Jason Waldie - Douglas-Westwood Pte Ltd - Global economic trends and market outlook for the OSV...
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Offshore Support Vessels and Macro–economic Overview of the offshore Industry 23 June, 2015 Perth Novotel Prepared by Douglas- Westwood Singapore Jason Waldie, Director
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Transcript of Jason Waldie - Douglas-Westwood Pte Ltd - Global economic trends and market outlook for the OSV...
Offshore Support
Vessels and
Macro–economic
Overview of the
offshore Industry
23 June, 2015
Perth Novotel
Prepared by Douglas- Westwood Singapore
Jason Waldie, Director
www.dw-1.com
LNG
offshore
onshore
downstream
power
LNG
renewables
• Established 1990
• London, Aberdeen, Houston,
Singapore
Activity & Service Lines
• Business strategy & advisory
• Commercial due-diligence
• Market research & analysis
• Published market studies
Large, Diversified Client Base
>1,020 projects, >450 clients
>72 countries, >230 sectors
• Clients include the top-10:
• Oil & Gas Companies
• Oilfield Services
• Investment Banks
• Private Equity firms
• Government Agencies
Our business: research and consulting
11/03/2015
© Douglas-Westwood Limited 2015
Leading Commercial Advisor for OFS M&A
Industry-Leading Published Research
© Douglas-Westwood Limited 2011
‘‘Excellent report, very comprehensive and well laid out’ Vestas (Denmark)
Douglas-Westwood are the sector study experts’ Woodside (Australia
Client Base Is Varied Across Offshore Stakeholders
Majors
E&P
OEM &
Service
Providers
Construction
Our client base is mixed, but mainly focused on analytical and commercial services
Macro –Economic Overview
Offshore Industry
OSVs
Conclusions
Primary Energy Demand – Bullish Outlook
• +30% growth by 2035. From 86% to 81% use of fossil fuels. Liquids at 110 Mboe/d.
• Driven by Asian economies, power generation and industry.
• China + India = 60% of GDP growth, 50% of primary energy growth
• Natgas +40%, Oil +20%, Coal +20%, Nuclear +40%, Hydro +40%, Ren +240%
OECD / Non-OECD (Btoe)
0
2
4
6
8
10
12
14
16
18
20
2015 2020 2025 2030 2035
Non-OECD
OECD
China
0
1
2
3
4
5
6
7
8
9
2015 2020 2025 2030 2035
Transport Power
Industry Others
0
2
4
6
8
10
12
14
16
18
20
2015 2020 2025 2030 2035
Renewables HydroNuclear CoalNatural Gas Liquids
Demand by fuel (Btoe) Demand by sector (Btoe)
Source: BP Energy Outlook 2035, Feb 2015 issue
Global Energy Demand Outlook Growing Importance of Gas
Global Energy Demand by Sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1990 2035
Power Transport Industry
-
1,000
2,000
3,000
4,000
5,000
6,000
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
Global Energy Demand by Fuel
Gas 2020-2035
Oil 2020-2035
• The combination of increased energy efficiency throughout OECD states and growing
economies in Asia is driving demand for power generation at the expense of transportation.
• Natural gas is becoming an increasingly popular fuel for power generation offering a relatively
safe (compared to nuclear); cheap (compared to oil); and clean (compared to coal) energy
source.
• Demand for natural gas to increase by 55% over the next 20 years...
42%51%
mtoe
2000 to 2013: more spend for less production
9
The Oil Story
Oil prices driven down by US surplus…
0
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41
0/1
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41
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01
42
/20
/201
5
000boepd
$/bbl Brent Production/Import Surplus
• Higher prices improve the viability of
more capex intensive projects such
as deepwater or EOR programmes.
• 2010-14 witnessed the longest period
of high oil prices in history.
• Between January 2011 and October
2014 US crude production increased
by around 3.8 million barrels a day
(67%).
• Consequently, US imports (mainly
from Canada and the Middle East) fell
by around 4 million barrels over the
same period (20%).
US Crude Imports
US Crude Production
BRENT
US Production/Import Ratio
The Oil Story Impact on Offshore Sanctioning
0
20
40
60
80
100
120
140
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n-2
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y-2
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9
Typical Deepwater Approval Threshold
Petrobras Pre-Salt Approval Threshold
Saudi Arabia 2014
Fiscal
breakeven price
$98/bbl
US Shale Oil
Breakeven Price
Saudi Arabia Onshore Oil Breakeven Price
$/bbl (Brent)
Brent Oil Price & Various Sanctioning Thresholds
• Most deepwater projects need $70-
90/bbl oil to be sanctioned – Brazil as
low as $41-57/bbl.
