Global Deepwater Prospects 2010 February

8/9/2019 Global Deepwater Prospects 2010 February

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Deep Offshore Technology International Conference Steven KopitsHouston, Texas Managing Director

Deep Offshore Technology International Conference Steven KopitsHouston, Texas Managing Director

1

2 February 2010 Douglas Westwood / New York2 February 2010 Douglas Westwood / New York

photo: courtesy of Bluewater


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Established 1990 ,

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4/31

A Delicate RecoveryA Delicate Recovery

Macro FactorsMacro FactorsOffshore Oil & GasOffshore Oil & GasConclusionsConclusions

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5/31

The Economy in 2010The Economy in 2010

. Consumer spending,

investment up 2.3%

Highand potentiallydurableunemployment

High consumer debt Huge deficit spending Formidable tax increases

looming The countrys improving

but its a delicate recovery

5


6/31

Short Term Oil OutlookShort Term Oil Outlook

Continued recovery from

87

88

consumption of nearly 6mbpd

84

85

86 December consumption at85.6 mbpd

82

83

0 6

0 6

0 6

0 7

0 7

0 7

0 8

0 8

0 8

0 9

0 9

0 9

1 0

1 0

1 0

1 1

1 1

1 1

Actual

STEO Forecast About half of decline3.4mbpdhas been recoveredalready, an increase of 4.1%

F e J u O

c F e J u O

c F e J u O

c F e J u O

c F e J u O

c F e J u O

c

from the trough in May

The EIA sees consumption World Oil Consumption, Actual and Forecast,recover ng to near stor carecords by early 2011

Source: EIA STEO, January 2009

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ShortShort--term Outlookterm Outlook -- PrecedentsPrecedents

110%

0.7

0.8

0.9

7%

8%

9%US RecessionUS Oil Purchase/GDP

Historically, when crudeoil expenditure hasreached 4% of GDP, the

0.5

0.6

5%

6%

r c e n t o

f G D PUS has fallen into

recession

0.2

0.3

.

2%

3% P e

s every o er me s nce

1972

0

0.1

0%

WTI today: $75

Source: EIAUS Crude Oil Expenditure as a Percent of GDP

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8/31

Near Near--Term Demand OutlookTerm Demand Outlook

sources: UN, BP, Wikipedia

$70 oil$75 oil

As prices went up, OECD countriesUS, EU, Japanwere squeezedou o e mar e a - per arre cru e; eman own If oil stays in the $80+ range, job growth in the US will be oil-less.

8

, .

Year-end price forecasts: Morgan Stanley - $95; Goldman Sachs - $90


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LongLong--term Oil Demandterm Oil Demand

EIA sees global oil demand

Based on post-1980 period Includes second oil crisis

140

150

EIA (Constrained)-

period after 2004 Entirely inconsistent with recent

110

120

130 DWL (Unconstrained)

natural gas We see oil demand 80

90

100

unconstrainedrising at 2.5%-2.8% per annum

Based on 1960-1972 eriod Oil Demand to 2030 Constrained (EIA) and

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1

2 0 1 3

2 0 1

2 0 1 5

2 0 1 6

2 0 1

2 0 1 8

2 0 1 9

2 0 2 0

2 0 2 1

2 0 2

2 0 2 3

2 0 2

2 0 2 5

2 0 2 6

2 0 2

2 0 2 8

2 0 2 9

2 0 3 0

increase of 2.7 mbpd per year period, 30 mbpd total in 12 years

China like Korea

Source: EIA., Douglas-Westwood analysisncons ra ne m on arre s per ay

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Market DriversMarket Drivers LongLong--term Demand Growthterm Demand Growth

global oil demand growth;

half of totalChina doubles

US in 202535

40 US EIA

US DWL

China EIA

orea consumpt on up8.8% p.a., 1970 1994

China oil consum tionChina reaches US in 2018

25

30 China DWL

China (Korea model)

up 7.3% in December Vehicles sold: China 10

15

. .2009

If oil supply is limited, China

5

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 1 8

2 0 1 9

2 0 2 0

2 0 2 1

2 0 2 2

2 0 2 3

2 0 2 4

2 0 2 5

2 0 2 6

2 0 2 7

2 0 2 8

2 0 2 9

2 0 3 0

China and US Oil Demand to 2030 EIA & DWLgrowth will tend to reduceUS consumption Source: EIA 2010 AEO., Douglas-Westwood analysis

million barrels per day

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They got it wrong beforeThey got it wrong before will they again?will they again?

March 1999 April 2009 The Future?

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Narrowing of Views about the FutureNarrowing of Views about the Future

100IEA, EIA, IOCsDou lasWestwood

80Total

ro uc on apac yCurrent Production

60Uppsa a University

75 105 mbpd

* Only material difference between Uppsala and IEA is depletion rates on fields to be discovered and developed to 2030

40

peak oil forecasts Quiet consensus has

0

emergeddisagreementsincreasin l narrow

Source: variousRange of Global Oil Supply Forecasts 2030 All Liquids

and specific

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DouglasDouglas--Westwoods Oil Supply ViewWestwoods Oil Supply View

120


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Natural GasNatural Gas10 years US supply

2.5

3.0 Btu ratio Oilto Gas

Avg. ratio Feb. 2010

United States

Russia

Iran

2.0

. Avg. ratio 1998 2005

Qatar

Other OPEC

Rest of World1.0

.

