Rystad Energy's new report forecasts that the offshore segment will see growth in 2019, with a strong outlook for offshore operators.
An expected $210bn will be spent on offshore oilfield services globally next year, according to Rystad Energy’s latest project sanctioning report. Offshore contractors have experienced four consecutive years of declining revenues, but those still standing can expect revenues to start growing again next year.
“The offshore service market is like a super tanker: It takes time to accelerate. The uptick in new projects in 2017, 2018 and now 2019 will be enough to turn revenue growth positive to mid-single digits as offshore capex is set to increase due to the recent years of capital commitments. And on top of that comes an expected increase in operating expenses,” says Audun Martinsen, head of oilfield service research at Rystad Energy.
Oil and gas operators plan to sanction at least 100 offshore projects in 2019 after giving the green light to 90-plus projects in 2018. The projects on track to be sanctioned next year have total greenfield commitments representing about $120bn.
Despite the fact that oil prices have come down during the fourth quarter of 2018, operators still plan to spend more next year and move forward on project sanctioning. More than 85% of the projects that Rystad Energy expects to be sanctioned in 2019 will generate returns greater than 10% even at current oil prices, the company estimates, as development costs have been reduced by as much as 30% since 2014. Unit prices in 2018 were down at levels not seen by the offshore market since 2006, which could have positive implications for the breakeven prices of the projects in question.
“Offshore operators are quite trigger-happy on FIDs these days, despite the recent reduction in oil prices. 2018 saw the lowest obtainable unit prices since 2006, as much as 30% down from the peak in 2014, and that makes their cost per barrel and breakeven prices highly favorable. Couple that with one of the most profitable years for E&Ps in decades in 2018, and the recent production cut agreement by OPEC and Russia – offshore operators want to focus on field development again,” Martinsen said.
According to Rystad Energy, 30% of 2019 project value sits in Middle East, 25% in South America, 15% in both Africa and Asia, and the rest in Europe and North America combined.