Onshore Spending on the Cusp of Recovery?

 

In line with previous editions of the report, a significant drop in project sanctioning, coupled with low rig dayrates, will see annual OFS expenditure average $49 billion (bn) over 2016-2020, while OFE expenditure will decline from $69bn to $43bn over the same period.

 

Growth in offshore drilling seen since 2010 has been sharply halted – offshore well spuds saw an 8% reduction last year and a further 9% is anticipated for 2016. 

 

Even in the event of a rapid recovery in oil prices, offshore activity will be supressed due to the deferral of final investment decisions (FIDs) for several developments in key offshore basins.

 

In addition to the drop in drilling activity, offshore rig supply will be a major issue for offshore OFS and OFE expenditure. The offshore drilling sector is currently heavily oversupplied with units brought to market during the boom years of 2011 to 2014, despite widespread scrapping of older rigs. 

 

The resultant low levels of utilisation have and will continue to drive down rig dayrates. DW estimates offshore rig & crew spending will decline 2% year-on-year over 2016-2020. 

 

Over the same period, DW expects the offshore rig construction market to decline 24% year-on-year. Even in a scenario of a rapid recovery in oil prices, it is unlikely spending will recover to 2014 levels until well into the 2020s.

 

Despite strong growth profiles for the onshore OFS and OFE sectors, it is important to note that expenditure levels in 2020 will remain at a significant discount to 2014 levels. 

 

While this will largely be due to service and equipment pricing, drilling activity in North America is not expected to reach pre-downturn levels. 

 

Similarly, operators are expected to maintain tight purse-strings for years to come – as they look to recoup losses incurred in the last 18 months.