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Subsea Market Overview NWECS Focus
November 2014
An Introduction to Infield Systems
SECTION I
Energy Sector Exposure
Infield provides products and services across the full oilfield service supply chain
Sources: FMC, Infield Systems 3
Image courtesy of FMC Technologies Inc.
Geographic Locations A globally recognised oil & gas consultancy with a dedicated team of cross-sector specialists
4
Key Global Personnel
c.40 energy professionals – global footprint
Office Locations
London
Aberdeen
Houston
Head Office
Regional Office
Paul Main (Research Manager) London
[email protected] +44 207 423 5022
James Hall (Director) London
[email protected] +44 207 423 5024
Steve Adams (International Sales Manager) Aberdeen
[email protected] +44 122 425 8150
Luke Davis (Senior Analyst) London
[email protected] +44 207 423 5023
Regina Sousa(Senior Analyst) London
[email protected] +44 207 423 5026
John Ferentinos (Senior Analyst) London
[email protected] +44 207 423 5036
Products & Services
A leading offshore oil and gas and associated services consultancy
Source: Infield Systems Limited, company websites 5
Data, Reports & GIS Mapping Business Strategy and Analysis Transaction Services
• Offshore specific data covering production infrastructure, rigs, specialist vessels, construction yards, contracts and OFS providers
• Sector specific reports • GIS mapping services covering
operational and forecasted production infrastructure
• Market matching and market tracking – “Match & Track”
• Complete market intelligence outsourcing • Bespoke sector services • Market entry strategy • Procurement strategy advisory – “Project
Flow” • Ad-hoc sector analysis • NPV Economic Field Modelling
• Advisory • Market overview IPO • Debt financing analysis • Distressed asset purchase analysis • Buy/sell side market due diligence • Opportunity identification
The Offshore Macro Environment
SECTION II
The Background
Distribution of SPE Members 2013 vs. 1997
Marginal costs are increasing, the workforce is aging and shareholders expect the same, or higher levels of dividends. Something has to give…
Sources: Infield Systems 7
IOC Capital Expenditure Expectations
Production Cost Curve of Oil Related Resources
0
20
40
60
80
100
120
140
160
180
2010 2011 2012 2013 2014 2015 E 2016 E 2017 E
$b
n
ExxonMobil Royal Dutch Shell BP Chevron Total
Already Produced MENA
Conventional
Other Conventional
CO
2 EO
R
Oth
er E
OR
Dee
p W
ater
Arc
tic
Heavy Oil Bitumen
Shale Oil
Low Oil Price
Medium Oil Price
High Oil Price
0
15
30
45
60
75
90
105
120
0 1,000 2,000 3,000 4,000 5,000 6,000Available Quantity (bn barrels)
$/b
bl
0%
5%
10%
15%
20%
25%
2013 1997
Oil Price Forecast (2015-2020) Brent prices of $90-$100/bbl reflects a healthy level for supply/demand balance in longer-term. We expect continued moderation in oil prices with substantial upside risk towards the end of the decade
Source: Infield Systems 8
112 109
100
91 91 92 94
96 99
40
60
80
100
120
140
160
2012 2013 2014 2015 2016 2017 2018 2019 2020
$/bbl
MENA Geopolitical Instability Supply is vulnerable to MENA disruptions
Under-Investment in the short-run may cause a supply shortage towards the end of the decade
The annual average of Brent prices are anticipated to stay in a range between $90-100/bbl throughout the rest of the decade Downside market risks are expected to drive price moderation over the coming two years. Supply is anticipated to outstrip demand by over 1mbpd in 2015 and 0.5mbpd in 2016 However, high cost of marginal supply will likely set a lower limit of around $80/bbl; a threshold that is key to the continuation of the shale boom We anticipate substantial upside risk towards the end of the decade due to geopolitical instability in major producers and under-investment over the period between 2014 and 2016
Large Budget Deficit in the likes of Venezuela, Iran, Iraq and Russia may further spur instability in major oil producing countries
Global Demand Will Continue Grow due to population growth and industrialisation of emerging economies
Surging Shale Production in the US is anticipated to continue throughout the rest of the decade
