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1Global Offshore Prospects - SUT London 26 February 2009
Global Offshore Prospects
SUT London, 26 February 2009
John Westwood & Steven Kopits
picture: Rowan
2Global Offshore Prospects - SUT London 26 February 2009 2
The winter 2008/9 series of ‗Global Offshore Prospects‘ by energy
business analysts Douglas-Westwood has been presented in:
• Doha, Qatar
• Singapore
• Perth, Australia
• Houston, USA
• New York, USA
• Stavanger, Norway – February 10
• London, England (this edition) – February 26
• Southampton, England – April 1
• Aberdeen, Scotland – June 18
For details of future presentations / venues please contact us or
visit our website.
Copyright – reproduction of the information contained must state
‗source: Douglas-Westwood‘.
3Global Offshore Prospects - SUT London 26 February 2009 3
Established 1990
Offices in Aberdeen, Canterbury & New York
Activities & service lines
• Market research & analysis
• Commercial due-diligence
• Business strategy & advisory
• Published market studies
Industry sector coverage
• Oil & Gas
• Power
• Renewable Energy
Clients in 50 countries
• >550 projects completed for:
• government agencies
• energy majors and their suppliers
• investment banks & PE firms
About Us
LNG
offshore
onshore
downstream
power
LNG
renewables
4Global Offshore Prospects - SUT London 26 February 2009 4
Published Market Reports
• The source of much of the data used in this presentation
5Global Offshore Prospects - SUT London 26 February 2009
Oil & Gas Trends
Offshore Oil & Gas
Offshore Renewables
The Future
6Global Offshore Prospects - SUT London 26 February 2009
Two amazing years
• The rise and fall of oil prices
• The financial crash and stock market collapse
• The oil & gas sector has still greatly outperformed the market
• How should we interpret recent events?
Source: Barclays Stockbrokers
7Global Offshore Prospects - SUT London 26 February 2009
Recessions are not unusual
• Recessions happen about every
five years (e.g. 20 in past century)
• It is the relatively unbroken
prosperity of the past 25 years
which is unprecedented
• Most last about 18 months
• This is a very serious recession—
probably among the worst 3-4 in
the last century
8Global Offshore Prospects - SUT London 26 February 2009
US oil consumption recovers strongly after recessions
• Oil demand falls during
recessions
• Biggest fall in September
• Demand recovery: Feb
gasoline +1.7% YOY
• A recession in two parts?
Source: EIA January 08
16.5
17
17.5
18
18.5
19
19.5
20
20.5
Jan-0
8
Mar-
08
May-0
8
Jul-08
Sep-0
8
Nov-0
8
Jan-0
9
Mar-
09
May-0
9
Jul-09
Sep-0
9
Nov-0
9
Jan-1
0
Mar-
10
May-1
0
Jul-10
Sep-1
0
Nov-1
0
9Global Offshore Prospects - SUT London 26 February 2009
The near-term oil demand impact
• North American oil demand contracted by 1.3 million bpd in 2008
• Europe & N America further demand destruction of 0.5 M bpd in 2009?
• Developing economies demand continues to grow albeit at a slower rate
109
-1,345
-3372007 2008 2009
441
341 331
2007 2008 2009283
253
199
2007 2008 2009
-370
-49
-206
2007 2008 2009
295
427
300
2007 2008 2009
113
52 49
2007 2008 2009
66
119100
2007 2008 2009
North
America
Latin
America
Africa
Europe
Middle
East
Asia
FSU
Source: IEA OMR 11/12/2008
10Global Offshore Prospects - SUT London 26 February 2009
Recession and oil demand in perspective
0
10
20
30
40
50
60
70
80
90
100
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
mill
ion b
arr
els
/ d
ay world oil demand
• Oil is now more affordable
• US demand – some recovery?
• World demand to fall 1% in 2009?
• Decline is a small % on a long term view
11Global Offshore Prospects - SUT London 26 February 2009
The long-term oil supplies issue has not gone away
• ‗The effects of peak oil will be felt in
the next five years‘
• ‗Risks far greater than terrorism‘
• ‗The impacts are more likely to arrive
before climate change‘
World will struggle to meet oil demand
FT page 1 headline Oct 29 2008 (re IEA Report)
12Global Offshore Prospects - SUT London 26 February 2009
Is peak oil on the way?
