Since the onset of the downturn in 2014 it has been a pretty bleak few years for the offshore sector, with the occasional chinks of light on the horizon often quickly clouded over. More recently there have been indications that things might be clearing up a little and so sentiment has improved somewhat. But it is worth recalling just how low the barometer has sunk in order to put these things in perspective.

Top Level Indicators

A range of indicators, of different degrees of precision, can be useful when attempting to assess the state of the offshore sector. Since the start of 2017, high level indicators have helped to induce slightly more positive sentiment. For instance, the oil price so far in the year has averaged $51.90/bbl (up 25% y-o-y). Oil company offshore E&P spend, meanwhile, is expected to fall by around 5% in the full year; not ideal, but certainly better than the 19% and 27% cuts in 2015 and 2016. Estimated offshore project CAPEX is also up by 9% y-o-y on an annualised basis (at around $45bn in the year to date as of start October), with project sanctioning sentiment having perked up.

However, even if things seem to be turning, it is worth bearing in mind how far down these indicators have come: Brent averaged in $99.58/bbl in 2014; oil company offshore E&P spending in 2017 is set to be 44% lower than in 2014; and on the present trend, CAPEX would be 69% lower than the $190bn average in 2011-13. Moreover, looking at more tightly focused indicators brings home with greater force just how far the sector has fallen.

Fields Still Falling?

As the graph shows, offshore field activity has been severely reduced in the downturn. While there have been a couple of regional bright spots, a mere 53 offshore fields have been discovered globally so far in 2017; annualised, this represents a decline of 56% versus the 2005-14 average of 166 per year. In short, this is because the exploration component of E&P spending is the easier component to cut. Meanwhile, offshore start-ups have dwindled as the backlog of under development fields has eroded (though slippage has been a factor too) and fewer projects have been sanctioned. Thus just 41 fields had started up in 2017 as of start October; on an annualised basis, this represents a fall of 51% on the 2005-14 average of 115. So even when oil companies start to increase E&P activity again (the signs are there for development), it is quite a way back to pre-downturn levels.

Depressed Markets Rising?

Reduced offshore exploration and development activity has naturally translated to challenged vessel markets. A classic indicator here is of course rig utilisation. As of start October, global combined jack-up and floater utilisation stood at 65%, a very slight improvement on the apparent nadir of 63% at the start of the year but still down 27 percentage points on October 2014, at levels last seen in the 1980s. A total of 129 jacks-ups and floaters also remain cold stacked, up 87% on October 2014. So again, though there are a few encouraging signs on a regionalised basis, things are still a long way down.

In general then, key offshore indicators have been slightly more positive in 2017. But even with these small improvements, things clearly remain challenged. The sector has a long way still to go before it reaches the sunnier climes once more.
Source: Clarksons