Saudi Arabia Protects Market Share so will unlikely cut production to support oil prices
Weak Economic Outlook drives negative sentiment towards oil demand
Increasing Extraction Cost as additional demand need to be met by high-cost unconventional resources such as shale oil and extra heavy oil
Supply Recovery from Libya and other producers adds additional barrels to the global supply
Lower Range
Higher Range
Upside Drivers
Downside Drivers
Annual Average of Brent Prices
OCT 2014
BRENT: $87.7/BBL WTI: $84.7/BBL
Falling Chinese Demand oil demand growth is anticipated to be moderate in China in the coming years compared with the past decade
40
50
60
70
80
90
100
110
120
Onshore Offshore
Oil Sand (Canada) Barents Sea (Arctic)
Extra Heavy Oil (Venezuela) West of Shetlands (North Sea)
Shale Oil (Outside US) Ultra-Deep-water (West Africa, GoM)
Shale Oil (US) Deep-water (North Sea) | Ultra-Deep-water (Brazil)
Conventional (West Africa) Mid-Water (North Sea)
Conventional (Iraq) Shallow-Mid Water (North Sea | South East Asia)
Brent Price Volatility
Oil Price Components
Average Sanction Prices
Oil Market Overview Lower expected investment in unconventionals will potentially set the stage for higher prices towards the end of the decade
Source: Infield Systems 9
Global Oil Production by Resource Type
0
10
20
30
40
50
60
60
70
80
90
100
110
120
Oct/13 Dec/13 Feb/14 Apr/14 Jun/14 Aug/14 Oct/14
$/b
bl
Brent Price Volatility (LHS) Brent Price (Monthly Average)
$116/bbl $86/bbl
-20
0
20
40
60
80
100
120
Brent (Jun 2014) Brent (Oct 2014)
$/b
bl
Fundamental Price Supply Disruptions MENA RiskIraq & Ukraine Crisis Over Production Hedge Fund Speculation
40
50
60
70
80
90
100
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
mb
pd
Onshore Conventional NGL Shallow Water Deep Water Extra Heavy Shale Oil
Offshore Market Outlook (2015-2020) Offshore activity will remain moderately robust but activity in frontier areas such as the Arctic and East Africa will most likely be delayed. Orders will be weak for 2015
Source: Infield Systems 10
Arctic 2015-2016 Oil prices below $90/bbl means that Arctic projects are uneconomic. FIDs of major Arctic development are not expected
Arctic 2017-2020 Construction activity is not expected due to delayed investment decisions over the pervious years
GOM 2015-2016 Peak shallow water activity is expected around 2016 while FID on deep-water developments could be further delayed
GOM 2017-2020 Deep-water activity is expected to recover and ultra-deep-water development will likely start during the forecast period
Middle East 2015-2016 Shallow-mid water activity unaffected by the oil price slide as projects are based on low sanction prices
Middle East 2017-2020 Continued development in the Persian Gulf is expected throughout the decade with a moderate increase in CAPEX
Africa 2015-2016 West Africa activity will remain robust. We anticipate more concessions from governments to propel output
Africa 2017-2020 Deep-water development is anticipated to be strong in Angola, Nigeria and Ghana. East African activity may be delayed
North Sea 2015-2016 Current developments to continue, but sanctioning activity weak. Statoil to place pressure on the supply chain
North Sea 2017-2020 Development of deep-water and ultra-deep-water fields in the Northern North Sea will likely commence at the end of the forecast
Australia 2015-2016 The development of on-going mega-projects are likely to continue but the pace of new developments is expected to slow
Australia 2017-2020 We expect delays in offshore gas projects as they face strong competition from the US, Middle East as well as East Africa
Latin America 2015-2016 Brazil will likely relax its strict policy on pre-salt development and the Mexico energy reform may increase investment
Latin America 2017-2020 Deep-water projects in Mexico and ultra-deep-water projects in Brazil will likely take off during the forecast
South East Asia 2015-2016 Continued development in shallow-waters with deep-water opportunities in Indonesia and Malaysia
South East Asia 2017-2020 Shallow water activity is expected to peak towards the end of the forecast but deep-water activity will see considerable increase
