A resurgent Petrobras and other national oil companies will underpin a rebound in exploration and production contracting (EPC) in 2021, potentially more than tripling the spending seen in a turbulent 2020
While overall upstream capex is expected to be flat or decline from 2020 based on company guidance, said Westwood Global Energy head of offshore energy services Thom Payne, increased spending by Petrobras, Shell and Woodside will drive a forecast increase in offshore EPC awards in 2021.
“Our base case outlook for 2021 (which assumes Brent averaging US$50/per barrel) currently forecasts firm and already awarded offshore EPC contracts of around US$29Bn with a further US$12Bn of probable awards and US$4Bn of possible awards, compared to the US$12.3Bn awarded in 2020.”
Those numbers should be music to the ears of offshore drillers, offshore vessel owners and suppliers following 2020, described by Mr Payne as “one of the most challenging years in the history of the oil and gas sector.” He said “Oil consumption fell to levels not seen since 2001 and at one point US producers were paying to offload crude as the WTI price went negative for the first time ever. In the offshore sector, investment in new field developments was the lowest in over 30 years as companies of all sizes reacted quickly to the commodity price crash by slashing on average 30% from planned 2020 capex and postponing/stalling US$54Bn of 2020 offshore EPC contract awards.”
As a result of the delayed projects, only US$12.3Bn of offshore EPC contracts were awarded in 2020 for 32 sanctioned projects, down from US$40.3Bn for 80 projects in 2019. The top five largest projects were Woodside’s Sangomar, ExxonMobil’s Payara, Equinor’s Breidablikk, CNOOC’s Lufeng 14-1/4/8 and Petrobras’ Mero III.
Mr Payne said that while the outlook for this year may appear optimistic to “an industry still reeling from the latest downturn-within-a-downturn,” he pointed out that a significant proportion of the 2021 market is made up of those projects deferred in Q2 2020 which in many instances had already seen significant pre-FID commitment.
He said notable examples of these ‘half-pregnant’ projects include Shell’s Whale, Equinor’s Bacalhau and Qatar Petroleum’s North Field projects, which have all commenced partial construction of long-lead EPC items such as floating production, storage and offloading vessels or wellhead platforms.
“These projects account for an estimated US$7.7Bn of projected EPC value alone in 2021. Another US$4.6Bn tranche of deferred awards are those critical to backfilling LNG trains or supporting existing gas sales agreements such as Woodside’s Scarborough, Shell’s Crux and Santos’ Barossa all offshore Australia.”
What is interesting to note is that national oil companies will be driving much of the investment, accounting for 62% of potential awards in 2021 as compared to only 10% for the supermajors. This compares with 59% and 20% in 2019. Petrobras in particular, is expected to step up contract awards in 2021, contributing around US$6.5Bn of EPC awards. These awards will support the Buzios 5, 6, 7 & 8, Mero 4, Itapu and Marlim Revitalisation projects.
Global offshore drilling activity up
Reflecting some of that optimism, global offshore drilling activity rose in week five 2021, highlighted by increased floater activity in South America. Westwood Global Energy’s RigLogix reported there were 326 offshore jack-up rigs contracted for the week, up one unit week-on-week, and 105 semi-submersibles, drillships and other floaters active in the global fleet, up two units week-on-week.
Meanwhile, drilling activity in the US Gulf of Mexico remained unchanged week-on-week at 16, according to Baker Hughes.
As we reported last week, President Biden issued an Executive Order announcing a year-long moratorium on oil and gas leasing on US federal land, including offshore acreage. Not surprisingly, the announcement drew criticism from the oil and gas industry. National Ocean Industries Association president Erik Milito said, “There is no shortage of negative consequences from this leasing pause.” The pause, he pointed out, would mean the loss of offshore industry jobs and billions of dollars investment, along with billions of dollars lost revenue for federal, state and local governments.
Offshore Marine Service Association president and chief executive Aaron Smith said the President’s Executive Order equates to a “pause in opportunities for the 345,000 Americans working in offshore energy. It is disappointing to see the Administration risk these good-paying jobs just as we started to see glimmers of hope following the Covid-19 pandemic.”
Added Mr Smith, “While the Executive Order talks about increasing offshore wind goals, the vessels and mariners necessary to construct tomorrow’s wind projects are the same ones harmed by today’s moratorium on the oil and gas industry. If this continues, these assets won’t be around when the wind industry moves from a goal to a reality.”
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