0
20
40
60
80
100
120
1995 1999 2003 2007 2011 2015 2019 2023
mill
ion b
arr
els
per
day
BIOFUELS
CTL
GTL
OIL SHALES
OIL SANDS
REFINERY GAIN
OFFSHORE DEEP
OFFSHORE SHALLOW
ONSHORE
<200252
countries past peak
by 200866
countries pastpeak
• Decline in existing fields challenges future supplies
• Global peak revised down by 4 Mbpd to 89 Mbpd (Total CEO,16 Feb ‗09)
• IEA warns of ‗serious supply crunch from 2010 due to delayed investment‘ 16 Feb
• The big offshore opportunities are in deepwater
Source: Energyfiles
13Global Offshore Prospects - SUT London 26 February 2009
Ultimately, oilfield production cannot be replaced
• World‘s fields‘ annual average production declining at 4%? (some say 7%, UK N Sea is 11%)
• Current oil production = 84 million bpd
• So 3.3 million bpd needs replacing per annum
• Saudi production = 8 million bpd
We need to find and get into production one NEW Saudi Arabia
every THREE years just to offset production decline!
Plus….
For emerging economies per capita oil use to reach European
levels we need 8 more Saudi Arabia‘s producing!
14Global Offshore Prospects - SUT London 26 February 2009
The ―Easy oil‖ has gone – the remainder is in difficult places
Iraq
Venezuela
Nigeria
The Arctic
Canada
15Global Offshore Prospects - SUT London 26 February 2009
Many OPEC members‘ budgets need oil prices >$50
91.0
57.3
42.9 43.6
33.5
16.9 14.8
0
10
20
30
40
50
60
70
80
90
100
110
Ve
ne
zu
lea
Iran
Sau
di
Ara
bia
Ku
wait
UA
E
Alg
eri
a
Qata
r
2000
2008
2010
• OPEC members have invested trillions of dollars in recent years
• Some now face current account deficit and will push for production cuts
• Will members adhere to agreed production quotas?
• Or must Saudi make drastic production cuts?
16Global Offshore Prospects - SUT London 26 February 2009
Two decades of underinvestment – will the same happen again?
0
20
40
60
80
100
120
1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
Newbuild Drilling Rigs
Oil Price ($2007)
• The oil & gas industry needs to spend $10 trillion by 2030
• The world cannot afford another energy investment famine
Offshore rig builds & oil price
Some 157 offshore rigs
in construction Feb ‗09
(population 872 inc C.S)
"It is unrealistic to think that 5
years of increased spending in an
inflationary environment can
compensate for 20 years of
underinvestment" Andrew Gould, CEO Schlumberger
17Global Offshore Prospects - SUT London 26 February 2009
• A ‗clean‘ fuel
• Local depletion (e.g. UK, US GoM)
• Strong demand growth
• Major investments ongoing
• Drive to develop coal bed methane
• LNG to grow 86% by 2016
• But ….most remaining reserves
controlled by NOCs & Russia
• Will GOPEC happen? (RIQ own 55%
of the world‘s reserves)
• Long-term gas supply security a threat
as demand rises (IEA 7 Oct 08)
NATURAL GAS – huge global reserves / local shortages
18Global Offshore Prospects - SUT London 26 February 2009
EUROPE – Increasing gas imports as reserves deplete
• Europe‘s production is falling
• 61% of EU‘s gas is imported. Russia largest supplier
• Security of supply issues (winter 08/9 ‗thousands without fuel‘
• Imports to rise to 73% by 2030
• Developing import difficult – offshore / floating solutions increasingly preferred
• UK particularly exposed – NS decline & little storage.
