A new report by energy research and consulting service, Douglas-Westwood (DW), predicts a major decline in deepwater oil and gas projects spending in the next four years.
Namely, DW anticipates deepwater expenditure to total $137 billion between 2016 and 2020. A rapid 35 per cent drop compared to DW’s previous deepwater forecast, covering the 2015-2019 period.
According to the report author, Mark Adeosun, the number of potential projects, compared to the same point last year, has declined form 210 to 118 expected to be realised 2016-2020.
West Africa and Brazil
Adeosun believes that expenditure will predominantly be driven by Africa and the Americas, which will account for a combined 87% of total deepwater Capex.
“Despite the corruption scandal and the huge financial difficulties rocking Petrobras, Latin America will retain the largest share of deepwater Capex, due to Petrobras’ continued development of the pre-salt basins off Brazil. However, Brazil’s senate recently approved legislation (relieving the NOC of its role as sole operator and mandatory stakeholder in its pre-salt deepwater fields) highlights the risk posed by sustained low oil prices.
“The downturn has further delayed the sanctioning of significant projects in West Africa, including but not limited to Shell’s Bonga South West-Aparo, and Chevron’s Nsiko development.”
Tough year ahead for Subsea
According to Steve Robertson, research director and editor, subsea hardware manufacturers have been somewhat insulated from the downturn due to record levels of backlog established over the 2011-2014 period.
However, Robertson said that a further decline in subsea hardware installations is expect in 2017 and 2018 with backlog falling rapidly and new orders trickling in at very low levels. In line with these expectations DW forecasts that the subsea OEM’s will feel the full impact of the downturn in 2016 and will have a very difficult year.
“Ultimately, 2016 will be a challenging year for the oilfield service and equipment market, with many firms focused simply on positioning and survival through the downturn. There are however opportunities at this point in the cycle to bring through new approaches and technology for deepwater development to improve efficiency and lower cost. In the long run, we remain of the view that deepwater will be a cost competitive source of world-class hydrocarbon reserves,” Robertson concluded.