Analyst remains positive on long-term subsea market

Offshore staff

LONDON – Despite the cyclical nature of the oil and gas industry, the lower-for-longer oil price has made sanctioning large offshore projects financially unviable, according to analyst Douglas-Westwood.

Many oil majors have opted to focus on subsea well tiebacks, as the analyst notes that “memories of any floating production system reaching final investment decision begins to fade – no FPS units have been sanctioned over the past 18 months.”

In line with this, original equipment manufacturer (OEM) earnings have come down significantly in recently released 3Q 2016 reports, with many recording a decline of about 40% in their subsea backlogs compared to 3Q 2015, an indication that the subsea industry is at a crossroad.

However, with substantial cost-cutting already achieved, and as E&P companies continuing to squeeze their supply chains, there is reason for optimism that E&P companies will be able to sanction new projects, with many needing to ensure production inventory remain high.

Many operators will also be aiming to take advantage of the price pressures on the supply chain due to the current market downturn. The current woes experienced by OEMs due to limited order intake over the past two years could evolve into long-term stability, as the industry continues to collaborate and resize itself.

DW believes that subsea tree orders have bottomed out, with mega subsea projects such as BP’s Mad Dog Phase II, Anadarko’s Shenandoah, Eni’s Zabazaba and its commitment to the Coral South project offshore East Africa all expected to be sanctioned in 2017.

The reality of current market conditions can be tempered by a long-term view of the fact that subsea development will remain a critical aspect for future field developments as new reserves are found in more remote and deepwater basins.

The analyst expects a trough in subsea tree installation to linger well into 2017 and 2018. However, installation is expected to grow at 4% compound annual growth rate over the next five-year period, an indication of a light at the end of what has been a long tunnel.

11/21/2016

Did You Like this Article? Get All the Energy Industry News Delivered to Your Inbox

Subscribe to an email newsletter today at no cost and receive the latest news and information.

 Subscribe Now

Whitepapers

Storm Impact Analytics for Utilities

In recent years, increasingly volatile and extreme weather events have significantly impacted the...

Reach New Heights: Six Best Practices in Planning and Scheduling

These 6 best practices have created millions of dollars in value for many global companies. Learn...

Making DDoS Mitigation Part of Your Incident Response Plan: Critical Steps and Best Practices

Like a new virulent strain of flu, the impact of a distributed denial of service (DDoS) attack is...

The Multi-Tax Challenge of Managing Excise Tax and Sales Tax

To be able to accurately calculate multiple tax types, companies must be prepared to continually ...