2017 not looking good for offshore but especially Europe

2016/17 Global E&P Spending by Company Type/Region


Evercore ISI recently published a good piece on the a potential recovery in the energy services and offshore in 2017. If anything to my mind it leads weight to Spencer Dale’s thesis that onshore share, and specifically US, will be the marginal producer of choice. Its my pet theory as well, but I am also a catastrophist having predicted 9 of the last 0 house price corrections in the London market, so I always try and test my beliefs constantly in this regard. So I agree there will be a recovery, markets eventually correct as demand and supply move back to equilibrium, but I fear that this is some way off happening.

One thing is clear from the graphic above though is that nothing is coming to save the North Sea demand side of the OSV market in 2017. Anaemic CAPEX will mean more vessels chasing the OPEX work. The only sanctioned projects really moving ahead are deepwater mega projects, but they are far fewer in number, and at the moment all that work is going to all the largest contractors who can take more risk and offer better terms.

Worrying for vessel operators as well is the drop in the expenditure of the Majors (Intl) spend. Big complex projects are undertaken by these companies and the increase in spend by the NAM Independents is only 10% of the total drop from the majors. Yes there are other companies in different locations but the US Capital markets are really the only place open at the moment, the London AIM is slowly opening, but at nothing  like the rate needed to fund a steady stream of profitable projects. Only big offshore projects, which take a large number of vessels for extended periods, have a hope of bringing the market back to equilibrium without further painful reductions on the fleet supply side.

So while 2017 may start to see a thaw in the permafrost conditions of demand for drillers it isn’t going to flow into the offshore support vessel market for 2017.



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