Global Offshore Outlook Shallow water development will likely be unaffected by the low oil price environment. Deep-water activity in Brazil, West Africa and the GoM will continue to be robust throughout the coming years, but contractors will work through backlogs in the absence of new contract awards. Deep-water activity in the Northern North Sea is expected to be delayed and in the Arctic is expected to remain minimal. A number of major deep-water gas projects in East Africa and Australia could fall out of the forecast window due to unfavourable oil price conditions
Offshore Industry Prospects (2015-2020) Considerable caution across the industry as Operator Capex cuts and reduced commodity prices begin to bite – short-term woes with longer-term growth potential
Source: Infield Systems 11
Offshore Capex
Capex will fall in 2015 and stay stagnant through 2016/17 unless oil prices increase so as to drive new project sanctioning. There are substantial risks in the capital-intensive subsea sector. On-going development of floating platforms will likely continue. However, we could see delays in deep-water mega-projects towards the end of the forecast. In the long-term we anticipate that offshore CAPEX will continue its rise due to both an increase in volume and overall value of projects
Market 2015-2016 2017-2020 ST Risk Comments
Medium Capex will likely fall in 2015, given the low oil price outlook. In the long-term, substantial growth will be driven by both an increase in volume and overall value of projects
Floating Platform EPIC Medium Growth in the long-term is driven by an increase in deep-water activity in emerging markets such as Brazil and West Africa. Ultra-deep-water projects in the North Sea and West Africa could be delayed
SURF Pipeline Capex Low SURF activity is particularly prominent in regions with a high proportion of floating facilities and subsea focussed investment
Control Line Capex Low Umbilicals dominate the market with considerable installation in the short-term. Risk profile is low as associated with floating production infrastructure
Subsea Capex Medium Shot-term expenditure is expected to be hit by lower than expected order volumes for 2014 driven primarily be the tree market. Overall CAPEX growth expectations are positive beyond 2016
Subsea Tree Orders High Tree orders for the first three quarters of this year have been substantially below industry expectation. On-going oil price volatility adds additional uncertainty to the market
Offshore Business Environment (2015-2020) The short term outlook for the offshore market remains flat as demand is being pushed to the latter half of the five-year view
Source: Infield Systems 12
Seismic
Market 2015-2016 2017-2020 ST Risk Comments
High Lack of pre-funding seismic and CAPEX reductions from IOCs has materially reduced demand. Competition remains high, with challenging headwinds capping positivity
Jack-up Rigs Medium
The recent and expected high level of newbuilding activity in the jack-up sector will help alleviate any short fall in rig supply in the coming years. Operators are displaying a clear preference for high-spec assets and this has generated a raft of retirements
Floating Rigs Low The short term outlook for deep-water rigs has deteriorated due to a reduction in in CAPEX from the majors. We believe demand is being pushed to the latter half of the five-year view
Subsea High
Orders expected to fall back from 2013’s historical highs. Without Bonga SW, 2014 (calendar) will see c.225 awards. Long-term growth underpinned by strong fundamentals in deep-water exploration and marginal fields, but 2015 will likely be weak
Fabrication Medium Order backlogs remain at recent historical highs, however, indications suggest a slight cooling in the short term. Continued operator confidence and high oil prices provide strong economic merits to long term demand
Installation Medium Mid-cycle downturn likely to see reduced orders, but next cycle to commence from 16 onwards. Growth depends on WAF activity
Operations Low
