The UKCS versus Norway…

The latest Oil and Gas UK Business Outlook report has just been published. Having had a quick read I would have to say you can easily see why those contractors with a strong presence in Norway are outperforming those with a UKCS focus only (see below). This blog runs on the fairly simple, and painfully proven philosophy, that CapEx drives overall fleet utilisation and that if it is quiet then all vessels play in the maintenance market. Everything else is just noise.

Here are the UK numbers:

UKCS O&G 2018 Capex.png

It is the peak-to-trough number that is so hard for the supply chain. They built enough assets to service ~£15bn in 2014 and then it drops to ~£6bn, a 60% drop. More work is being done now (i.e. value increasing slower than volume) but the top line is just painful to see. Failure to see the upside potential in 2020 would see a market significantly smaller than 2017, and there simply isn’t the time to speed up developments quicker than this should the oil price suddenly change.

Whereas in Norway:

Historical figures for 2006-2016 and forecast for 2017-2022

17011-investments-by-main-category-historical-data-and-forecasts.png

Source: Norwegian Petroleum Directorate

The peak-to-trough decline in Norway is only ~40%, and the increase from 2018 to 2019 is around 16%, It is just on a different scale to the UK.

You get an idea of the lag time involved from idea to execution with this graph:

Fig 22.png

Oil and Gas UK state that 25 fields are under discussion, although only 12 are under serious discussion to move ahead this year. And while that is potentially £5bn it will take a long time to flow through to the offshore asset fleet. And the OpEx spend is saving no one…

UKCS forecast Operating expenditure:

Dates.png

UKCS Opex.png

Even on the best case assumption the OpEx market is down 25% from 2014. I guess it’s a reasonable proxy for IRM work. Again volume is up re: value but it’s just not enough for companies with high-fixed costs.

The other harsh reality is that all the West of Shetland developments that dominate the overall spending are a small number of large projects that favour large contractors. Clearly the increase in the oil price is improving sentiment, and opening up some IRM spend, but it will not lead to a general revival across the asset fleet. This time it is different.

4 thoughts on “The UKCS versus Norway…

  1. […] Subsea 7 came out with weak results last week and specific comments were made regarding the weakness of the North Sea market. I have been saying here for well over a year that this UKCS in particular will produce structurally lower profits for offshore contracting companies going forward: you simply cannot fight a contraction in market demand this big. […]

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