0.5

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 1 8

2 0 1 9

Hydro fracking, horizontal drilling of gas shales have revolutionized US outlook

Source: EIA,

Source: EIA, NYMEX futures- -

Some questions about economics, but $7-8 mmbtu gas looks plausible indefinitely Major LNG projects also coming on line, notably in Qatar

14

Other shale initiatives beginning (BP in China) Prospective ratio of oil-to-gas prices suggests fuel substitution next 6-7 years


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Macro FactorsMacro FactorsOffshore Oil & GasOffshore Oil & Gas

ConclusionsConclusions

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2010 Recovery in E&P Spend

450

500

+21%

15%+22% +11%

300

350

i l l i o n

s

100

150

200 U S $

0

50

1975 1980 1985 1990 1995 2000 2005 2010

Global E&P expenditure down by 15%, from $464 bn in

Source: Barclays E&P Spending Survey (n=134), December 2009 ;DnBNor Global E&P Spend

o n, n Anticipated recovery to $439 bn in 2010, up 11% US spend up 12%, Canada up 23%, international up 10%

16

of increased spend from international


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2010 E&P Spend Sensitivity to Oil Prices

Percent of Respondents IncreasingPercent of Respondents Reducing

80%

100%

Capex at a Given Oil Price

80%

100%

Capex at a Given Oil Price

20%

40%

60%

20%

40%

60%

Oil Price Threshold for Reducin Ca ex

0%$70 $75 $80 $85 $90 $100

0%$35 or

less$40 $50 $55 $60 $65 $70

Oil Price Threshold for Increasin Ca ex

E&P com anies re ared bud ets assumin $70 oil on avera e

Source: Barclays Capital E&P Spending Survey, Dec.2009

Source: Barclays Capital E&P Spending Survey, Dec.2009

Expect capex to materially decrease in the industry if oil prices fallmuch below $60

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Different Sectors, Different OutlooksDifferent Sectors, Different Outlooks

Jackup market continuedweakness expected. 63 rigs on

$350,000

$400,000

$450,000

50

60 Total RigsRigs Under ContractAverage Dayrate

. High-spec deepwater sector

robust. 38 drillships on order, 41-$200,000$250,000

$300,000

30

40

N u m

b e r o

f R i g s

. Land drilling recovery underway

$50,000

$100,000

$150,000

10

20

1600

1800

2000

2200

DrillshipsNov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09

$160,000

450

500 Total RigsRigs Under Contract

+212%

North American Rig Count: On to 2400?

1000

1200

1400

$100,000

$120,000

,

300

350

400

e r o

f R i g s

+190%+39%

400

600

800

$40,000

$60,000

,

100

150

200 N u m

57%

45%58%

18

1997 1999 2001 2003 2005 2007 2009

Sources: Baker-Hughes; RigLogixJackups

$0

$20,000

0

50

Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09


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Offshore oil & gas production & spend to growOffshore oil & gas production & spend to grow

300

350

400

n s

)

AfricaAsiaAustralasiaEastern Europe & FSULatin America

200

250

O p e

x ( $ b i l l i o e as

North AmericaWestern Europe

50

100

150

C a p e x

&

02004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Global Offshore Expenditure by Region 2004-2013

Most regions to see growth

Capex estimated down by 6-

9% in 2009

ource: Energy iles Douglas-Westwood

Strong underlying Opex growth as afunction of both increased volume of

But total spend to grow from$260 bn (2008) to $360 bn

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act v ty an comp ex ty Deepwater production growing strongly


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The Growing Importance of Deepwater The Growing Importance of Deepwater

10

12

$35 AfricaAsia

6

8

r r e l s

a D a y

$20

$25

$30

( $ b i l l i o n s

) AustralasiaLatin AmericaOthers

North AmericaWestern Europe

4

M i l l i o n s o

f B

$10

$15

E x p e n

d i t u r e

02000 2002 2004 2006 2008 2010 2012 2014

$0

5

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The world will increasin l rel on offshore and dee water

Source: Douglas-Westwood

Deepwater oil production 2% in 2002, 8% in 2009, 12% by 2015 Development of complementary technology e.g. subsea processing

20

Gas developments subsea-to-shore developments


21/31

Offshore drillingOffshore drilling Deepwater to show strongest growthDeepwater to show strongest growth

Dee water fundamentals remain solid

Source: World Offshore Drilling Spend Forecast 2009-2013 EnergyFiles & Douglas-Westwood

Past surge in expenditure driven by escalating oil prices / rig shortages Spend to reach $89 bn in 2013 (+57%)

21

And still more to come: e.g. Brazil pre-salt


22/31

Petrobras Continues to Dominate the Market

Petrobras spending plan of $174.4 billion during 2009-2013.

