Report: Subsea Could Stabilize in Long-Term

Mad Dog; Photo: BP

A new report by energy research and consulting service, Douglas-Westwood (DW), said that due to the current reality of a ‘lower for longer’ oil price, many oil majors have opted to focus on subsea well tiebacks, as sanctioning floating production systems (FPS) for offshore projects has become financially unviable.

Namely, 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 third quarter reports with many reporting a decline of some 40 percent in their subsea backlog compared to Q3 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 chain, DW believes 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 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 off 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.

DW expects a trough in subsea tree installation to linger well into 2017 and 2018, however installation is expected to grow at 4% CAGR (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.”

Source: DW

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