16% others0
10
20
30
40
50
60
70
80
90
100
Top European gas markets (bcm)
19Global Offshore Prospects - SUT London 26 February 2009
Oil & Gas Trends
Offshore Oil & Gas
Offshore Renewables
The Future
DEEPWATER
(>500m)FLOATING
PRODUCTION
SUBSEA
PRODUCTION
20Global Offshore Prospects - SUT London 26 February 2009
Offshore oil & gas production and spend to grow
0
50
100
150
200
250
300
350
400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ca
pe
x &
Op
ex (
$b
illio
ns)
AfricaAsiaAustralasiaEastern Europe & FSULatin AmericaMiddle EastNorth AmericaWestern Europe
Source: EnergyFiles
• Most regions to see growth
• W Europe to decline
• Strong underlying Opex growth as
a function of both increased
volume of activity and complexity
• Capex to dip by 3% from
$157bn to $152bn in 2009
• But total spend to grow from
$260 bn (2008) to $360 bn
(2013)
21Global Offshore Prospects - SUT London 26 February 2009
Offshore Drilling – deepwater to show strongest growth
• Surge in expenditure driven by escalating oil prices / rig shortages
• 2007 spend of $68 bn. To reach $82 bn in 2012
• Deepwater spend to grow by 38%
• Petrobras, Mitsubishi plan $830 million drillship (Feb ‗09)
• Growing importance of deepwater gas
0
10
20
30
40
50
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Capex &
Opex (
$ b
illio
n)
. shallow water
deep water
Source: “ World Offshore Drilling Spend Forecast 2008-2012”
EnergyFiles & Douglas-Westwood
22Global Offshore Prospects - SUT London 26 February 2009
Deepwater Capex to reach new highs
• Deepwater production: to grow 99%
(shallow water 20%)
• Future deepwater investment:
$137 billion over the next five years
• Most Brazil sub-salt spend likely to be
beyond 2013Source: “The World Deepwater Market
Report 2008-2012” Douglas-Westwood
$0
$5
$10
$15
$20
$25
$30
$35
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Exp
end
iture
($b
illio
ns)
Africa
Asia
Australasia
Latin America
Others
North America
Western Europe
23Global Offshore Prospects - SUT London 26 February 2009
Continued increase in floating production spend
• Floater spend to grow from $4.3 bn in 2009 to $9.9 bn by 2013
• FPSO systems to account for 72%
• MMS now permitted the use of FPSO systems in the GoM
$0
$2
$4
$6
$8
$10
$12
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Exp
end
iture
($ b
iillio
ns)
TLP
Spar
FPSS
FPSO
Picture: trelleborg
Source: The World Floating Production Report
Douglas-Westwood
24Global Offshore Prospects - SUT London 26 February 2009
Subsea production to double. Capex growth to continue
0
5
10
15
20
25
30
35
40
45
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012C
ap
ex ($
billio
ns)
Africa
Asia
Australasia
Latin America
North America
Western Europe
Others
• Deepwater – increasing activity, most deepwater wells are subsea
• Marginal fields – tiebacks to existing infrastructure
• Fast route to first oil – tiebacks enable early production
• Development of complementary technology – e.g. subsea processing
• Gas developments – ‗subsea-to-shore‘ developments
Source: Douglas-Westwood
25Global Offshore Prospects - SUT London 26 February 2009
ROV spend to double
• Work-class fleet to grow from 584 to 771
• Five year spend to double to $2 billion
• Annual spend to exceed $400 million by 2012
• ROV operations market grow from $1.6bn to $2.4 bn
Source: The World ROV Report
Douglas-Westwood
0
100
200
300
400
500
600
700
800
900
Wo
rld
wo
rk-c
lass f
leet
Western Europe
North America
Middle East
Latin America
E Europe/FSU
Asia Pacif ic
Africa
26Global Offshore Prospects - SUT London 26 February 2009
Oil & Gas Trends
Offshore Oil & Gas
Offshore Renewables
The Future
27Global Offshore Prospects - SUT London 26 February 2009
• 2008 annual expenditure $0.56 bn, rising to $5.2 bn in 2012
• UK became world-leading market in 2008, surpassing Denmark
• Developers chosen for 10 Scottish sites totalling 6 GW. EIAs beginning
• Emerging Asian market – both in projects and supply chain
• High costs, long lead times, installation vessels, low investor confidence
0
1
2
3
4
5
6
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Cap
ex ($ b
illio
n)
Others
UK
Sweden
The Netherlands
Germany
Denmark
Belgium
Offshore Wind
28Global Offshore Prospects - SUT London 26 February 2009
Wave & tidal current stream – developing sectors
0
5
10
15
20
25
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Annual in
sta
llatio
ns M
W
Others
USA
UK
Spain
Portugal
Ireland
France
Canada
Australia
• Many concepts
• Devices only now
being installed in
commercial
projects
• 95 MW installed
capacity by 2013
• UK to be world-
leading market
• N America &
Australia emerging
29Global Offshore Prospects - SUT London 26 February 2009
Offshore renewables Capex in context
0.2 2
47
152
0.6 5.2
200
0
20
40
60
80
100
120
140
160
180
200
Marine Renewables
Offshore Wind
All Wind Offshore O&G
Cap
ex ($ b
illio
n)
2009
2012
• Offshore still a ‗new‘ sector
• Small markets in 2009, but
high growth expected
• Still subsidy dependent
• Major ‗pan-European‘
offshore power cable grid
under consideration (10
cables, $4bn)
30Global Offshore Prospects - SUT London 26 February 2009
Oil & Gas Trends
Offshore Oil & Gas
Offshore Renewables
The Future
• Huge potential reserves
• Major technical challenges
• Deepwater + extreme environment
• Very high costs
• National borders still uncertain
Arctic offshore
31Global Offshore Prospects - SUT London 26 February 2009
Brazilian sub-salt
• ‗Development of Brazil's promising subsalt oil deposits in the
Santos Basin will require investments of approximately $400 billion
over 10 years‘ National Petroleum Agency, Nov12, 2008
• China to loan Brazil $10 bn for supply of up to 160,000 bpd 19Feb 09
32Global Offshore Prospects - SUT London 26 February 2009
• Challenges: capital cost, plant size & weight, motion problems
• Vessels now on order
• Shell out to tender for large-scale unit
“We have devoted substantial
engineering hours to FLNG
and we now believe that its
time has come……., this
technology increases the rate
at which we can expect to get
LNG into the world’s
energy-hungry markets" Jon Chadwick, VP Shell
FLNG – floating liquefaction & regasification
33Global Offshore Prospects - SUT London 26 February 2009
2009 – total global E&P spend to fall 12%?