Increased focus on HSE dictates more complex work, but operational base is falling. Five-year view dependent on robust deep-water and South East Asia market. Some cuts have been made by Statoil in the North Sea, but this is expected to be a short-term supply chain response
Subsea Tree Activity in 2014
SECTION III
13
Subsea Tree Awards per Quarter
0
50
100
150
200
250
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2008 2009 2010 2011 2012 2013 2014
Africa Asia Australasia Europe Latin America Middle East & Caspian Sea North America
14
• Historically Europe, Africa and Latin America have accounted for 22%, 23% and 30% of awards respectively
• 2008-2013 period driven by Petrobras
• Brazilian activity has been lacking in 2014 – material influence on tree orders
• Lag of 6-12 months on more commoditised subsea kit – 2015 will be painful 2008-2014 Subsea Tree Awards by Region
2013: 549 2014YTD: 188 2014YE: c. 235
Aker Solutions 5%
FMC 74%
GEOG 5%
OneSubsea 16%
Subsea Tree Awards – 2014YTD So far in 2014, Aker dominates in Africa, Dril-Quip in Europe, FMC in APME and OneSubsea in South America
Latin America: 14
North America: 39
Africa: 89
Europe: 27 Global manufacturers’ market shares 2014 YTD: 188 subsea tree awards
15
Asia: 19
OneSubsea
100%
Aker Solutions 36%
FMC 26%
OneSubsea 21%
Dril-Quip 12%
GEOG 5%
Aker Solutions 73%
FMC 18%
GEOG 7%
OneSubsea 2%
Aker Solutions 7%
Dril-Quip 82%
GEOG 11%
FMC 49%
OneSubsea 51%
Subsea Tree Awards in 2014YTD • 188 subsea tree awards in 2014YTD
• One major award from Total in Angola (Kaombo)
• Catcher
16 Sources: Infield Systems
Catcher (22) Fram C East (2)
Kaombo(65) Mpungi (5) Paladio - Plutonio FPSO (4)
GC Shenzi, Tahiti & Allegheny South (8)
Jangkrik (12) Lakach(8)
GC Spar Holstein (4)
The Next Big Thing – Bonga South-West – 2014??
Sources: Infield Systems 17
Subsea Forecast
SECTION IV
18
Subsea Tree Installation Forecast
[] 19
0
100
200
300
400
500
600
700
800
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Awarded Non Awarded
• Supporting subsea infrastructure – 12-18 month lag behind tree orders
• Manifolds & templates considered considerably less complex than the compression, boosting, separation & production – opportunity for small fabricators
• 2014-15 poor for trees means a reduction in related kit through 2H15 & 2016
Subsea Tree Installation (units) Regional Activity Split 2014 - 2018
Africa 25%
Europe 25%
Latin America
18%
North America
15%
Asia 9%
Australasia 7%
Associated Subsea Infrastructure
[] 20
0
25
50
75
100
125
150
175
200
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Manifold Template Subsea Separation
Booster Pump Subsea Compression
• Supporting subsea infrastructure – 12-18 month lag behind tree orders
• Manifolds & templates considered considerably less complex than the compression, boosting, separation & production – opportunity for small fabricators
• 2014-15 poor for trees means a reduction in related kit through 2H15 & 2016
Associated Subsea Infrastructure Installations (units) Regional Activity Split 2014 - 2018
Africa 29%
Europe 30%
North America
12%
Asia 13%
Latin America
7%
Australasia 8%
Control Line Infrastructure
[] 21
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Power Line Umbilical
• Control line market, driven by umbilicals is driven by Europe – subsea developments, tiebacks, EOR
• RoW has relatively equal split of the residual market
• Considerable increase in the complexity of umbilicals could restrain supply through 2016-17 – concerns voiced by Aker
Control Lines Installations by Line Type (KM) Regional Activity Split 2014 - 2018
Europe 40%
Asia 12%
Middle East &
Caspian Sea 11%
North America
11%
Africa 10%
Latin America
9%
Australasia 7%
Pipeline Line Infrastructure
22
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0-99 100-499 500-999 1000-1499 >1499
• Inner pie L5Y, outer pie N5Y – considerable shift to deeper more complex environments
• Trend towards greater tension capacities across the installation fleet
• Increase in engineering and fabrication complexity for deepwater flexible & composite lines – Technip 3,000m (2017 qualification year)
Pipeline Installations by Water Depth (KM) L5Y/N5Y Comparison
49%
11%
40%
21%
0-99 100-499 500-999 1000-1499 >1499
NWECS in Focus
SECTION V
23
Subsea Tree Installation (units)
