Analyst lowers deepwater expenditure spending forecast

In its new World Deepwater Market Forecast 2017-2021, Douglas-Westwood forecasts global deepwater expenditure to total $120 billion over the period.

Global deepwater capex by component
Global deepwater capex by component

Offshore staff

LONDON – In its new World Deepwater Market Forecast 2017-2021, Douglas-Westwood (DW) forecasts global deepwater expenditure to total $120 billion over the period.

Spend is expected to decline at a -6% compound annual growth rate (CAGR). However, if forecastfloating production system (FPS) spend is isolated, expenditure is estimated to increase by 3% compared to the 2012-2016 period.

Despite rig day rates hitting record lows in recent years, drilling and completion expenditure is expected to total $41.6 billion, accounting for 35% of capex, the analyst continued. Subsea production equipment,subsea umbilicals, risers, and flowlines and pipelines will represent a combined 38% of total expenditure, while floating production units will account for 27% of spend over the forecast period.

Sustained low oil prices will hinder forecast expenditure, with no deepwater FPS units having been ordered between July 2015 and December 2016. This highlights several operators’ decisions to consider alternative development options, with the motive of reducing development costs.

In the near term, capex will be driven by traditional deepwater countries in Africa and the Americas. However, offshore installation activities on theLiza field (Guyana), SNE (Senegal), and the commencement of activities offshore East Africa, as well as the development of the Zohr field off Egypt, will support expenditure during the latter years of the forecast period. Renewed interest in developing deepwater reserves is also expected in the South China Sea and East India, which will significantly contribute to spending toward the end of the forecast period.

Original equipment manufacturers are beginning to feel the full impact of the downturn due to the low volume of projects sanctioned since 2014 as they are rapidly working through their record backlogs established over the 2011-2014 period. However, a number of mega projects waiting final investment decision are expected to be up for tender over the next 18 months, as operators hope to take advantage of a more competitive pricing environment.

Subsequently, subsea tree installation activity is estimated to grow at a 4% CAGR over the forecast period.

In the report, DW said it has identified more than 118 deepwater fields in its with potential drilling activity, which demonstrates that many oil majors have and will continue to invest in deepwater operations to replenish dwindling production profiles.

02/03/2017

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