• Many US shale oil projects need
>$70/bbl oil to be economically viable.
• OPEC (mainly Saudi Arabia)
reluctance to cut production and lose
market share to US Shale exporters is
expected to keep prices low in the
short term.
Current pricing is a threat to subsea project sanctioning…
‘TOTAL MAKES 10% BUDGET CUT TO $23-24BN’
Industry response
‘Pemex postpones certain deep water exploration projects’
‘Number of active US oil
rigs continues to plummet’
‘BP to spend $20bn in capital projects compared with $23bn in 2014’
‘exploration drilling to be cut’
‘Apache to cut rigs from 91 to 27’
Marathon reduces its per well cost by $1.3m to an average of $6.3m
‘Schlumberger to cut 9,000 jobs’
12
‘Royal Dutch Shell shelving plans to build a new oil sands mine’
13
Current Low Oil Prices Are Not Sustainable….
Brent Range
Jan-June2015
Fiscal Breakeven Oil Price
0
20
40
60
80
100
120
PetrobrasUDW Pre-Salt
AverageDeepwater
AverageShallow Water
SEA MarginalField & EOR
US Shale Oil Saudi ArabiaOnshore(Project
Breakeven)
Saudi ArabiaOnshore(Fiscal
Breakeven)
Viability Range
DW Mean
• Breakevens more pertinent for onshore US
• KSA project breakeven low; budget high, other producers hit harder
• Prices will have to recover through erosion of production capacity
• …as many offshore projects become unviable
What shape will the oil price recovery be?
15
•The longer prices stay down, the steeper the recovery will be
•OPEC’s El-Badri: “$200 oil possible if no one invests”
Where is the offshore industry heading?
• Many offshore projects are long term and rarely cancelled post-FID
• Momentum following several years of high oil prices 2011-mid 2014 will carry the industry through a flat period of spend to 2017
• Recovery 2018 onwards
-
100
200
300
400
500
600
2008 2010 2012 2014 2016 2018 2020
$b
illio
ns Flat
Offshore Capex – Actual and Forecast
Source: Douglas-Westwood, Jan 2015
Africa13%
Asia25%
Australasia5%
Eastern Europe & FSU
2%
Latin America
16%
Middle East7%
North America
17%
Western Europe
15%
2015-20 Spend by Region
16
• Evercore view - revised downward:
• “Sharp recession in the oilfield”
• “Middle East the only Bright Spot”
• “Disappearance of new offshore rig orders”
• “Rapid fall in US activity and bottoming of rig count in Q3 or Q4”
• “Recovery in 2016”
+7.9%
-15%
$200
$250
$300
$350
$400
$450
$500
$550
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
International: -15%
4863
89 96119
8298
128 140 146174
-30%
25
30
36 33
38
25
38
4944 43
51
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14E '15E
North America: -30%
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Rest of the World
Canada
United States
Actual Estimates
Recovery: Circa 7% p.a. 2016 & 2017
Exploration & Production Spending – Actual and Forecast
Where is the industry heading?
Source: Evercore, Jan 2015
Macro –Economic Overview
Offshore Industry
OSVs
Conclusions
Offshore Drilling
• The developing shallow water gas and highly productive deepwater oil sectors will offset stagnant shallow water oil output with increasing well completions, 11% and 28% respectively, by 2021.
• This will be due to the large gains in Australian shallow gas production as well as prolific West African and Brazilian deepwater plays.
Source: DW World Drilling & Production Forecast 2015-2021
Offshore & Deepwater Supply Growth
Shallow:
• Shallow water production is set to grow 13% over the forecast period due to success in the gas drilling side of the market. This is despite a mature oil market that requires significant investment to stop production rapidly declining, particularly in the North Sea and US Gulf of Mexico
Deepwater:
• Four countries dominate the deepwater drilling sector – Angola, Brazil, Nigeria and the USA.
• Despite the downturn in oil price, projects already sanctioned will see deepwater output increase in all of these countries over the forecast period.
