Subsea OEMs better placed than manyNews // October 8, 2015
Douglas Westwood reports that although oil prices have stabilised in the US$45-50 range over the last month, the performance of major oilfield stocks has continued to suffer. According to analysis undertaken by DW, decline of a further 8 per cent was seen through September, down 39 per cent year-on-year.
"As E&P firms start to plan for 2016, the current oil price is driving expectations of further cutbacks in industry investment," said DW. "Drillers have borne the brunt of oil price decline since June 2014. Declining rig utilisation has been compounded by industry-wide cost deflation which has hit all companies reliant on providing services to the oilfield. According to DW’s World Oilfield Services Market Forecast total OFS expenditure has declined 36% over 2014-2015, while onshore and offshore drillers have seen an average of 57% and 51% of their value been wiped off stock markets respectively.
"The oilfield equipment sector, however, appears to be faring better, with average stock performance declining only 20 per cent according to DW analysis. Falling input prices, particularly steel, has led to an ability to better accommodate the tightening of operator purse strings."
DW said exposure to multiple upstream segments has aided the majority of manufacturers, particularly those involved in subsea manufacturing. The current subsea hardware backlog is high at US$13.4 billion (due to a significant number of contracts being agreed in the years preceding oil price decline) and this will take some 18-24 months to work-through, by which time we may see a raft of new orders if oil prices recover.
Manufacturers with capabilities outside of upstream oil and gas have fared better still, with healthy activity remaining in both midstream and offshore production systems. According to initial outputs from DW’s World Oilfield Equipment Market Forecast, only a 4 per cent decline in midstream spend is expected in 2015, compared to 26 per cent in upstream equipment.