Capital Markets Perspectives on Offshore Oil & Gas

Transcription

1 Capital Markets Perspectives on Offshore Oil & Gas Jeff Spittel Managing Director (713) March

2 Today s Agenda The Good News: favourable secular growth outlook intact The Bad News: What s ailing crude prices Escalating financial/technical risks offshore Capital pull from U.S. shale E&P operators focusing on capital austerity Assessment of offshore oil/gas spending climate: Offshore drilling Offshore transportation Capital equipment March Norwegian Finance Day 2

3 Offshore Oil/Gas Production Growth Potential Oil Gas Data Source: Clarkson Research Services March Norwegian Finance Day 3

4 Growth in Offshore Production Offshore Production Development Additional Production from Start-Ups Data Source: Clarkson Research Services March Norwegian Finance Day 4

5 2023/14 Change in Offshore Production % Change in Offshore Production Data Source: Clarkson Research Services March Norwegian Finance Day 5

6 Offshore Oil/Gas Macro Themes The Big Boys Need to Hunt Elephants Offshore exploration is one of few sources of scalable and accessible reserve replacement for NOCs Reserve potential of offshore exploration prizes dwarfs that of shale plays Data Source: Transocean, Wood Mackenzie March Norwegian Finance Day 6

7 Offshore Oil/Gas Macro Themes Proliferation of Emerging and Frontier Exploration Regions E&Ps making increasingly prevalent exploration forays beyond golden triangle Potential long-term driver of incremental rig demand Data Source: Copyright IHS Petrodata, Clarkson Research Services March Norwegian Finance Day 7

8 Subsea Completions Subsea Tree Installations by Year Increase in deepwater MOPU development feeding demand for subsea installations. 60% of installations under construction are earmarked for deepwater fields. Subsea installations generate demand for both MDUs and MSVs/DSVs/ROVs. Data Source: Clarkson Research Services March Norwegian Finance Day 8

9 Mexico: The Next Big Thing? Historical Offshore Development in Mexico has been concentrated in the Bay of Campeche. Prolific developments and discoveries already in the deepwaters of the outer US GoM- a positive sign for adjoining Mexican geology. The first fruits of exploration in Mexican deep waters have been positive (Maximino, Supremus). The potential for private investment enhances the likelihood of these fields development. A medium-term demand source? March Norwegian Finance Day 9

10 Global Discoveries & Start ups Data Source: Clarkson Research Services March Norwegian Finance Day 10

11 Crude Oil Anatomy of the Price Collapse Confluence of unfavorable supply-demand factors created perfect storm Supply: 1. Meteoric, multi-year U.S. unconventional production growth 2. Unanticipated, concurrent supply recovery from dysfunctional OPEC producers 3. Saudi s unwillingness to cede share to defend price Data Source: IMF, OPEC, IEA, CCM estimates. March Norwegian Finance Day 11

12 Crude Oil Anatomy of the Price Collapse Confluence of unfavorable supply-demand factors created perfect storm Demand: 1. Tepid Chinese demand growth 2. Anemic European GDP 3. Continued decline of emerging market oil intensities 4. U.S. dollar strength 5. Distortions from hedging unwinds Data Source: IMF, OPEC, IEA, CCM estimates. March Norwegian Finance Day 12

13 Escalating Technical/Financial Risks Offshore discoveries getting deeper and further from shore Data Source: Clarksons Research Services. March Norwegian Finance Day 13

14 Escalating Technical/Financial Risks $ Value of FTI bookings/subsea tree as proxy for complexity below mudline Data Source: FMC Technologies, CCM estimates. March Norwegian Finance Day 14

15 Meanwhile... U.S. Shale Benefiting from Efficiency Gains E&Ps attracted to higher risk-adjusted returns in U.S. unconventional market Technology incubation, navigation of learning curve driving cost reductions Drilling longer, more complex/precise laterals faster and cheaper Minimal exploration, fiscal, political risks Allocating capital away from offshore and into shale manufacturing Further OFS cost rationalization will result from downturn Statoil drilling cost reductions per well (1Q12-4Q13) Bakken Eagle Ford Marcellus Data Source: Rigdata, Baker Hughes, Statoil, CCM estimates. March Norwegian Finance Day 15

16 E&P Capital Austerity Heightened emphasis on capital efficiency - Began in offshore markets prior to oil price decline - If you were to take a drink every time you saw capital efficiency in their investor presentations, you d be on the floor in an hour Data Source: Company reports, CCM estimates. March Norwegian Finance Day 16

17 Why are IOCs Limiting New Investment? Major energy companies have a cashflow gap and the gap has been bridged by debt Data Source: EIA, Clarkson Research Services March Norwegian Finance Day 17

18 Capital Markets Perspective Offshore drilling markets contending with tepid demand and meaningful incremental supply Asset values plummeting (group average of 0.5x P/NAV vs. historical average of 0.9x) One!!?? rig year of incremental global 2015 floater demand from open tenders today Attrition within legacy jack-up/floater fleets essential to rebalancing markets Contract expirations/special Purpose Surveys represent attrition catalysts Derivative near-term drag on OSV and capital equipment demand New rig deliveries are replacement capacity rather than incremental Virtually no contractor appetite for newbuild offshore rigs Subsea could be a relative bright spot March Norwegian Finance Day 18

19 Historical Rig Demand by Operator Type Want to bet on higher spending from any of these buckets in $60/bbl Brent environment? One!!?? rig year of incremental global 2015 floater demand from open tenders today. Other Small Independents Large Independents Major Oil Companies Petrobras National Oil Companies Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan Data Source: Copyright 2015 IHS Petrodata Inc., Clarkson Capital Markets. March Norwegian Finance Day 19

20 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 Current Rig Months Average Backlog per Marketed Floater Barometer of offshore oil/gas spending climate Including Sete Brasil Rigs Data Source: Copyright 2015 IHS Petrodata Inc., Clarkson Capital Markets. March Norwegian Finance Day 20

21 Waves of Uncommitted Newbuild Rig Supply Inbound 30 Floating Rig Newbuild Delivery Schedule 70 Jack-up Newbuild Delivery Schedule Committed Uncommitted Brazilian Committed Uncommitted Data Source: Copyright 2015 IHS Petrodata Inc., Clarkson Capital Markets. March Norwegian Finance Day 21

22 CCM Floater, Jack-up Supply/Demand Projections CCM Floating Rig Supply/Demand 100% 95% CCM Jack-up Supply/Demand 100% 95% 90% 85% % 85% 80% % 75% 70% 65% 60% 55% % % Floater Demand Marketed Supply Marketed Utilization Jack-up Demand Marketed Supply Marketed Utilization Data Source: Copyright IHS Petrodata Inc., Clarkson Capital Markets. March Norwegian Finance Day 22

23 Vessel Demand CCM Offshore Support Vessel Demand Projections E 2016E Other West Africa US GOM Southeast Asia South America Northwest Europe Middle East Mexico Med Indian Ocean Far East Aus/NZ Data Source: Copyright 2015 IHS Petrodata Inc., Clarkson Capital Markets. March Norwegian Finance Day 23

24 CCM Offshore Supply Vessel Coverage: Indexed EBITDA Data Source: Company reports, CCM estimates. March Norwegian Finance Day 24

25 CCM Cap Equipment Coverage: Indexed Backlog Progression Challenging 2015 capital spending outlook for offshore infrastructure Subsea probably weathers the downturn significantly better than new rig package orders Data Source: Company reports, CCM estimates. March Norwegian Finance Day 25

26 Questions? March Norwegian Finance Day 26

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