Over the past 18 months, industry headlines have been dominated by the severe impact of the sustained low oil price on drilling contractors, OEMs (Original Equipment Manufacturers) and vessel owners. The low oil price environment has challenged the viability of virtually all deepwater projects, as operators continue to cancel or defer final investment decisions (FIDs) for new projects, with severe slashing of their Capex budgets. Over the next five years, Douglas-Westwood’s World Deepwater Market Forecast expects expenditure to be dominated by Africa and the Americas, accounting for 87% of total deepwater spend of $137 billion (bn) between 2016 and 2020 – an increase of 5% over the preceding five-year period.
Despite the concerns of a “lower for longer” scenario, Douglas-Westwood has identified deepwater expenditure in “unseen places” away from the traditional deepwater basin of West Africa, Brazil and the US GoM. The fast-track development plans of large deepwater discoveries such as ENI’s Zohr gas field offshore Egypt, ExxonMobil’s Liza discovery offshore Guyana and the commencement of offshore activity in the East African gas basin will support expenditure over the forecast period. This demonstrates that there are still operators willing to spend, with ENI planning to invest around $22.5bn in Africa by 2019.
The report separates the deepwater market forecast into five development components. Drilling and completion (D&C) is the largest segment over the forecast period, totalling $53bn (39%) to 2020. This has been significantly affected by low oil prices, with lower rig day rates not routinely incentivising increased drilling activities. The floating production market will be second-largest segment, accounting for 28% of total deepwater Capex. Spend in this segment will be driven by a number of units ordered before the downturn, many of which have Capex of over a billion dollars. Subsea production equipment and SURF (Subsea Umbilical, Risers and Flowlines) will jointly account for 27% of forecast expenditure, while pipeline installations will support expenditure in patches over the next five years, with a handful of large-scale projects expected to drive its 6% deepwater market share.
Though all regions have been adversely affected by the low oil prices, large projects sanctioned before the oil price downturn will help sustain expenditure in the near-term. Furthermore, some project re-engineering and various cost reduction exercises give a reason to see the light at the end of what has been a very long tunnel – offshore activity is expected to respond to the projected future oil price recovery, as current oil price levels are not sustainable for much longer.
