February 2016

The oil service jackpot is growing $200 billion in size!

Oilfield Service Solutions

Product Webinar

Speaker: Matthew Watson,
Director, Global Sales

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Oilfield Service 2015 Review

Content Webinar

Speaker: Audun Martinsen,
VP Analysis

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ArticleCan cost compression bring subsea projects “in the money” at current oil price?
Jon Fredrik Müller, Senior Project Manager, and Audun Martinsen, VP Analysis
 


 

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

In the latest DCube version (January 2015) we now see the impact on oilfield service purchases reflecting 30$ oil and the capital constraints it puts on E&P companies. 2016 oilfield service purchases is expected to come down by 14%. 

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

The Q4 2015 version of SCube shows that the revenue decline has started to slow down. The third quarter is down by 5% compared to the second quarter of 2015 with -8%.


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

Offshore drillers still face a challenging future. The Q4 2015 RigCube version shows that the demand for floaters in 2016 will decrease by 16% compared to 2015. For jack-ups the demand will fall by 6%.

 

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Every project that has been deferred since the oil price plunge has been added to the future backlog of projects to be awarded. This jackpot has grown 200 USD billion, which is the sum of 63 development projects’ oilfield service purchases. This stack-up of projects will be a vital prize for the service industry once the oil price picks up.

Rystad Energy is tracking delays announced (or inferred) since the second half of 2014 for development projects where sanction could reasonably have been expected within two years of the delay. If we analyze these projects’ investments and oilfield service purchases, we see that their spending amount to about 230 and 200 USD billion respectively. These projects are being re-worked and are benefitting from lower unit prices with each passing day; and that is good as more and more projects will be likely candidates to be awarded once the oil markets show signs of improvements. The largest piece of this service backlog is the engineering, construction and installation (EPCI) of facilities that amounts to about 85 USD billion. This represents 80% of an average normal year of greenfield EPCI awards, or a backlog-to-annual award ratio of 0.8.  Half of these EPCI purchases stems from the 10 largest projects that have been deferred. Bonga-Southwest-Aparo, Tengiz FGP and Kasawari make up the EPCI prize podium.

Subsea has been impacted vastly by the drop in the oil price as it is driven by field development on the high side of the cost curve. 1.2 years, or 30 USD billion have been delayed and await to be picked up by hungry SURF and Subsea Equipment companies once the market turns. One third of these projects sits in West Africa and is operated by the E&P Majors which have been forced to cut in offshore activities.

Well Services and Drilling Contractors make up more than 50 USD billion of delayed spending. This has especially hit offshore drillers as their exposure to the same deepwater regions has made a large impact. 100 rig years have so far been pushed out in time and represent more than a year of normal greenfield awards.  Deep and midwater regions such as Europe, South East Asia and North America, make up three quarters of these delays and consequently punished drilling contractors with semi-submersible focus.

All in all, the backlog of deferred projects plus the normal activity would yield large volumes of projects to be developed over a short period of time. These delays have caused 3 million boe/d of supply to slip that would spur a large demand for new resources to be developed. It seems now that the service industry might reduce capacity too much in the current environment, making it unable to take on the new growth cycle. In conclusion: those few that will have the capacity are the ones that will win the jackpot.