Sure … there are serious challenges ahead, probably for another 18-24 months, but tough times are often the catalyst for a reality check. And as Michael Elwert, ceo of the Elektrans Group observed: “We had become totally cost arrogant.”
Most agreed that what comes next will not be a return to the heady days of $100-plus oil – Wood Mackenzie’s principal analyst, Middle East Upstream, Jessica Brewer, revealed that the firm is predicting $65 in 2020 and $75 in 2023. But forward-looking companies are already adjusting to the new reality, said Topaz Energy and Marine ceo René Kofod-Olsen who disclosed that the company has cut costs and holds an industry-leading backlog of forward business.
Consolidation and collaboration were words that kept cropping up and various participants called on banks and financiers to be more realistic on vessel values. Fazel Fazelbhoy, ceo of Synergy Offshore, a consultancy, warned of more corporate failures “as bankers make the right decision to take some of these companies off life support.” He says bankers must bite the bullet on vessel values if another sub-prime crisis is to be averted.
Much was made of the potential to raise vessel efficiency and cut costs through automation, connectivity and new fuel and propulsion technologies, particularly battery hybrids for vessel types including OSVs, tugs and ferries, according to DNV GL’s Arnstein Eknes. Such arrangements would enable workboat operators to provide a much more productive service to charterers at lower costs. Significant interest was already evident amongst Middle East operators, Eknes said, but it was too early to give specifics.
Gunnar Haug, md of Ulstein Asia, revealed how the offshore vessel designer and builder has revamped some of its high-spec designs with the the Middle East market specifically in mind. Gulf waters do not require the same level of vessel sophistication as the North Sea, he pointed out.
Rolls-Royce’s Oskar Levander spoke of the “truly disruptive” change under way across the marine and offshore energy sectors as a result of digitalisation. New business models are now being enabled, he declared, in one of the biggest changes seen in our lives. Marine operations would stop being treated as “a black hole” and would become an effectively integrated part of the global supply chain. Autonomy had the scope to make offshore marine operations both safer and more efficient, he said.
Participants agreed that all eyes will be watching the Middle East market where breakeven costs are the lowest in the world and where exploration and production spending is likely to start rising first. In fact, there are already signs that this is happening in Saudi Arabia where Saudi Aramco and McDermott have agreed a mega-deal which will involve the supply of more than 200 offshore vessels of various types.
Fazelbhoy said there was more to be done on production costs, however, pointing out that Statoil has cut its average breakeven price from $70 to around $40. Field recovery rates are rising too – Saudi Aramco afforded rare access to a journalist from The Economist recently as it prepares for a new era of greater transparency in the run-up to the intended IPO of a small part of its stock.
Executives revealed that field recovery rates in Saudi generally lie between 50% and 70% compared with a global average of about 33%. If the world’s largest energy company’s recovery rates were to rise to 70% across the board, its reserves would rise by 80bn barrels, The Economist noted, four times the entire reserves of ExxonMobil, number two in world rankings.
Kofod-Olsen said the oil and gas industry urgently needs to take back control of its own destiny by reaffirming its message as the key supplier within the global energy mix. The renewables sector, which contributed low single digits to world energy supplies, was dominating the conversation, he said. This had to change, he said, because otherwise it would become increasingly difficult to attract both the financial and human capital to take the industry forward in the future.
Kofod-Olsen’s point is borne out by the facts: oil increased its share of the global energy mix in both 2015 and 2016, according to BP’s Statistical Review of World Energy, following a steady 15-year decline since 1999. More and more will be produced offshore and the Middle East has a key role to play. This will underpin continuing and soon-to-be expanding demand for a diverse range of offshore workboats and energy service providers.