Data versus insight…

An interesting report from EY Norway on the OFS sector in 2017. I’d have to say some of the data left me somewhat perplexed. I think they need to go back to the drawing board with this because they appear to have taken pure numerical data without looking to see if it even makes sense:

Subsea Top 5.png

I could almost let them have this because I think they are trying to show the activity of companies in Norway and the scale of their operations, but mixing an on onshore manufacturer of subsea production systems with offshore vessel delivery contractors seems to lose any insight in the data for me.

We then delve into the bizarre in “offshore logistics”:

Top 5 logistics.png

In case no one noticed, because it isn’t mentioned in the accompanying commentary at all, the top 3 companies run helicopters and the bottom 2 vessels? An explanation of why they have been grouped together would be good? I find it very unlikely the industrial dynamics of these two services are similar? And clearly given the data the financial performance of the  helicopter companies is distorting the vessel data?

And then this the “production” segment, which includes:

companies active in production, supporting equipment and services, such as floating production storage and off loading (FPSO) units, facility management, waste management, communication and production operations.

Why? FPSOs and waste management? Communications? How on earth did someone think that was a logical mix of companies? If you are using an SIC coding system then you need to make modifications here because the results are not relevant:

Top 5 production.png

Last time I looked Inmarsat supplied phone services? APL is an intermodal freight company? How on earth would their margin and revenue development, unless you could separate out the OFS component, be relevant?

A basic lesson of data analysis is to check the output makes sense and if not re-think. Either EY need to change their categories here, or change the analysis, because the output is meaningless (even if some of the commentary is okay).

Increased production in the North Sea…

A good article in the FT this weekend on the resurgence in production in the North Sea and the influence of some of the private equity backed companies (behind a paywall):

Production from the North Sea has bucked the long-term decline and energy consultancy Wood Mackenzie expects it to average 1.9m barrels of oil equivalent (boe) a day in 2018, its highest since 2010. This is, in part, driven by new developments such as Catcher, as well as Dana Petroleum’s Western Isles and EnQuest’s Kraken.

The rise “highlights that while the UK North Sea is in decline, these smaller independents and new private equity players are helping drive a bit of a renaissance,” said Neivan Boroujerdi, an analyst at Wood Mackenzie.

Chrysaor’s Mr Kirk said: “If someone had said then [during the downturn] that UK production from the North Sea would increase for three straight years or more, nobody would have believed them. That kind of thing changes people’s perceptions.”

But the article misses a few things important for the contracting community (and context in general):

  1. As the graph above from Oil and Gas UK makes clear this increased production is the result of historic investment in 2012-2015 and has absolutely nothing to do with these new entrants who were not part of the decision making entities that drove this production increase
  2. There has been a massive drop in Capex that will eventually reduce production
  3. Enquest and Premier, two major “small producers”, are locked out of the capital markets until their debt burdens reduce transformationally and have no plans for significant North Sea developments. Kraken and Catcher simply will not be repeated by smaller players without a massive change in funding conditions for small E&P companies
  4. The FT highlights the reduced cost of per barrel production and unit development costs. These have been at the economic cost to a large amount of equity in the supply chain and really show no short-term likelihood of changing
  5. The new private equity backed companies (and I especially include Ineos in this) are ruthless about supply chain costs. This is healthy for the long-term future of the basis but brutal for those long on assets in an over supplied market

Look, I am as happy about an increase in production as anyone, and clearly it is good economic news, but there is a degree of unreality creeping into this: CapEx spending has dropped by an order of magnitude and is not likely to rebound to anything like it’s previous levels in the next few years. Some firms will do well as the amount of work increases, but for anyone long on vessels or rigs that just isn’t likely to be the case.

Subsea work takes years to work through from initial discovery and field approval decisions, and as this data point from Oil and Gas UK makes clear the outlook in this respect is poor:

UKOG Field approvals.png

One Penguin doesn’t make a summer.