May 2016

Subsea players face challenging times ahead 

Rig Market 2015 Review & Future Outlook

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Speaker: Oddmund Føre, 
Analyst

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Article: Technip and FMC merging to become the second largest oilfield service company

Audun Martinsen, VP Oilfield Service Research

 


RYSTAD ENERGY PRODUCT HIGHLIGHTS

Oilfield Service Databases

• DCube (Demand Database): Field-by-field coverage for the global oilfield service companies and their spending

In the latest DCube version (May 2016), short term purchases are at -6% from 2015-2017. The tides have turned with a stronger oil price and the long-term purchases are still viewed as robust.

• SCube (Supplier Database): Detailed insights into revenues of the largest oilfield service companies

The Q1 2016 version of SCube shows that revenues among service companies fell 20% offshore and more than 30% onshore in 2015. This has caused large changes in the market shares among service companies. 

• RigCube (Rig Supply & Demand Database): Insights into historical and forecasted global rig supply and demand

Offshore drillers still face a challenging future. The Q1 2016 RigCube version shows that the demand for floaters in 2016 will decrease by 21% compared to 2015. For jack-ups the demand will fall by 8%.

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The drop in oil prices has hit oilfield service companies hard, as E&P companies have reduced their activities significantly. As a result, field operators have awarded fewer contracts to the oilfield industry. The strong competition for these contracts has enabled these field operators to negotiate down the contract values, hurting the oilfield service companies even more. Revenues for oilfield service companies fell by 30% from Q2 2014 to Q4 2015. This downward trend continues in 2016 as top oilfield service companies reported a drop of 16% in their revenues from O4 2015 to Q1 2016. The revenues of the biggest players are listed below.

 

However, not all service segments have been struck equally hard by the crisis. Subsea companies have been doing well under the circumstances. For the top players in this segment, revenues decreased by only 15% from Q2 2014 to Q4 2015. Technip had its best year ever in 2015 helped by currency effects (EUR/USD). Together with Saipem, these two companies have climbed their way up the oilfield service ladder, in terms of revenue. The newly announced merger between Technip and FMC will make TechnipFMC the second largest oilfield service company, based on their Q1 2016 numbers.

As revenues fell, oilfield service companies needed to reduce their expenditures. In 2015, the total workforce was cut by 15 to 20%, but it was not enough to save the EBITDA-margins from falling by almost 20%. Subsea players cut their workforce by 15%, but managed to keep their margins as their revenues did not fall as much.

Have the subsea players beaten the rest of the oilfield service companies, or will their time come?

From the peak in Q2 2014, backlogs of the subsea players have decreased by 44%, more than the average reduction for the total oilfield service industry. Figure 1 shows the top players’ backlog together with their combined revenues. The decline in backlog will certainly impact revenues in 2017 and 2018.

Furthermore, there are limited possibilities to strengthen weakened backlogs with new contracts. For the total oilfield service industry, the worst is almost over, and in 2017 there will be at least 50% more greenfield contracts to fight for than in 2015 assuming a recovery of oil prices. For the subsea players, recovery will not come before 2018. Figure 2 displays the values of greenfield offshore contracts to be awarded by year and geography. We see that even for this segment, the subsea market’s recovery is lagging by at least a year for most regions. 

Overall, the subsea sector faces tough times ahead and recovery is not likely before 2018. So far, subsea companies have been living mostly on offshore field projects sanctioned before the crisis. Since these projects have large sunk costs, they have not been canceled, irrespective of the oil price drop. However, as there have not been many sanctioned subsea developments in the past 24 months, there will be fewer contracts coming in the next months. On the positive side, being late in the value chain has given the subsea players time to reposition themselves for challenging times ahead. They will be able to see the oil price rising as they reduce expenses, making it much easier to optimize their cost-cutting process and prepare for the upturn.