The oil price collapse hits the MODU markets
RYSTAD ENERGY PRODUCT HIGHLIGHTS
Oilfield Service Databases
DCube (Demand Database): Historical and forecasted opex and capex for global oil and gas fields, split on supplier segment and geography

DCube (February 2015) shows the short term oilfield service demand to grow at -5.3% as latest E&P company guiding has been incorporated. 


SCube (Supplier Database): Reported revenue from oil service companies split on the same supplier segments and geographies as DCube

The latest SCube version (December 2014) provides extensive details on the different service companies outlook. There is a significant spread in the revenue forecasts, and SCube is ideal to analyze quickly potential market consolidation such as the HAL+BHI deal.


RigCube (Rig Demand & Supply Database): Global, offshore rig demand (rig count) and supply based on bottom-up, field-by-field activity analysis

To be updated early March 2015. Rystad Energy expects a decrease of 12 units in floater demand from 2014 (262) to 2016 (250). Jackups to be decreased with 29 units from 2014 (407) to 2016 (378).



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We have now witnessed large cuts in E&P spending guiding for 2015, for both offshore developments and exploration activities. In floater demand, we have already seen the effects of these spending cuts - and we expect to see increasing effects for jack-ups. In both markets, we see a reduction in demand numbers for 2015 and 2016 compared to 2014 levels. Despite the current negative sentiment, Rystad Energy believes that we will see positive growth rates post 2017.
 
Announced cuts from operators together with an oil price forecast of 60 USD/bbl in 2015 sets the stage for a key question; How far down will the demand for MODUs go, and when will the markets turn to a recovery.
 
The floater market outlook – base case and worst case
The floater demand has seen an average annual growth rate of 7% from 2010-2014. Due to delays and cancellation of projects, we expect a decrease of 12 units in floater demand from 2014 (262) to 2016 (250) in our base case scenario (Figure 1). On the supply side, there has been increased attrition and cold-stacking activity as a result of the current market situation. In addition, the scheduled newbuild deliveries together with the anticipated demand decrease is expected to push utilization downwards resulting in a gross utilization rate of 70% in 2016. Increased attrition activity can to some degree ease this negative pressure, but gross utilization will decrease (Figure 1) and there will be challenging market conditions for drillers with limited contract coverage in this period.
 
Reaching 2017 however, fundamentals point towards a market recovery with average growth rates reaching 7.5% towards 2020. Nevertheless, there is a possible downside scenario as shown in Figure 1, given a sustained oil price of 50 USD/bbl towards 2020. In this scenario, we expect a further decrease in exploration activity and delays or cancellation of projects with breakeven oil prices above 50 USD/bbl. Such a downside scenario will mostly hit the large floater regions with 45% of the demand at risk in Brazil, West Africa and US GOM. In a 50 USD scenario, we expect an average annual growth rate of -3% from 2017 to 2020.





Figure 1 shows the February demand and supply scenario for floater drilling units from 2005-2020.The top of the patterned area indicates the expected demand in our base case scenario, and the patterned area indicates the demand at risk in a $50 oil price scenario. The black line indicates the expected supply given current newbuild visibility. Supply includes attrition activity to date, we do not include assumptions on further attritions.


The jack-up market outlook – not too bright, but less downside
The challenges we see in the floater market also apply to the market for jack-ups. From 2010-2014 the jack-up demand has grown with an average rate of 6%. In our base case scenario we expect a decrease of 29 units in jack-up demand from 2014 (407) to 2016 (378) (Figure 2). Together with a falling demand, there is a large backlog of newbuild capacity scheduled to enter the market. This puts further downward pressure on utilization, and we estimate a gross utilization of 58% in 2016. Stacking and attrition of rigs could ease this situation short term. Beyond 2017, we expect an improvement of jack-up demand with annual growth rates of 3% towards 2020.
 
As for floaters, there is a downside potential given a postponed recovery of the oil price. However, the downside for jack-ups is more robust considering large low cost markets with relatively lower break-even prices, such as the Middle East. The hardest hit regions in such a low case will be South-East Asia, India and US GOM, accounting for 40% of the demand at risk. After 2017, the demand for jack-ups is estimated to see growth rates of -2.5% towards 2020 in a 50 USD scenario.





Figure 2 shows the February demand and supply scenario for jack-up drilling units from 2005-2020.The top of the patterned area indicates the expected demand in our base case scenario, and the patterned area indicates the demand at risk in a $50 oil price scenario. The black line indicates the expected supply given current newbuild visibility. Supply includes attrition activity to date, we do not include assumptions on further attritions.

Rystad Energy continuously monitors future drilling programs associated with exploration and development drilling. The perspectives presented above reflect our insight into the floater market and are available in RigCube.
 
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy advisory and research products for E&P and oil service companies, investors and governments. We are headquartered in Oslo, Norway, with additional research teams in India. Further presence has been established in the UK (London), USA (New York & Houston), Russia (Moscow), for Africa as well as South East Asia.