Falling oil price and the impact on oilfield service demand
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
The latest DCube version (October 2014) reflects updates on Angola and Norway and other offshore projects that have been revised. This has led to a reduction of 30 basis points for the long term oilfield service growth. Now the 2014-2020 CAGR is at 4.5%.
• SCube (Supplier Database): Reported revenue from oil service companies split on the same supplier segments and geographies as DCube
The latest SCube version (October 2014) includes 48 additional companies, which totals 370 of the largest listed and private service companies globally. Now you can split revenue also into quarters.
• RigCube (Rig Demand & Supply Database): Global, offshore rig demand (rig count) and supply based on bottom-up, field-by-field activity analysis
As per our latest RigCube version (October 2014), the negative trend continues for the floating drilling market. 2014 demand is estimated to be at 260 units (264 in previous version) and 2020 demand is estimated at 406 units (426).
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Oil prices have dropped from the comfortable level of 105-110 USD/bbl in July towards the 90 USD/bbl mark that we see today. The E&P companies have been under a large pressure the last years due to galloping costs, and the result have been delayed and cancelled projects, reducing their investment commitments.
A falling oil price will continue to make the situation worse, as activity on marginal projects becomes uncommercial. If the oil price stabilizes at 80 USD/bbl Rystad Energy expects the OFS purchase growth to fall from 4.5% to 3.5% year on year towards 2020. Although there are forces in place that will limit the oil price floor, it would be interesting to investigate this scenario in more detail.
The above chart shows the compounded annual growth of oil field service demand from 2014-2020 by service segments. The bars above the x-axis indicate the expected demand in a steady oil price scenario of 105 USD/bbl. The shaded bars below the x-axis show the downside on the growth. The downside is calculated based on removing planned non-sanctioned projects that have a breakeven oil price above the threshold of 80 USD/bbl.
The combined OFS purchases are expected to grow with an average annual rate of 4.5% towards 2020 given a stable high oil price. Subsea equipment and SURF is expected to achieve double digit growth in this timeframe while maintenance and operations is expected to have the lowest. If the oil prices stabilize at 80 USD/bbl we would see the purchases of oilfield services drop with one percentage point to only 3.5% year on year. The market that would take the largest hit is the subsea market that would get 4.5 ppts cut off its growth. The EPCI market will have the largest relative impact on its demand as new marginal shallow water projects and life extensions projects will be cancelled. Rig contractors and related well services will see a limited reduction as brownfield drilling would be increasing. Maintenance and operations have also a limited downside as the total installed base of platforms will still grow and there is limited MMO efficiency to be obtained.
In total there is about 400 billion USD of OFS purchases that can be shaved from the 2014-2020 market, 70% of which is located offshore. The 400 billion USD is about 5% of the 8 trillion USD that would be spent in a stable oil price regime. Broken down on geographies, 18% of the projects are located in South America, and full scale development of Brazilian deepwater fields will be in risk and put a large pressure on subsea and EPCI demand. Then we have North America with deepwater Gulf of Mexico and offshore Canada that offer a second downside. Expansion of oil sands projects in Canada and less prospective shale acreage in US adds to the downside. Asia, Africa and Europe pose a risk with Asian LNG projects, FSPO developments in West Africa, and Barent’s Sea developments in Norway, harming once again potential EPCI and subsea contracts.
HERE THE FULL STORY AT OUR ABERDEEN INFORMATION SESSION 14 October, 6pm, Aberdeen, UK Speakers: Jarand Rystad, CEO; Audun Martinsen, Senior Analyst Topic: Cost cutting amongst the E&Ps - which service companies will triumph? Free of charge For more information and sign up click here
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.