This week, we look at some of the key takeaways from an event held last Thursday in London, hosted by the Society of Underwater Technology. Douglas-Westwood (DW) presented its outlook for the offshore energy sector, including outputs from its latest, soon to be published studies, in the context of a highly-turbulent start to the year that saw oil prices on the day of $27/bbl.
Research Director Steve Robertson opened the event with an introduction that examined the current outlook for offshore expenditure in comparison to that of a year ago, highlighting the movement in overall number of projects expected and subsequent expenditure (look out for more on this in the coming weeks…).
Economist Matt Adams followed with a review of the macro-economic factors impacting the sector presently, examining key drivers for energy supply and demand and highlighting recent DW analysis concerning supply additions vs the demand outlook for 2016. Matt explained that whilst there were limited positive drivers for oil price in the near term (other than unpredictable geopolitical events), towards the end of the year we should see excess supply eroded by some 1 million bpd. Matt also highlighted the relative stock performance between firms in different sectors of the oil industry (land drilling, offshore drilling, subsea equipment, oilfield services, etc.) with subsea hardware providers faring the best (down 15%) and offshore drillers the worse (-64%).
Steve followed with a run-through of DW’s latest market forecasts in a number of key sectors including offshore drilling, oilfield services (OFS), oilfield equipment, floating production and offshore wind. He highlighted the underlying reason for the poor performance of offshore drillers is excess supply, with low levels of utilisation for the fleet and dayrates for high-spec rigs falling from over $600,000/d at peak to less than $250,000/d for new fixtures in the last six months. The fragility of the subsea equipment providers was also highlighted, with most original equipment manufacturers (OEMs) having been somewhat insulated during 2015 as a function of high backlogs which are now rapidly declining. Order levels in the last 12 months have been very low and DW anticipates that the sector will see heightened competitive intensity and firms will need to position themselves accordingly for lower levels of activity in the coming years. The FLNG and Offshore Wind markets were presented as a positive growth story and a highlight amongst the more negative outlook in other sectors.
Geologist Matt Cook presented some highlights from his recent work with DW’s Drilling and Production offering, including in-depth country analysis for Egypt, Mozambique, Angola, and the USA, followed by analysis of anticipated subsea activity by operator type. ENI was highlighted as a company that stands out in terms of the volume of subsea development activity compared to previous years, with Matt highlighting projects such as Zohr, Coral, Mamba and Sankofa.
The session was wrapped-up with a summary proposing that 2016 would likely be a very difficult year for the offshore sector – for many firms the focus would be survival. However, for those in position to invest, it was suggested that this was an opportune moment to secure equipment, services and skilled labour at historically low prices and historically short lead times.
Steve Robertson, Douglas-Westwood London
+44 1795 594734 or [email protected]