DW lowers deepwater spending forecast to $137 billion

Offshore staff

LONDON – In the 14th edition of its World Deepwater Market Forecast, Douglas-Westwood (DW) predicts deepwater expenditure to total $137 billion between 2016 and 2020. This represents a 35% decline compared to the previous edition issued in March 2015.

The prolonged low oil price has impacted the deepwater market, with operators considering alternative development options and delaying the sanctioning of new projects while trying to protect returns on their existing investments in the sector.

However, the analyst group found that projects already under construction are unlikely to be affected. The largest proportion (38%) of the total spend will be attributed to drilling and completion. Subsea production equipment, SURF, pipelines, and trunklines will represent 34% of total expenditure combined. Floating production units will account for 28% of spend over the forecast period.

Expenditure will predominantly be driven by Africa and the Americas, the analyst said, which will account for a combined 87% of total deepwater capex. Though all regions will be adversely affected by low oil prices, projects that were sanctioned before the oil price downturn will help sustain activity levels in these regions. In addition, the group expects to see the development of East African gas basins toward the end of the forecast period.

Record levels of backlog established over the 2011-2014 period have somewhat insulated subsea hardware manufacturers from the oil price downturn. However, DW expects a further decline in subsea hardware installations in 2017 and 2018 with backlog falling rapidly and new orders trickling in at very low levels.

The analyst found that the subsea sector’s original equipment manufacturers will feel the full impact of the downturn in 2016/2017 and will face strong competition for the lower volume of projects. In total, it is forecast that the number of deepwater wells to be drilled over the next five years will decline by 3% compared to the preceding five-year period.

From a supply-chain perspective, this point in the cycle is an opportunity to bring through new approaches and technology for deepwater developments to improve efficiency and lower cost. In the long run, DW said it remains of the view that deepwater will be a cost competitive source of world-class hydrocarbon reserves.


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