The Kimberlite Report: Part 1 – reduced spending and caution point to further brownfield opportunities

The Kimberlite Report: Part 1 – reduced spending and caution point to further brownfield opportunities

Posted: July 29, 2020

The first in a series of special articles exploring the industry trends and future strategy emerging from the Subsea Equipment & Services Supplier Performance Report, recently published by Kimberlite Oilfield Research.

The 2020 Kimberlite Subsea Equipment & Services Supplier Performance Report, a comprehensive study encompassing 50 subsea oil and gas operating companies who are directly responsible for nearly 4,500 wells worldwide, paints a picture of caution around both outlays and project opportunities, as the industry battens down the hatches in the face of the dual blow of the global pandemic and the recent oil price slump.

Decreased expenditure is forecast

One of the most instructive findings from the raft of interviews, conducted as the Covid-19 virus swept from continent to continent and the value of a barrel of Brent dropped sharply, is that operators are planning to decrease expenditure for subsea developments over the next three years up to 2022, a stark contrast to their intended strategies as documented in 2018 and 2019, when investment was expected to spike by almost 12 per cent year-on-year.

The Kimberlite study suggests that as oil prices nosedived earlier in the year, so did operator sentiment, or confidence, regarding future expenditure. Overall, a nominal 0.3 per cent of operators worldwide believe expenditure will lift in the next three years, while in some regions the outlook is far more pessimistic with those active in the Gulf of Mexico (GoM), for instance, anticipating a scale back of 9.8 per cent year-on-year.

Kimberlite graph showing the trend in oilfield sentiment index for subsea equipment and services expenditures, 2017-2020
As oil prices have decreased in 2020, so has confidence in increased expenditure over the next three years.

Richard Moralee, Proserv’s Senior Director, Sales & Strategic Accounts, Europe, Africa and the Far East, says of the likely change of course regarding spending, “This feedback is understandable when you factor in the Kimberlite research also established that the average price of a barrel of oil needed to make a new, greenfield project viable is in excess of $50, while for tiebacks the figure is actually $10 cheaper.

“If you take a look at current oil prices, it’s obvious that increased development expenditure will require rates to experience a real shot in the arm, while choosing to focus on established assets makes the most sense when levels are where they are now.”

Greater focus on brownfield activity

The findings reveal that for some tiebacks a price as low as $20 a barrel still enables them to remain viable. Given a barrel of Brent is currently trading below $45, and was even lower when the report was released, it is not surprising that the operators surveyed are certainly leaning towards caution and more modest ambitions, with Kimberlite stating: “ Operators are placing a high level of focus on exploiting opportunities within existing fields and also with infrastructure led initiatives whereby they leverage existing assets with long tiebacks in an effort to reduce costs.”

Drilling down into the detail shows that brownfield production enhancement and expansion will comprise approximately 62 per cent of GoM operators’ subsea expenditure up to 2022 and will constitute well over half of international operators’ subsea expenditure.

Kimberlite graph showing share of subsea expenditures over the next three years - new project developments vs brownfield extension and enhancement
In the medium term, brownfield expansion or enhancement is where most development expenditure will be allocated.

Richard Moralee suggests that the subsea segment is now largely in a mode of maximising marginal gains:

“We are in a phase of limited expenditure and operators do not have an appetite to commit tens of millions of dollars to expensive system upgrades. So, subsea controls technology providers can direct them to solutions that will augment or support existing infrastructure rather than replace it.”

Proserv outperforms competitors

In Kimberlite’s worldwide and regional Value Maps (a visual picture of the relative competitive positioning of each supplier), Proserv significantly outperforms its competitors, scoring highly in terms of supplier performance versus price. In the GoM, where the firm’s footprint has expanded rapidly, Kimberlite’s analysts note, “Regionally, Proserv is viewed as the value-based alternative in the Gulf of Mexico.”

Proserv greatly outstrips its competitors in the GoM with regard to both affordability and performance.

Moralee believes that value for money will remain front and centre for operator spending strategy in the present climate.

“As we move forwards, and while prices remain subdued, it is clear the industry trend will be towards more modest solutions that will enable a certain extension or tieback to become economically viable. On one hand, that means firms like Proserv offering technology solutions that are cost-effective and can maximise a field’s full potential, while, on the other, operators really must adapt their strategy to go beyond conventional thinking to find the best and most affordable answer to their needs.”

Moralee points to the company’s recently announced strategic collaboration and supply agreement with Dril-Quip, an example of a new, innovative model in the market “to provide a compelling value proposition for operators, as it brings cutting-edge technology solutions at competitive prices.”

Photo of Richard Moralee
Richard Moralee, Senior Director, Sales & Strategic Accounts, Europe, Africa and the Far East

In The Kimberlite Report: Part 2 – we look at trends in technology and the critical need for reliability.

Part 3: Proserv’s footprint expands as it outstrips competition across key performance benchmarks

Part 4: the key takeaways

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