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Offshore Drilling Market Update
February 2017
Erik Tønne Head of Offshore Research
+47 23 11 28 51 / +47 95 75 01 77
Note: This is a shortened version of the presentation given at the IADC seminar in Februar-17. For further details, please contact Clarksons Platou Offshore
Agenda
2
Introduction
The global rig market
Source: Reuters article 19-Jan 2017; Clarksons Platou Offshore
3
Oil companies are increasingly on the acquisition track
“Since late November (2016), major oil companies have announced 11 deals worth more than USD 500m each with a combined value of USD 31bn, the clearest sign yet that oil executives are more confident a recovery
is underway”
“According to Martijn Rats, equity analyst at Morgan Stanley, most of the
deals announced in recent months have been based on a long-term oil price of
about USD 60 to USD 65 per barrel”
Source: SEB; MorganStanley; Clarksons Platou Offshore
4
Analysts are getting more optimistic
SEB February 2017 MorganStanley February 2017
«Offshore increasingly viable»
«Jackup market to lead the recovery»
Source: Clarksons Platou Securities
5
Seismic late sales have increased last three quarters, potentially indicating oil companies are about to increase exploration focus again…
Seismic Industry Late Sales Implied Seismic Contract Rates
Source: Statoil; Clarksons Platou Offshore
Statoil +30% exploration activity in 2017 is an important indicator. Others to follow suit?
6
…and at least some oil companies are vocal on increasing exploration focus
Agenda
7
Introduction
The global rig market
Global rig demand remains at record-low levels (I)
8
JU-fixing at clear all-time low in our time series Floaters: 2016 proves to be another miserable year
Note: Other fixtures relate to Petrobras’ domestic newbuilds / SETE program (2011 & 2012) and NADL/Rosneft (2014) Source: Clarksons Platou Offshore
Global rig demand remains at record-low levels (II)
9
JU-fixing at clear all-time low in our time series Floaters: 2016 proves to be another miserable year
Note: Other fixtures relate to Petrobras’ domestic newbuilds / SETE program (2011 & 2012) and NADL/Rosneft (2014) Source: Clarksons Platou Offshore
Stripping out “other fixtures” for the floaters visualizes clearly that 2005-2008 were exceptional years
Number of working rigs coming down hard across the world
10
Floaters – Currently down to 135 contracted units, further decline is likely
• Latest actual demand in terms of floaters on contract (Dec-16) was 135 units
• Nr. of floater years fixed annually on average
― Last 5Y: 189
― Last 10Y: 226
― Since ‘98: 202
Source: Clarksons Platou Offshore
Jackups – Number of active working rigs keeps coming down faster than we had estimated
• Latest actual demand (Dec-16), measured by units on contract, was 290 units. This has flattened lately. Summer-16 saw 300 JU’s on contract on average
• Number of JU years fixed annually on average
― Last 5Y: 380
― Last 10Y: 363
― Since ‘98: 344
0
50
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200
250
300
20
00
20
01
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15
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16e
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17e
20
18e
Floater demand: Actual and forecasted
Demand - actual and base case Forecasted fixing activity model
Rig spend model (volume effects) Backlog (no new fixtures)
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50
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300
350
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500
200
0
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200
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0
201
1
201
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201
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201
6e
201
7e
201
8e
Jackup demand: Actual and forecasted
Demand - actual and base case Rig spend model
Top down model (strip oil price) Bottom up model
Backlog (no new fixtures)
Currently 100-110 likely actually working
290 on contract as of Dec-16
Source: IHS Petrodata; Clarksons Platou Offshore
11
Jackup rigcount (rigs on contract) has started flattening
Jackups – Number of active working rigs (on contract), monthly since 2012 – flattening out last 3-5 months
200
250
300
350
400
450
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11
2012 2013 2014 2015 2016
Jackups on contract, monthly
Comments
• More than 50% of the contracted JU’s are in the Middle East and Indian Ocean – regions that have seen stable/increasing demand and continue to do so
• Several other regions have seen JU-count drop ~50% from peak. Further drop unlikely
• Majority of JU-drilling is development and re-development/intervention = stable
• Also, quite a bit of the JU’s are used for gas fields = usually more stable than oil
• Oil price +50% since trough will lead oil companies to increase short lead-time investments again = use more JUs
• We are seeing positive market indications (RFIs etc.)
Updated September 2016. Source: IHS Petrodata; Clarksons Platou Sec.
12
Floaters: Dropping everywhere. Several regions likely to drop further during 2017 before leveling out and gradually increase again
35 3328
3641
48 47
3530
2009 2010 2011 2012 2013 2014 2015 2016 2017
US Gulf Of Mexico
4
3 3
4
5
6
5
4
3
2009 2010 2011 2012 2013 2014 2015 2016 2017
Mexico
50
61
74
8478
67
55
3934
2009 2010 2011 2012 2013 2014 2015 2016 2017
South America
37 3638
4446 45
41
32
27
2009 2010 2011 2012 2013 2014 2015 2016 2017
NW Europe
2926
31 32
37
43
34
22
18
2009 2010 2011 2012 2013 2014 2015 2016 2017
West Africa
1112 12
1416
15
9
67
2009 2010 2011 2012 2013 2014 2015 2016 2017
Indian Ocean
11
1517
15
13
16
11
9
7
2009 2010 2011 2012 2013 2014 2015 2016 2017
SE Asia
11 1110 10 10
11
9
4 4
2009 2011 2013 2015 2017
Australia/New Zealand
15
1921
23 24
20
17
10
6
2009 2010 2011 2012 2013 2014 2015 2016 2017
US Gulf Of Mexico
32
25 26
32
42
52
44
2926
2009 2010 2011 2012 2013 2014 2015 2016 2017
Mexico
11
10 10
8 89
7
54
2009 2010 2011 2012 2013 2014 2015 2016 2017
South America
30 32
3641 42
4746
36
28
2009 2010 2011 2012 2013 2014 2015 2016 2017
NW Europe
15
1921
23 24
20
17
10
6
2009 2010 2011 2012 2013 2014 2015 2016 2017
West Africa
8489 94
105
120129 130
123112
2009 2010 2011 2012 2013 2014 2015 2016 2017
Middle East
3330 31
2932 32 32
3640
2009 2010 2011 2012 2013 2014 2015 2016 2017
Indian Ocean
3740
49
57
65 66
50
3027
2009 2010 2011 2012 2013 2014 2015 2016 2017
SE Asia
4
11
2 2
1
2
11
2009 2011 2013 2015 2017
Australia/New Zealand
Updated September 2016. Source: IHS Petrodata; Clarksons Platou Sec.
