ABERDEEN, UK -- Offshore oil and gas activity in mature provinces such as the North Sea is more at risk than deepwater areas like West Africa in the current economic downturn, according to a Subsea UK study supported by Scottish Enterprise.
The report, which was unveiled today at OTC .09, paints a picture of continued uncertainty in the oil and gas sector through 2009 and 2010.
The report states that the price of raw materials is expected to fall and as that forms a large part of upstream expenditure, there should be reductions in the price of manufactured goods. In tighter credit markets, there is evidence that oil and gas companies around the world are beginning to delay the launch of new projects and reschedule the start of existing ones.
Commissioned by Subsea UK, with support from Scottish Enterprise, the report has been compiled by Douglas Westwood using publicly available company reports and broker reports to assess the earnings per share for oil and gas companies projected for the following quarter compared with that for 2008.
The report forecasts an overall decline in earnings per share across all subsea exposed sector groups in the period from December 2008 to March 2009.
Within drilling there was a marginal drop of 0.6% for 1Q 2009 but an overall 3.6% rise in the annual earnings per share from 2008 to 2009. The companies involved have significant deepwater exposure and a varied international presence.
With high barriers to market entry and the recent trend towards long-term contract awards, the overall sentiment in the rig market is that the outlook remains positive, according to the report. The revenue backlog remains strong for the deepwater fleet, jackup markets are poised for reduced activity and day rates, geographic weakness is expected in West Africa and the Middle East and the shallow markets, including the North Sea.
Estimated earnings for oilfield services companies illustrate a 3% decrease from December 2008 to March 2009 and a 14% decrease in earnings per share expected from 2008 to 2009. These companies expect reduction in expenditure from their primary clients, pricing pressures, geographic weakness in North America and Russia, and negative impacts of currency conversion.
In offshore construction, earnings estimates show a 34% decrease from December 2008 to March 2009 and a 15.6% decrease in earnings per share expected from 2008 to 2009. Earnings announcements are being impacted by short-term volatility and reduced visibility, potential delays on larger projects, reduction in the high backlog, and the implementation of cost savings measures, the report concludes.
Equipment manufacturers are facing a 22.2% decrease in earnings per share from December 2008 to March 2009 but a 3.5% increase in earnings per share from 2008 to 2009. Negative earnings outlook during 1Q 2009 was driven by the uncertain short-term outlook, pricing pressure and increased competition, cost-cutting, and capacity. However, order backlog remains strong, the study reports.