Shallow water production (Mboe/d)
Source: DW World Drilling & Production Forecast 2015-2021
Deepwater production (Mboe/d)
Offshore Field Lifecycle: Oil Price Exposure
*Graph for illustrative purposes
HIGH LOWMEDIUM LOW HIGH
DECOM
CAPEX PHASE LIABILITIESLIFE OF FIELD PHASE
PRODUCTION MMOFIELD
CONSTRUCTIONEXPLORATION
PHASE
22
Offshore Field Lifecycle: Oil Price Exposure
*Graph for illustrative purposes
HIGH LOWMEDIUM LOW HIGH
DECOM
CAPEX PHASE LIABILITIESLIFE OF FIELD PHASE
PRODUCTION MMOFIELD
CONSTRUCTIONEXPLORATION
PHASE
Offshore Drilling
• We have downgraded our drilling expectations, but we still expect growth.
• Backlog keeping rigs active (offshore rigs have dropped just 5% since August)
• Africa remains strong, APAC down, other regions see deferrals and reduction.
• We still drill more wells offshore each year than ever before.
• So the problem is not demand…Source: DW World Drilling & Production Forecast 2015-2021
2,500
2,550
2,600
2,650
2,700
2,750
2,800
2,850
2,900
2,950
3,000
2015 2016 2017 2018 2019 2020 2021
2015 Q1
2014 Q4
Offshore Rig Orders
• Strong correlation between oil price & rig orders.
• Downcycle in late 80s lasted ~15 years.
• Primary jack-ups cycle in 70s being replicated for replacement in 00s.
• Unlikely to see continuation of strong newbuild activity into 2015.
0
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Rig
Ord
ers
Drillship
Semisub
Jackup
Downcycle
Key issues – rig supply
• As we predicted in 2012 oversupply is
now evident in some MODU sectors
• Deflation syndrome – operators will wait
for rig rates to fall
• Exploration drilling is the easiest target
for ‘re-focussing’
• Latest generation assets will win work –
but at what price?
26
“high drilling costs are the killer”
When will the offshore drilling market turn up?
FORECAST
60%
65%
70%
75%
80%
85%
90%
95%
100%
2010 2011 2012 2013 2014 2015 2016 2017 2018
High
Low
Global Drillship Utilisation Outlook
• Oversupply led to many contractors
finding it hard to secure long term work
• Those that have placed rigs have
struggled with pricing/cancellations
• Stock performance is poor as the
market anticipates a difficult few years
• 2016 could be the turning point!
23/06/2015 27
APAC – Offshore Drilling and Production
Malaysia also has large deepwater projects planned as it invests significantly in
an attempt to offset post-peak decline
Deepwater gas fields are to play a key role in backfilling Australia’s new
LNG terminals (in addition to shallow water fields)
Offshore APAC
market will see
large gains in
shallow water gas
production with
FLNG projects
planned
Deepwater gas
developments will
come mainly from
Australia and
India.
Indonesia – Offshore Drilling and Production
Gas production is forecast to increase to 1.6 mboe/d in 2021.
The uncertainty in Indonesian regulations and lack of infrastructure that drives high
development costs in remote areas poses a risks for upstream activities.
DW expects oil
production in Indonesia
to follow a downward
trend over the next
decade, reaching 671
kb/d by 2021 due to
rapid production
decline in mature fields
coupled with the
lack of major new
discoveries.
Malaysia – Offshore Drilling and Production
Major developments
including extensive
EOR programmes,
large deepwater
and marginal field
projects are
underway to curb
production decline
and meet rising
domestic demand.
Malaysia is also one
of the top three LNG
exporters worldwide
with two upcoming
FLNG projects.
Overall, the country is considered to be a mature market with
strong organic growth supported by sound policies and regulations.
Australia – Offshore Drilling and Production
Australian oil
production peaked in
2000 and has been
in decline ever since.
Additional capacity
added from
condensate
production and small
oil projects will
stabilize production
in the long-term.
Whilst demand for Australian LNG is expected to remain buoyant over the next
decade, concerns over cost overruns and the potential emergence of lower
cost US LNG could threaten the long-term viability of Australian gas.
Myanmar – Offshore Drilling and Production
Myanmar is
expected to attract
significant foreign
investment into its
underdeveloped
O&G sector, due to
sanctions being
lifted in 2012.
DW expects further
developments and
an upward trend in
the country’s gas
sector, based on
sound historical
performance of
large gas producing
fields such as
Shwe, Yadana and
Yetagun.
Lack of infrastructure and opaque energy policy
are deemed to be the key risks impeding
anticipated growth.
China – Offshore Drilling and Production
China is the largest oil producer in Asia; the country surpassed the US to be the
world’s largest oil importer (2013) due to growing domestic consumption coupled with
falling production in mature fields.