Control lines Installations (KM)
Associated Subsea Infrastructure (units)
NWECS
24
Pipelines Installation (KM)
0
500
1,000
1,500
2,000
2,500
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Denmark Ireland Netherlands Norway Sweden UK
0
50
100
150
200
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018UK Norway Netherlands Ireland Denmark
0
10
20
30
40
50
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Norway UK Ireland Netherlands Denmark
0
1,000
2,000
3,000
4,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Denmark Finland Germany Ireland
Subsea Steel Fabrication in the UK Although the industry is dominated by few key players, a plethora of smaller Firms have the potential to service a proportion of regional demand
25
Location and size of key subsea fabrication players in the UK
1,001+
501 - 1000
101 - 500
0 - 100
Key: Overall company size Global Energy Group – Invergordon / Evanton / Nigg
Global Energy Group – Aberdeen
Rigmar Group – Dundee
MacKellar Sub-Sea – Grantown-on-Spey
Burntisland Fabrications – Methill / Burntisland
Hydrus Energy Engineering – Brechin
Babcock - Rosyth
OGN Group – Tyneside
A&P Group – Tyne
Shepherd Offshore Group – Newcastle Heerema – Harlepool
TAG Energy Solutions – Billingham
Sembmarine SLP – Lowestoft
Fabcon Projects – Norwich
GE Oil & Gas – Aberdeen
FMC Technologies - Dunfermline
Wilton Engineering Services – Port Clarence
Subsea Steel Fabrication in Norway Norway’s manufacturing competitiveness is undermined due to its high input cost compared to emerging markets
Source: Infield Systems
Note:*Buskerud, Telemark and Vestfold areas
26
Location and size of key subsea fabrication players in Norway
1,001+
501 - 1000
101 - 500
0 - 100
Key: Overall company size
Skude Industri – Skudeneshavn
AS Nymo – Grimstad
Agility Group – Skien / Tonsberg / Langesund
Aker Solutions – Egersund
NIPUNN Engineering – Lier
NLI Subsea Engineering – Vear
Jotne – Oslo
Kongsberg Oil & Gas – Asker
Rosenbergy WorleyParsons – Hundvag
FMC Technologies – Kongsberg GE Oil & Gas – Bergen
Key Contacts Infield is a globally recognised oil & gas consultancy with a dedicated international team of cross-sector specialists
27
Contacts
c.40 Energy Professionals covering all geographic regions
Office Locations
London
Aberdeen
Houston
Head Office
Regional Office
James Hall Director
[email protected] +44 207 423 5024
Disclaimer
28
The information contained in this document is believed to be accurate, but no representation or warranty, express or implied, is made by Infield Systems Limited as to the completeness, accuracy or fairness of any information contained in it, and we do not accept any responsibility in relation to such information whether fact, opinion or conclusion that the reader may draw. The views expressed are those of the individual contributors and do not represent those of the publishers.
Some of the statements contained in this document are forward-looking statements. Forward looking statements include, but are not limited to, statements concerning estimates of recoverable hydrocarbons, expected hydrocarbon prices, expected costs, numbers of development units, statements relating to the continued advancement of the industry’s projects and other statements which are not historical facts. When used in this document, and in other published information of the Company, the words such as "could," "forecast”, “estimate," "expect," "intend," "may," "potential," "should," and similar expressions are forward-looking statements.
Although the Company believes that its expectations reflected in the forward-looking statements are reasonable, such statements involve risk and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors could cause actual results to differ from these forward-looking statements, including the potential for the industry’s projects to experience technical or mechanical problems or changes in financial decisions, geological conditions in the reservoir may not result in a commercial level of oil and gas production, changes in product prices and other risks not anticipated by the Company. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties.
© Infield Systems Limited 2014