Oil companies are primed to invest in 2020, according to one analyst, but it remains to be seen how that will impact the OSV sector
Speaking at the opening session of the 2020 Offshore Support Journal Conference & Awards, Westwood Global Energy’s head of offshore, rigs & wells, Thom Payne said oil companies had done well in recent years, seeing gains from supply chain ’cost rationalisations’.
"Since 2017, we have seen these operating cash flows and free cash flows increase quite substantially year-on-year," he said.
Why have they made so much money? Cost rationalisation – reducing their opex and field development costs per barrel – according to Mr Payne. He noted the improved margins for oil companies taking cost rationalisation measures would be familiar to most in the OSV sector.
"Bringing those costs down is why they have been able to generate such great returns of capital employed even with the oil price hovering around US$60," he said.
But just how much of that money are oil companies ready to sink back into exploration and development? When will the tipping point come and where will the money go?
Mr Payne said he expected a "step change" in offshore E&P spend in 2020.
"These guys have been sitting on portfolios for a very long time, waiting to get them back into the water," he said. "So we are thinking about US$131Bn per annum will be spent on new offshore projects over the next three or four years."
Mr Payne pointed to Australia and Brazil as primary focal points for investment.
While Mr Payne’s analysis centred on the benefits of E&P investment for the offshore drilling rigs market, an assessment of the wider oil and gas market by Rystad Energy partner Simon Sjøthun rested on oil company perceptions of the timing for ’peak oil’ demand.
These "differences in sentiment," Mr Sjøthun said, formed the basis of three potential outcomes. An accelerated peak demand outcome would result in lower investment and daily oil production than a slower shift away from hydrocarbon fuels, while a continued growth curve would see more investment and production.
The indications, according to Mr Sjøthun, are "that long-cycle projects are at risk of discrimination versus short-cycle projects".
So what does that mean for OSVs?
Noting that rig jobs are much more dependent on E&P investment, Mr Sjøthun said both the rig market and the OSV sectors need a continued growth market sentiment to rebound – or, continued, increasing reliance on fossil fuels.
"If you make it up to US$60 per barrel – where we see the oil price will be [in the near-term] – you can find growth, but it will be hard to get back to the 2014 peak," he said.