Precise takes a look at what 2015 holds for those working within the offshore industry.
There’s only one sure thing this year. No-one is really sure what 2015 is going to bring the offshore oil and gas industry. As prices drop below $50 a barrel for the first time this decade we look at what we might be able to expect. Will oil prices keep falling? Will demand for crude oil increase? Will there be any stability in E+P costs? How will US shale drillers fare? Will the South Stream pipeline get regenerated? The list is endless. One thing is for sure. Taking a couple of paracetamols with a bloody mary and a few slices of cold pizza isn’t going to even touch the sides of last year’s oil price hangover.
In the UK, Prime Minister David Cameron has today pledged that the government will do everything it can to help the North Sea oil industry. In the Autumn Statement the supplementary charge was dropped to 30% but industry heads are clamoring for its removal entirely. That will be strengthened by today’s price fall news. In the US, with West Texas dropping below $50 a barrel for the first time in five years and Brent crude punching below $53, there has been a rising number of investment cut announcements. As predicted last year, the country’s shale drillers who borrowed heavily at high rates are starting to be affected now. Several Texas based companies involved in fields there and North Dakota are expected to announce large investment and job cuts in the coming days. A tenth of the Canadian Ensign Services workforce in California was told they’re losing their jobs too. Citi has estimated there will be a 15% cut in global investments in oil E&P.
Traditionally the industry looked to OPEC to cut production to stabilise prices but that isn’t going to happen anytime soon judging by comments made by the Saudi oil Minister Ali al-Naimi. He told Middle East Petroleum and Economic Publications, “If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, U.S. shale oil producers will take my share.” A report from Houston based analysts Simmons & Company suggests we’ll see a daily oversupply of oil by at least a million barrels a day during the first half of the year. The upshot of that is a prediction from a report by Citi Research analysts who say, “ It will likely take well into the year before prices bottom, let alone achieve a new equilibrium.”
Another problem area is the ongoing lack of demand for oil and petroleum products in Europe. The BBC is reporting that the region has tipped into deflation as a result of the lower cost of energy – the first time since the depths of the financial crisis in 2009 – and this is further complicated by a potential Grexit (Greece exiting the Eurozone). Deflation increases the debt burden and the country’s race towards a general election is being led by an anti austerity party that wants to re-negotiate the terms of its bailout, leaving spectators on the side fearing the stability of the Eurozone. So no-one’s that keen on spending lots of dosh.
It was historically expected that China’s seemingly insatiable appetite for development would pick up any slack but the country is now looking to reduce the oil dependence of its economy as more efficient vehicles come onto the market. And there’s a continued decreases in economic activity across the board. Added to that is the fact that 2015 is the year of the sheep and if we are to take anything from that (ED: I don’t recommend that but let’s go with it anyway) then the omen remains gloomy. Travelchinaguide.com says characteristics of the year of the sheep are a cautious approach to business, pessimism and indecisiveness.
While there has been a number of gas and oil fields discovered recently in Africa, including the large Mamba and Prosperidade field offshore Mozambique and offshore Kenya, analysts are cautious about the opportunities for business here in the near future. Robert Perkins from Platts says, “ You could argue it is fairly costly, so [it’s] is vulnerable to CAPEX constraints if oil companies begin to reel back on exploration due to a lower oil price. There is a lot of difficult geology and it can be a tough environment in terms of government dealings, which complicates things further.”
But let’s look on the bright side before you decide to hide under the covers until January 1 2016. If you’ve never tried chilaquiles or feijoada, 2015 might be the year you do. These traditional foods of Brazil and Mexico could become your staple diet as the first is enjoying a booming offshore market and the second is preparing to launch its first offshore drilling licence round for over 70 years. Analysts Douglas Westwood predict Latin America will remain the largest market for deepwater capital expenditure – with $213bn set to be spent here over the next five years.
And Mexico is preparing to launch its first offshore drilling licence round for over 70 years. It’s likely to be popular with companies who want a piece of the country’s 10.3 bn barrels of oil and 17.3 trillion cubic feet of natural gas pie. Perkins says about the future here, “There are potentially some interesting places to be had in the Gulf of Mexico. The government are making a good stab at cutting red tape to make it more attractive.” But it’s worth noting he picks this area along with Africa and the North Sea as being most at risk from setbacks. “The most vulnerable areas are going to be the most costly – ultra deep water, high risk, where it is more expensive to drill – they are the ones that would suffer first with potential delays in project timelines on existing discoveries.”
Actually there is one thing we can be certain of this year. And that is that Precise Consultants will have access to the most recent jobs and client developments as we continue to go from strength to strength. 2014 was incredible for the team here in London and, as our testimonials on our site show, our freelancers around the world thought so too. You’re very welcome to be a part of it in 2015.