Macro Overview of the World Oil Supply and the Impact on North American Shale
June 17, 2015 11:00am-1.00pm Houston, USA For sign up, contact Julia Weiss
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 (May 2015) short term oilfield service purchases are expected at -8.1% CAGR for 2014-2016.
• SCube(Supplier Database): Reported revenue from oil service companies split on the same supplier segments and geographies as DCube
The March 2015 SCube version 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
The June 2015 RigCube version shows a decrease of 26 units in floater demand from 2014 (262) to 2015 (236). Jackups to be decreased with 36 units from 2014 (408) to 2015 (372).
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Despite an oil price stabilization around 65 USD/bbl over the past quarter, E&P companies are still cautious to commit to new drilling activities and capital expenditure offshore. As a consequence of lower activity from E&P companies, we expect floater drilling demand to fall from 2014 levels of 262 units to 220 units in 2016. The expected demand reduction has contributed to increased oversupply in the floater market and we have already seen increased attrition activity from rig owners in response to this development. We do see the need for further attrition to close the gap between supply and expected floater demand. Hence, the key question is; how much retirement activity is necessary over the next years to balance the floater market?
Over the period of 2015-2017, the floater market awaits an influx of 64 new units of which 24 units are scheduled for delivery in 2015, 22 in 2016 and 18 in 2017. Out of the 24 floaters with expected delivery in 2015, 10 units have already been delivered from the yards. As a first response to the declining demand outlook, we have seen rig owners delaying delivery dates for their newbuilds. Further delivery delays are likely and we can see units scheduled for delivery in 2015 and 2016 being pushed 6-12 months or further out in time depending on contractual terms between rig owners and yards.
However, assuming no further delivery delays, the scheduled delivery plan will result in a fleet growth in the floater market of 5% in 2016 and 7% in 2017. While the floater supply is bound for an increase, the demand is set to decrease over the next years by -10% in 2015 and another -7% in 2016. The floater demand is expected to reach a floor in 2016 and increase again by 8% from 2016-2017. With demand and supply pointing in different directions the result will be an oversupply of between 80 and 120 units each year over the period.
Given the supply growth and demand decline, how many rigs do we need to see retired over the next years to reach equilibrium? Looking back on historical gross utilization numbers, we see an average level of 83% over the last 10 years. Applying this historical utilization rate to expected demand numbers in 2015-2017,there will be a need to retire around 88 units in total over the next three years to balance demand and supply. Over the last six months we have seen rig owners responding to the poor market outlook by retiring 37* units, with 18 of the 37 units retired in 2015. We do however need to see another 31 rigs retired in 2015 to balance the market at an 83% gross utilization level, which will lead us to record high levels with 49 units retired in one year. In 2016, rig owners have to retire an additional 36 units to balance at 83% gross utilization in the bottom year for floater demand. With demand expected to increase again in 2017 we only need few additional units to be retired to balance the market.
With increased retirements, rig owners will be able to adjust the market imbalance over the next three years. However, for this adjustment to happen the floater market will have to go through the largest retirement cycle in the history of offshore drilling with 88 units taken out from 2015-2017. Last time we saw such a large retirement cycle was after the oil crisis in 1985.