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As of January 2016, an estimated $380 billion of projects in our industry have been cancelled since 2014, according to analysts at Wood MacKenize. An estimated 68 projects were scraped in 2016, accounting for around 27 billion barrels of oil and natural gas. $170 billion in capex spending was slashed for the period between 2016 and 2020. All told, industry cuts will translate into at least 2.9 million barrels of oil production per day (mb/d) that will not come online until at least sometime next decade. Most of the projects that suffered cuts were offshore due to higher development costs. For example, projects in the Gulf of Mexico, offshore Nigeria and Angola will be deferred until the 2020s.
Despite this trend, in an article on Rigzone, Weatherford recently stated that they see opportunity in the offshore market (http://www.rigzone.com/news/oil_gas/a/145485/Weatherford_Sees_Growth_Potential_for_Offshore_Portfolio). Weatherford has been in the completion business for years – but primarily surface completions in the United States, Canada and the Middle East. In 2012, Weatherford acquired Aberdeen-based technology company Petrowell. Weatherford was recently awarded its first contract for the majority of completion technologies on an offshore platform operated by a major oil and gas company in the North Sea. The company also recent won bids for offshore projects in the Asia Pacific region, the Middle East, and Sub-Saharan Africa, and is currently participating in a tender for work in the Gulf of Mexico. Interestingly, in development of new technologies, Weatherford is taking a standardization approach: using modular units for greater cost efficiencies.
I think it is interesting that many have predicted subsea work to have a substantially longer recovery time. In talking to people in the industry, I have heard estimates that subsea will not begin to recover until at least 2018, or even 2020 because of long lead times and higher cost. When you consider this against the backdrop of our article last week, that Shell, a large offshore producer, tends to refocus on shale plays (http://fsmetals.wwwssr7.supercp.com/about-us/newsletters/cost-savings-may-be-here-to-stay), these arguments tend to make a lot of sense.
Yet, here you have a major OEM talking about potential growth opportunity in a subsea market some have written off for the next few years. Perhaps because of well decline rates (a topic I will address in a future Five Star Standard), offshore may indeed hold promise quicker than any of us anticipate. One thing I have learned in the industry is you have to try to expect the unexpected and adapt along the way. Let’s hope Weatherford is right!
In the meantime, we will keep monitoring and reporting!
By: Ty Chapman
Five Star Metals, Inc.
Raising the Bar for Customer Service and Quality.