Priorities shift as industry enters growth mode
As the new-year plans unfold and despite the late 2018 dip in oil prices, offshore spending is set to accelerate, and levels may even outpace onshore shale activities. This is primarily due to expected cuts in shale budgets in response to the oil price decline in 4Q 2018, while most operators have already moved on from offshore cyclical cost-cutting. Nevertheless, offshore players are optimistic as the business environment continues to improve.
David Paganie,Chief Editor
Asthe newyear plans unfold and despite the late 2018 dip in oil prices, offshore spending is set to accelerate, and levels may even outpace onshore shale activities. This is primarily due to expected cuts in shale budgets in response to the oil price decline in 4Q 2018, while most operators have already moved on from offshore cyclical cost-cutting. Nevertheless, offshore players are optimistic as the business environment continues to improve.
A focus on capital discipline will continue to be a priority as the industry aims to maintain the efficiencies that were gained during the downturn. Rising drilling rig day rates, which are occurring in select markets and for select rig classes, and concerns of service cost inflation, will test resolve. But many industry analysts project that measures put in place during the downturn will enable most companies to withstand market volatility.
Meanwhile, recruitment is back on the agenda, and digitalization is a leading industry priority. These are some of the noteworthy findings of DNV GL’s annual industry benchmark study, titled “A Test of Resilience.” The survey of senior oil and gas professionals, conducted in 4Q 2018, found 76% of respondents are confident in the industry’s growth prospects for this year. This is up from 63% a year ago, and more than double the levels recorded in 2016 and 2017. Respondents in Brazil (95%), China (89%), and the US (85%) are the most optimistic for this year.
This trend in confidence should lead to an increase in spending. The survey finds that 67% of respondents believe that more large, capital-intensive projects will be approved this year than in 2018. Moreover, 70% of respondents are looking to maintain or increase capital expenditure this year, up from 66% in 2018 and 39% in 2017. About 65% plan to maintain or increase operating expenditure, up from 58% in 2018 and 41% in 2017.
Survey respondents (60%) also expect to increase spending this year in the area of digitalization. The top three priorities within the industry’s digitalization agenda all relate to data sharing, integration, and access (cloud-based applications, data platforms, and data sharing between organizations). About 67% of respondents say their company will prioritize the quality and availability of data in this year, according to the survey results.
Other market segments that should benefit from this improving spending outlook are deepwater and subsea, according to Mark Adeosun with Westwood Energy. The firm expects global field development spending to reach $115 billion this year, up from an average of $81 billion in 2017 and 2018. The subsea sector was awarded 129 trees in 4Q 2018, which is more than double the count recorded in 2016. Westwood forecasts 177 trees to be awarded during the first half of this year and 177 during the second half. Expenditure on floating production systems is expected to improve as well, from just under $8 billion in 2018 to $21 billion in 2019. Regionally, Latin America is forecast to take a large share of offshore field development expenditure in this year, accounting for 28% of global spend. See Mark’s complete field development forecast beginning on page 46.
Meanwhile, drilling contractors will continue to prioritize consolidation and innovation as the market emerges from the downturn. At the end of 2017, 174 companies controlled 1,033 rigs, of which 36.5% were managed by the top 10 drilling contractors (based on the number of rigs managed), according to Cinnamon Edralin with IHS Markit. By the end of 2018, the fleet was down to 973 units, and the number of rig contractors had declined to 157. The top 10 contractor’s market share improved to 40.0% of the fleet. See Cinnamon’s full Top 10 Offshore Drilling Contractors report and market outlook beginning on page 23.
Transocean, under contract with Chevron, is fitting a newbuild drillship with technology that could unlock the next prolific trend in the US Gulf of Mexico. The rig will be the first floater to be equipped with a 20,000-psi BOP for use in high-pressure projects. The rig will feature dual 20K BOPs, net hook-load capacity of 3 million pounds, 165-ton active heave compensating crane, and an enhanced dynamic positioning system. Offshore managing editor, Bruce Beaubouef, reviews the latest drilling rig technologies beginning on page 28.