13
Jack-up overview: Middle East & Indian Ocean stable/increasing. W.Afr set to increase? Mexico and SE Asia stabilizing, set to increase forward?
Dayrates have been heading south and are currently close to opex levels in most regions
14
Limited further downside to go on in terms of dayrates in our view
Source: IHS Petrodata; Clarksons Platou Offshore
Jackups – global rate averages Floaters – global rate averages
Stacking continues to increase
Idle floaters
Idle jack-ups
15
Sharp increase in # of stacked units – but need significant higher cold stacking
Source: IHS Petrodata; Clarksons Platou Securities
0
20
40
60
80
100
120
140
160
Wee
k 2
4/0
9
Wee
k 4
1/0
9
Wee
k 0
6/1
0
Wee
k 2
3/1
0
Wee
k 4
0/1
0
Wee
k 0
5/1
1
Wee
k 2
2/1
1
Wee
k 3
9/1
1
Wee
k 4
/12
Wee
k 2
1/1
2
Wee
k 3
8/1
2
Wee
k 0
3/1
3
Wee
k 2
0/1
3
Wee
k 3
7/1
3
Wee
k 0
2/1
4
Wee
k 1
9/1
4
Wee
k 3
8/1
4
Wee
k 0
3/1
5
Wee
k 2
0/1
5
Wee
k 3
7/1
5
Wee
k 0
5/1
6
Wee
k 2
2/1
6
Wee
k 4
6/1
6
# U
nit
s
Hot Stacked Warm Stacked Cold Stacked
Source: ODS Petrodata, Clarksons Platou Sec. AS
20
70
120
170
220
270
Wee
k 2
4/0
9
Wee
k 4
2/0
9
Wee
k 0
8/1
0
Wee
k 2
6/1
0
Wee
k 4
4/1
0
Wee
k 1
0/1
1
Wee
k 2
8/1
1
Wee
k 4
6/1
1
Wee
k 1
2/1
2
Wee
k 3
0/1
2
Wee
k 4
8/1
2
Wee
k 1
4/1
3
Wee
k 3
2/1
3
Wee
k 5
0/1
3
Wee
k 1
6/1
4
Wee
k 3
6/1
4
Wee
k 0
2/1
5
Wee
k 2
0/1
5
Wee
k 4
0/1
5
Wee
k 0
7/1
6
Wee
k 2
5/1
6
Wee
k 5
1/1
6
# o
f u
nit
s
Hot Stacked Warm Stacked Cold Stacked
Source: ODS Petrodata, Clarkson Platou Sec. AS
~70% of JU-demand currently driven by NOCs
NOC % of JU Demand
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
69% of current jack-up demand is from NOCs; 2015-2016 avg. of 65%
JU Demand NOCs vs. Non-NOCs
0
50
100
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400
450
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
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Jan
-10
Jan
-11
Jan
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Jan
-13
Jan
-14
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-15
Jan
-16
Jan
-17
NOCs Non-NOCs
16
NOCs in a good position to budget for higher activity in 2017; positive for JU market
Source: IHS, Clarksons Platou Sec.
Long term jack-up demand of 415 units
Source: Clarksons Platou Sec.
17
Long term JU demand
330 341 323264
311 314 300 312 318 339 340 347 368325 317 327 356
401 418379
340 311 338 364 373
93% 94%89%
77%
87% 86% 85% 87% 89%94%
91% 89% 90%
80% 80% 80%84%
88%85%
78% 76% 74%
87%
96% 98%
-20%
0%
20%
40%
60%
80%
100%
0
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300
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600
700
Jack
-up
fle
et
uti
lizat
ion
# o
f ja
ck-u
ps
Jackup demand/supply and fleet utilization (Base) - 1996 to 2020E
Total jackup demand Total jackup supply Adjusted supply Adjusted utilizationSource: Clarksons Platou Securities AS, IHS
Summary
18
• The oil market is rebalancing and we don’t foresee N.Am unconventionals alone to be sufficient to mitigate coming supply shortfall
• The E&Ps need to gradually increase investments again ―Happening onshore N.Am already ―International markets likely to follow later in 2017 and into 2018
• JU demand will recover before floater demand and we believe number of JU’s on contract is
flattening out now and that we will end 2017 at a higher level than currently
• Supply side overhang nevertheless needs to be addressed in the JU-market. If not, ample supply will suppress utilization and rates for many years
• Floater demand likely also bottoms this year, and we will start to see an increasing rigcount again (rigs on contract) from late-17/early-18 ―As for the JU-segment, supply side overhang will need to be addressed, but «natural forces»
seem to have somewhat faster impact on the floater market (AND; some drillers are already scrapping ~15Y old floaters)
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19
Disclaimer
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0270 Oslo, Norway
Switchboard telephone: +47 23 11 20 00
www.clarksons.com