0
50
100
150
200
250
300
350
U.S. Canada International
$ b
illio
n
2008E
2009E
Source: ‗The Original E&P Spending Survey‘ (Barclays Capital)
• Small & marginal projects are likely to take the hit
• Mainly onshore? Then discretionary (seismic, exploration?)
• And activity that relies on the credit market
• We think the bigger offshore projects & Opex will be less effected
• Oil companies delay orders to get better prices (e.g. BP statement)
• Petrobras plans suggest survey‘s ‗international‘ may be pessimistic
375
417450 458
400
0
50
100
150
200
250
300
350
400
450
500
Jun-07 Dec-07 Jun-08 Dec-08 2009 (E Dec-09)
$ b
illio
n
34Global Offshore Prospects - SUT London 26 February 2009
• Sept – Nov: OES shows strong fall
• But some recovery since December
Past 3 years:
• E&P fairly flat despite high oil price
• Contractors boom time
• OES index doubles in value, then
• dramatic July crash
Are the prospects looking up?
35Global Offshore Prospects - SUT London 26 February 2009
• ‗Will keep investing for the eventual return of demand for oil
and refined products once the current recession ends‘. Clarence Cazalot CEO Marathon Oil
• ‗Demand for rigs that can fetch more than $600,000 a day to
rent hasn't diminished‘ Gregory Cauthen, CFO Transocean, 10 Feb ‘09
• ‗Our capital spending plans, which include exploration and
development projects, are unaffected by the recent
reduction in oil prices‘. Alan Jeffers. Exxon Mobil, 10 Feb 09
• Petrobras plans $174 bn 5-year total spend (54% increase) 28 Jan ‗09
It‘s not all bad news
36Global Offshore Prospects - SUT London 26 February 2009
• 17 Feb – Russia: Beijing to lend $25 bn in
return for agreeing to supply 300,000 b/d
• 19 Feb – Brazil: China to loan $10 bn for
supply of up to 160,000 b/d
• 20 Feb – Venezuela: China to contribute $8
billion to a strategic fund for oil development
which aims largely to increase Venezuelan oil
exports to China 2015 by 650,000 b/d
The return of the dragon – China invests in future supplies
image: earthstarshop
37Global Offshore Prospects - SUT London 26 February 2009
China – implications of Russian investment
• Beijing lends Russia $25 bn in return
for agreeing to supply 300,000 bpd
from new fields in E Siberia for the
next 20 years
• Transneft (oil pipelines) $10 bn
• Rosneft (oil group) $15 bn
• But Russia‘s production is declining
(500,000 / day in ‗09?)
• Significant implications for supplies
to the West
38Global Offshore Prospects - SUT London 26 February 2009
What happens next?
Short term (2-3 years)
• Many projects underway – more production coming onstream
• China will use its financial reserves to buy future production
• Oil prices will be determined by OPEC production cuts
• E&P co‘s ‘exploration on Wall Street’?
• Some OES companies reasonably protected by large backlogs
• But contractors costs have to fall (‗$60 costs v $40 oil prices)
• M&A opportunities in OES sector
• The recession will end
39Global Offshore Prospects - SUT London 26 February 2009
What happens next?
Longer term (4-10 years)
• The Douglas-Westwood view is unchanged
• Oil demand will increase
• Non-OPEC production will fall and oil prices will rise
• And all energy costs will increase
• Will the oil majors will hit the ‗limits to growth‘ ?
• Well positioned oil services companies will outperform
40Global Offshore Prospects - SUT London 26 February 2009
www.douglas-westwood.com
Thank You
• The financial meltdown has resulted in recession
• Oil demand has fallen as new capacity comes onstream
• But the underlying issues have not gone away
• We need massive investment in energy
• Low oil prices will restrict investment and impact on skills (again!)
• Thereby accelerate the onset of peak oil
• And fuel the next oil price explosion
• Oil is a cyclical business – long-term views are essential
• 2009 could be a great time to invest in oilfield services companies