Page 32: of Offshore Engineer Magazine (Apr/May 2014)

31 33

Rig Market Review

Deepwater drilling markets – already coming to an end?

Deepwater drilling is no longer

Oil companies cut spending growth

Marathon Oil and Talisman’s current just about exploration. Lars and allocate capital to shale efforts to exit the North Sea, partly to

Given deepwater exploration and exploi- focus and pursue more opportunities

Eirik Nicolaisen looks at market tation’s technical challenges, there is only in the North American unconventional sentiment and potential reality. a handful of companies with the setup space, provides anecdotal evidence that eporting season 1Q 2014 saw deep- and competence base to carry out these the economic features of these plays water drillers’ reporting numbers operations. Only 18 companies globally speak to oil companies in the current

R in-line with expectations, but still are currently operating ultra-deepwater economic environment. stock prices have plummeted. (7500m+) production. See ? gure 2. Examples of companies disfavoring the

The reason for this has not been poor Many of these companies have divi- deepwater space as an investment arena operational performance or lack of ability dend policies and other capital discipline include BP’s postponement of US Gulf of to deliver revenue growth thus far. Based instruments to relate to, making their free Mexico Mad Dog phase II and Chevron’s on the ever more bearish outlooks com- cash ? ow a key performance indicator. postponement of its UK Rosebank municated by drilling company manage- As such, to maintain margins (which project. Moreover, in the current environ- ment teams, and their inability to ? x new eventually drive free cash ? ow), in the ment, exploration efforts are typically contracts for the next 12 months, drilling event of an oil price drop, companies one of the budget items at risk, given the stocks have been punished hard by mar- typically reduce their investments. That long time to positive cash contributions. kets which now factor in the apparently was the case during the 2008-2009 oil The forecasted, lowered, exploration softening market conditions and lowering price shock, where we saw oil companies expenditure in Norway for 2014, (forecast revenue growth expectations. cut back their investment programs. by Statistics Norway to come down 12%)

What happened to the deepwater Although not as drastic as in 2008- serves as anecdotal evidence of this. In playground? Is the deepwater resource 2009, and not triggered by an oil price such an environment, the scene is set for extraction already coming to an end after collapse, we are seeing similar behavior lowered market sentiments for deepwater reaching 9% of overall oil supply in 2013 today; capex growth is reduced and drilling services in the short term. (125m+ water depth)? To understand the immediate cash projects are prioritized. But are deepwater drilling markets future of the deepwater drilling markets, In a world where immediate cash has already coming to an end? Our analysis we ? rst turn to the customers, the oil high priority, unconventional shale suggests not. We highlight three drivers companies, to understand their behavior projects in North America have proven as that point to continued growth in deep- during the past year. attractive investment candidates. water drilling markets.

Fig. 2: Ultra deepwater

Fig. 1: Share price performance selected oil service companies

Indexed (January 2011=100, excluding dividends) Thousand boe/d production 160 12.11.2013 0 100 200 300 400 500

Petrobras 140

Development since

BP

January 2011

Shell 120

Noble Energy

Seadrill

Anadarko

Reliance 100

Ensco

Total

Chevron

Fred Olsen 80

Freeport-McMoRan

Energy

Eni 60

Transocean

Murphy Oil

Apache

BHP Billiton 40

Pemex

New?eld Exploration 20

ATP Oil and Gas

Songa

Talos Energy O‡shore 0

ExxonMobil

Jan 2011 Jul 2011 Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014

Source: Rystad Energy UCube

Source: Rystad Energy research and analysis; Euroinvestor

April 2014 | OE oedigital.com 34 000_OE0414_Rigmarket3_Rystad.indd 34 3/23/14 12:27 AM