Offshore Mechanics and Arctic Engineeri ng - Gesellschaft für ...

Current trends
<strong>Offshore</strong> ind ustry prospects
John Westwood
We forecast that daily offshore oil & gas doubled whilst Europe's has fallen. Oil is the
production, currently st<strong>and</strong>ing at around 43
million barrels of oil equivalent (boe), will
fuel of transportation <strong>and</strong> growth continues
- history shows that developing world oil de-
grow to 53 million boe in 2O1O <strong>and</strong> drive m<strong>and</strong> is quite resilient to oil price increases.
industry annualexpenditure from $193 billion
in 2006 to $248 billion by 2010. High oil
<strong>and</strong> gas prices over the period are expected
Drilling Booms
According to analysis for
to result in continued strong growth in business.
Over the next five years, we expect
annual capital expenditure to increase by
ten percent from just under $110 billion in
2006 to $120 billion in 2010.
Opex growth
However, we think the real star of the show
will be the less glamorous operational sector
with a forecast growth of 53 percent, from
$83 billion in 2006 to $127 billion in 2010.
Field operations is developing into a major
long-term growth business <strong>and</strong> is targeted
by major players such as Petrofac who's
stock price has climbed by a3 percent since
its IPO on the London market in October
2OO5. The major long-established company
in this sector is the 6,000 employee Production
Services Network, where Douglas-
Westwood provided due diligence services
for the Bank of Scotl<strong>and</strong>-financed management
buy-out from owner Halliburton.
<strong>Offshore</strong> expenditure is increasing rapidly,
but there are considerable differences
across the regions. Nevertheless, all markets
will see ever-higher levels of operating expenditure.
Overall, we expect West Africa
to show the greatest growth at nearly $'13
billion in combined Capex <strong>and</strong> Opex.
Key d rivers
The fundamental that is driving the oil industry
boom is the growth in energy dem<strong>and</strong> in
the developing world. In the past three years,
total electricity dem<strong>and</strong> alone has grown
at an average of 73CW per annum - the
equivalent of needing to build one new nuclear
power station per weekl In the past decade
China's oil consumption has more than
The author:
John Westwood heads international energy
analysts Douglas-Westwood Limited.
Its market analysis <strong>and</strong> strategy services
are used by clients in 33 countries with
over 390 assignments completed since
formation in 1990. ln the past two yearsDouglas-Westwood
has completed
market due diligence on energy industry
M&A <strong>and</strong> financing deals totalling $3.1
billion.
'The World <strong>Offshore</strong>
Drilling Spend Forecast 2006-2010',
approximately $193 billion was spent globally
over the last five years on offshore
drilling both E&A <strong>and</strong> development. From
2001 to 2003, amounts were flat but began
to pick up in 2004 as prices rose with activity
<strong>and</strong> the oil price. The forecast for 2006
to2010 is continued growth, to reach $263
billion over the five year period; a rise of 36
percent. In view of the mere four percent
rise in well numbers, almost all of this can
be ascribed to increased costs.
Shallow water development spending is generally
flat or only showing modest gains -
we expect 13 percent in total over the next
five years. Conversely, without exception
deep water development drilling spending is
increasing rapidly in all regions where deep
water fields have been discovered, especially
in West Africa. In total, we expect deepwater
drilling spend to grow by 93 percent
over the period to 2010.
Resource limitations
Over the next three years, most sectors of
the offshore industry will be equipment <strong>and</strong>
people resource-constrained. <strong>Offshore</strong> day
rates will remain high, especially for capital
assets that take some time to build, such as
high specification drilling rigs <strong>and</strong> specialised
installation vessels.
In the medium-term, we expect a continuing
growth in drilling industry revenues fuelled
by a combination of high oil prices <strong>and</strong> rig
shortages. However, new rigs have already
begun to enter the market <strong>and</strong> will eventually
serve to moderate day rate growth.
In the light of growing offshore expenditure,
another challenge that both the oil
companies <strong>and</strong> their contractors is facing is
that of accessing human resources. lt was
recently estimated that to man the new
rigs presently on order will require recruiting
<strong>and</strong> training over 7,000 staff - a virtually
impossibility in the three years before
delivery.
The 'skills shortage' may in time be
addressed as new people enter the industry
attracted by higher salaries. But the 'experi-
Over the next few years business opportunities
will abound for the service & supply
sector but the fundamentals indicate particularly
strong prospects in deepwater <strong>and</strong>
the associated areas of subsea <strong>and</strong> floating
production, but as the decade progresses
the real big story will be natural gas.
Deepwater - the decline of both production
<strong>and</strong> new prospects in shallow waterwillcontinue
to force the majors <strong>and</strong> an increasing
number of mid-size players into deep waters.
In
ence shortage' is far more challenging <strong>and</strong>
there exists a growing potential for both
technical <strong>and</strong> strategic mistakes to be made
'The World Deepwater Marl