, we have fewer people than we did five years ago, but for these big projects, we still have quite a few, thousands of people. The idea is not to reduce headcount but to be more efficient and affordable."

He said also that the Appomattox illustrates how companies like Shell make decisions based on a long horizon and not on the short-term vagaries of the oil price.

"I don’t worry about the macro-economic fluxes up and down," Tallant said. "I make sure we're resilient against any price deck and that we keep our break-even costs below $30 (a barrel) on a portfolio basis. Then, if prices go higher, we get the advantage of that."

Despite the vagaries of the oil price in the past year, Shell reported this month that first-quarter earnings were $6 billion, up 2% over the same quarter last year.

As reflected in the topics on this year's New Orleans energy conference, one of the features of the oil industry is that the oil services companies, including the smaller ones that supply vessels, have yet to see much of a bounce back as the big oil companies want to hang onto the cost reductions that came with the oil-price slump.

Another feature of the market is consolidation, Schnipper said. "A big consolidation of the industry is needed, especially in the Permian," as investors want companies that show a profit as they grow rather than companies in the early stages of the fracking revolution when they would finance loss-making growth. "The big companies are looking for growth without having to pay for exploration and development. How are they going to do that? Acquisitions, that's why you saw the big fight for Anadarko," he said, referring to Occidental Petroleum's $38 billion acquisition of Anadarko, outbidding Chevron.

Occidental already said it is selling Anadarko's Africa assets to France's Total so it can concentrate on its U.S. shale and deepwater Gulf of Mexico fields.

Follow Anthony McAuley on Twitter, @AnthonyMcAuley2.