Article: Can 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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The mobile offshore drilling industry can look back at 2015 as one of the most challenging years the industry has seen over the past 15 years. The total global market dropped as much as 12% compared to 2014 levels. The floater market experienced the highest percentage drop with a 14% decrease in contracted rig supply in 2015, going from 262 units in 2014 to 227 units in 2015. Brazil, West Africa and Norway were the main driving regions for this decline. The contracted jackup supply dropped by 11% in 2015 ending at 363 contracted rig years. South East Asia and US GoM were the main regions heading up this decline.
One of the hottest topics during the year had been retirement activity. In 2015 there were 45 retirements including 24 floaters and 21 jackups. The average retirement age in 2015 was 33 years, 32 for floaters and 35 for jackups.
Contracted rig years from new contracts signed in 2015 amounted to 136 rig years, 43.5 floater years and 92.5 jackup years, which is the lowest number of contracted rig years over the past 15 years. The low contracting activity combined with a dropping oil price and an increasing rig supply has led to dayrates dropping significantly. Latest new fixtures show average contracted dayrate for floaters as low as USD 265 000. This is an over 40% drop compared to a 2014 average new fixture day rate of around USD 450 000. Jackup dayrates reacted similarly, also touching a 40% decline from 2014 average dayrates of USD 140 000 to dayrates of USD 90 000 in 4Q 2015. (Fig. 1)
Figure 1: 2015 mobile offshore drilling units (MODU) market review
Looking forward, Rystad Energy sees a market environment that will prove challenging through 2016, leaving 2016 as the trough in the MODU market before we expect the market to see recovering in 2017. We expect the largest activity drop to be in the floater market with a 16% decline from 2015 levels. Development and exploration drilling will equally contribute to the 2016 demand drop for floaters, in contrast to 2015 where exploration activity was the main activity driving the decline. On the other hand, the global jackup market will drop a modest 6% due to its high exposure to infill drilling, which on average exhibits lower break-even prices than exploration and new developments. (Fig.2)
Figure 2: Global offshore drilling market forecast
For the market to balance again in the next few years, there is a continued need for additional retirement activity and newbuild delivery delays. There are nuances within each market segment that will affect the need for and the magnitude of incremental retirements and delays. However, the mandatory 5-year survey (SPS) timing in relation to rig-specific contract status will be key for retirement decisions. Rystad Energy sees no rationale for rig owners to undertake expensive SPSs in the area of 50-100 MUSD unless the given MODU is on a contract or has a contract on the back of an SPS.
With demand levels and dayrates following a negative trend, 2016 could spur M&A activity, distressed asset takeover and bankruptcies. The unforgiving market environment expected to play out in 2016 will force rig owners to continue the cost reduction focus from 2015, which is likely to lead to further lay-offs as more rigs enter cold stacked status throughout 2016.
Comment to OFS Newsletter December 2015: Sharepoints in this newsletter were revised and can be seen here