Massive pre-salt finds in Santos basin. 9-14 billion boe recoverable, , .

systems moving ahead for Tupi

. - ,bpd 2013, 422,000 bpd 2015 and 1.2 million bpd 2020.

- -developments. 8 to be identical units (hulls Brazilian-built)

ori inall .

What to do with the gas? BG estimate over 40 Tcf recoverable from

22

.

studies to examine viability of offshore liquefaction.


23/31

Floating production systems have turned the corner Floating production systems have turned the corner

10

12

14 Africa AsiaAustralasia E. Europe & FSULatin America Middle EastNorth America Western EuropeOrder Year

6

8

$ b i l l i o n

0

2

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Global Floating Production Expenditure 2004-2013Source: Douglas-Westwood

a er a ecrease n or ers n ; mar e as o ome Impact of project delays $14 billion of projects slipped Increasing share of market to leased FPSOs. Consolidation likely Market still well below re-recession levels

23 Long term >200 prospects exist and growth will recover


24/31

Continuing growth in LNG capacityContinuing growth in LNG capacity

300

350

t p a

)

AfricaAsiaAustralasia

Eastern Europe and FSU

Latin America

200

a c

t i o n

C a p a c i

t y ( m Midd le East

North America

Western Europe

50

100 L i q u e

f

Lar e ex ansions to Qatar as and Ras as lants to come onstream in0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2009/2010. A total 48.6 mmtpa of new capacity to the market

20 additional liquefaction trains forecast, plus 13 new export terminals

49 new LNG import terminals and a number of expansions to expected tobe completed in the next five years

24

$74 billion spend 2009-2014


25/31

Recession and impact on LNG demandRecession and impact on LNG demand

LNG Imports (mmtpa)

Japan 69.24 60-61 67-70 71-74South Korea 27.26 23-24 30 33Taiwan 9.08 8 10 12China 3.34 5 10-12 20-22India 8.59 8 10 12

Total 117.51 104-106 127-132 148-153

Source: LNG Journal

,major importing countries in the Pacific basin.

However, long-term outlook for demand for LNG remains strong. Leading importers are expected to take about two years to recover to2008 levels.

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26/31

ROV Market Resumes Upward ClimbROV Market Resumes Upward Climb

570

620

$3.0

$3.5 AfricaAsia PacificE Europe/FSULatin America

470

520

$2.0

$2.5

v e R

O V s

u r e

( $ b i l l i o n s

)Middle EastNorth AmericaWestern EuropeActive ROVs

370

420

$0.5

$1.0

$1.5 A c

t i

E x p e n

d i

320$0.02005 2006 2007 2008 2009 2010 2011 2012 2013 2014

The World Work Class ROV Operations Market 2005-2014

The ROV market saw a modest decline in 2009revenues down 6-7%

Source: The World ROV Report 2010-2014 Douglas-Westwood

Fared better than many other sectors Recovery seen from 2010 to new records

26

new wor c ass s o

Expenditure up 89% from 2008 to 2014, reaching to $3.2 billion


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Subsea Processing Recovers from Tough 2009Subsea Processing Recovers from Tough 2009

3,000

3,500Aker SolutionsCameronDril-Quip

2,000

2,500

a l u e

$ m

i l l i o n s

FMCGE Oil & Gas

500

1,000

,

O r d e r

Subsea Production and Processing OrdersSource: Subsea Market Share Assessment, December 2009 Dou las-Westwood

0

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09

Subsea processing orders were hard hit in with the recession Bottomed in Q4 2008 Trend suggests 2010 will recover normal levels

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O&M a massive aging offshore infrastructure

$80 LogisticsPlatform Drilling Services

>7,000 fixed platforms, >200floatin

$50

$60

$70

$ b i l l i o n s

u seaSupport ServicesAsset ServicesProduction Services 185,000 km subsea pipelines

3,600 subsea wells operating

$20

$30

$40 690 offshore drilling rigs Increasing costs and energy

$0

$10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Global Offshore O&M Ex enditure b Market

Demand for major modification work increasing

Source: Douglas Westwood Future N. Seadecommissioning

Offshore O&M - $53 billion spend in 2009 and growing rapidly. Over $330 billion worth of expenditure expected over the next

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ve years.


29/31

Carbon and ClimateCarbon and ClimateMacro FactorsMacro Factors

Offshore Oil & GasOffshore Oil & GasConclusionsConclusions

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30/31

The PostThe Post- -Recession WorldRecession World

Global economy will continue to consolidate (hopefully)

Weakness of OECD economies, OPEC spare capacity moderatesprices

Oil demand growth driven materially by emerging economies E&P spending budget variance appears more likely to the upside on nue m gra on o eep an u ra- eep wa er More differentiated performance by depth

- Deep and ultra-deep still commanding premiums

Natural gas occupies a more central role, both in production andconsumption2010 sees a return to normal business.

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w e even etter.


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Big challenges, big opportunitiesBig challenges, big opportunities

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This presentation can be downloaded from www.douglas-westwood.com

Global Deepwater Prospects 2010 February

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