Page 30: of Marine News Magazine (September 2018)

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OFFSHORE OUTLOOK

OFFSHORE OPTIMISM is Cautiously on the Rise

Credit: BSM

Following the path of oil prices, consolidation also follows myriad ? nancial crises. What happens next isn’t altogether clear, but the long, deep trough for offshore energy may ? nally be in our choppy wake.

By Barry Parker n mid 2017, ? nancial turnaround and ? nancial repairs GETTING FROM THERE TO HERE specialist Alix Partners made a bold statement regarding Offshore exploration activity will depend on an amal-

Ithe beleaguered Offshore Service Vessel (OSV) market- gam of spot prices (driven by supply and demand) and the place. In a July 2017 report, following an analysis of 44 future outlook (as pictured in the “forward” pricing curves participants in the business, the restructuring team wrote: for oil futures and swaps). In broad terms, when spot pric- “The industry faces grave ? nancial pressure, which is clear es are high, forward expectations also rise. Companies will from recent bankruptcy ? lings and distressed mergers … then invest – including in exploration which drives OSV

Exploration and production (E&P) companies have dras- demand and newbuild activity – this happened with a ven- tically reduced their rig counts, causing demand for OSV geance in the period from 2011 to 2013. Like all maritime services to plunge.” segments, the pendulum swings both ways; when oil prices

After slogging through considerable OSV doom and fall, producers pull back on exploration and, where they gloom, they added, “On the bright side, positive trends in- can, they will “shut in” wells – freeing up capacity serving cluding M&A opportunities, effective cost reductions, and production, subsea well service, and others like seismic. stronger capacity discipline are on the rise.” Elaborating on With falling prices in 2014 through early 2016, the large business combinations, Esben Christensen, Managing Direc- scale stacking of rigs and vessels serving the ? elds was in- tor and co-leader of AlixPartners’ shipping team, remarked, evitable. After OPEC opened its spigots in late 2014, spot “Operators who leverage the current market situation to suc- prices plunged, reaching a nadir in early 2016, when prices cessfully trim their balance sheets are likely better positioned for marker grades West Texas Intermediate (WTI) and to withstand a prolonged downturn and ultimately potential- Brent both bottomed at about $27 to $28/bbl. Oil produc- ly drive the consolidation so badly needed within the sector.” tion onshore was surging, even at the low prices, with a

These prescient words are arguably coming home to roost. “contango” structure where prices for future delivery were

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