The uncertainty in Indonesian regulations and lack of infrastructure that drives high
development costs in remote areas poses a risks for upstream activities.
DW expects oil
production to decline
from 4.5 mb/d to 3.9
mb/d over the forecast
period. The outlook for
gas is significantly
more positive with
additional capacity
coming from deepwater
developments and
unconventional
sources.
Asia – Deepwater 2015-2019
Macro –Economic Overview
Offshore Industry
OSVs
Conclusions
Douglas-Westwood Subsea Vessel Model- Well Intervention Closeup
Douglas-Westwood Subsea Vessel Model- IRM Closeup
Subsea Vessel Supply 2015-2019
Subsea Vessel Supply 2015-2019
Asia – Subsea Vessel Outlook
0
50
100
150
200
250
300
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16
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1Q
07
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4Q
14
$bill
ion (
Backlo
g)Subsea Current State
Backlogs at all time highs, in-take is scraping the barrel…
Subsea EPC Backlog
Subsea Tree Awards
Subsea EPC Backlog vs Order In-takes
Subsea Market Outlook
Current low price environment impacting subsea sector through 2017/18…
0
5
10
15
20
25
30
35
40
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$bill
ion
Africa19%
APAC24%
Latin America
16%
North America
9%
Western Europe
21%
others11%
• $147 billion of planned spend in subsea hardware.
• Stuttering market outlook beyond 2015 before recovery in 2019.
Global Subsea Hardware Spend
OSVs Small OSVs
Active Fleet
Book to Fleet
% >25 years
SEA Small OSV Demand
2,937
42%
6.2%
• A large market driven by shallow water life
of field activities.
• We believe the segment is potentially under-
invested with 42% of the current fleet over
25 years and a book to fleet ratio of just
7.2%.
• However, demand is expected to retract
throughout SEA in the term...
Demand retraction expected throughout 2015…
0
20000
40000
60000
80000
100000
120000
140000 DW Oil Price Scenario
$50/barrel Oil Price Scenario
OSVs >8,000hp AHTS
SEA >8,000hp AHTS Demand
Active Fleet
Book to Fleet
% >25 years
892
11%
10%
• Resurgent demand driven by uptick in semi-
submersible drilling – same driver causing reduced
demand between now.
• Industry is still absorbing recent deliveries but a
thinning orderbook suggests the market will
tighten in the next five years.
• Increased requirement for 10-12k hp to support
new gen jack-ups.
0
10000
20000
30000
40000
50000
60000
Difficult market conditions expected over the next three years…
OSVs >2,000dwt PSV
SEA >2,000dwt PSV Demand Outlook
Active Fleet
Book to Fleet
% >25 years
1,013
4%
33%
• Versatility of these assets to support deepwater
drilling and production platforms has led to major
speculative building.
• Rapid demand growth will not be enough to absorb
future deliveries – contractors will need to seek out
new markets.
• Bearish view on pricing over the next few years.
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Strong demand outlook will not be enough to absorb potential new deliveries…
Offshore Support Vessels
Despite overbuilding there are opportunities for newbuilding…
Fleet Av. Age % >25yrs OrderbookBook toFleet %
Demandoutlook
AHTS <5,000hp
AHTS 5 - 8,000hp
AHTS 8 - 12,000hp
AHTS >12,000hp
PSV <2,000dwt
PSV >2,000dwt
745
1,179
456
436
876
1,013
24.8
13.2
11.4
9.8
24.9
7.4
60%
26%
24%
10%
59%
4%
75
69
47
42
33
336
10%
6%
10%
10%
4%
33%
Macro –Economic Overview
Offshore Industry
OSVs
Conclusions
Conclusions
• Oil prices have crashed since last summer to the current levels of around
$60-65 (Brent). High levels of uncertainty at present and wide spectrum of
expectations.
• We believe offshore production will grow in both shallow and deep
waters, driven by project backlog and operator confidence in long-term oil
price.
• We are seeing reduced orders in Capex markets, impacting in 2017-18.
• We must keep drilling to assure O&G supplies
• Onshore USA hardest hit
Conclusions
• Opex-related markets less impacted, supporting the supply chain
• Last years’ oil price problem has exacerbated existing structural problems
in the offshore marine segment...
• The same volume of work is still out there but is facing delays and
deferrements...
• The next upswing will see E&P companies in a far stronger position to
manage their supply chain costs...
• Most major offshore projects will continue
• The market will eventually self-correct
• Exploration will lead the recovery
