Offshore Market Update: How s the recovery coming along? Verftskonferansen 2017 November 2017 Note: This is an edited version of the presentation that was provided at the Seminar. For further details, please contact Clarksons Platou Erik Tønne Managing Director, Market Analysis, Oslo +47 23 11 28 51 / +47 95 75 01 77 Erik.tonne@clarksons.com
Billion Toe Oil consumption is expected to continue to grow, also in the longer term, but share of primary energy declines Renewables growing strongly Primary energy consumption by fuel Shares of primary energy 20 18 16 14 12 10 8 6 4 2 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 Oil Gas Coal Nuclear Hydro Renewables 45 % 40 % 35 % 30 % 25 % 20 % 15 % 10 % 5 % 0 % 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 Oil Gas Coal Nuclear Hydro Renewables Note: Renewables includes wind, solar, geothermal, biomass and biofuels Source: BP Energy Outlook 2017; Clarksons Platou 2
Essence of our short term oil market view (2017-21e) 1 Fundamental rebalancing well in progress. Demand remains healthy. OPEC will do what it takes 2 EVs have no impact on demand next 5Y, but psychology important with regard to sanctioning 3 Shale needs USD ~50/bbl to grow meaningfully. Big Oil needs USD 60+/bbl longer term 4 We are underinvesting in the global oil supply system. Depletion is real and currently masked 5 Short term (17/18) price affected by noise. Longer term (19-20) we expect USD 65-75/bbl Source: Clarksons Platou Offshore 3
mmbbls/d mmbbls/d YoY growth (shale) We need offshore oil Global liquids production by source* - 2012 to 2025E Offshore & shale liquids production* - 12 to 25E 120 100 Forecast 30,0 25,0 26,4 26,6 27,5 27,7 27,9 28,1 28,4 28,2 27,6 27,3 27,6 28,3 29,2 26,0 60% 50% 80 20,0 40% 60 40 20 15,0 10,0 5,0 2,3 3,5 4,9 5,8 5,6 6,3 7,7 9,0 14,0 13,4 14,3 12,6 11,7 10,4 30% 20% 10% 0% 0 0,0-10% Offshore Conventional onshore & other Shale oil Shale annual growth % Offshore Shale oil Despite assuming immense growth in shale, offshore production needs to remain stable Source: Rystad Energy; Clarksons Platou *Forecasted Offshore production assumes "call on offshore" is met 4
The Offshore recovery has started and we expect it to continue to gain momentum Drivers for Offshore recovery are in place 1. Oil market is rebalancing 2. Oil prices have improved 3. Oil companies report positive Cash Flow again 4. E&P-spending has bottomed 5. Field development costs have come down 6. Project pipeline has been filling up And we are already seeing green shoots 1. Rig fixing activity is up 2. More rigs are working again 3. Rig tendering activity continues up 4. Rig contract cancellations have stopped 5. Seismic late sales are growing 6. Subsea X-mas tree awards are up 7. FPU awards are up 8. PSV fixing activity is up (North Sea) 9. Increasing Corporate activity Source: Clarksons Platou Offshore 5
A large share of laid up OSVs unlikely to return to the offshore market Just in excess of 1,000 vessels laid up > 15Y Source: Clarksons Research Services; Clarksons Platou Offshore 6
North Sea utilization improving slightly, in particular for the larger PSVs sep.08 sep.08 mar.09 mar.09 sep.09 sep.09 mar.10 mar.10 sep.10 sep.10 mar.11 mar.11 sep.11 sep.11 mar.12 mar.12 sep.12 sep.12 mar.13 mar.13 sep.13 sep.13 mar.14 mar.14 sep.14 sep.14 mar.15 mar.15 sep.15 sep.15 mar.16 mar.16 sep.16 sep.16 mar.17 mar.17 sep.17 sep.17 sep.08 sep.08 mar.09 mar.09 sep.09 sep.09 mar.10 mar.10 sep.10 sep.10 mar.11 mar.11 sep.11 sep.11 mar.12 mar.12 sep.12 sep.12 mar.13 mar.13 sep.13 sep.13 mar.14 mar.14 sep.14 sep.14 mar.15 mar.15 sep.15 sep.15 mar.16 mar.16 sep.16 sep.16 mar.17 mar.17 sep.17 sep.17 AHTS PSV 120 100 80 60 40 20 0 AHTS North Sea Fleet Active Utilisation Lay-Up Yard Available Spot Work Term 100% 90% 80% 70% 60% 50% 40% 30% 20% 300 250 200 150 100 50 0 Active Utilisation PSV North Sea Fleet Lay-Up Yard Available Spot Work Term 100% 90% 80% 70% 60% 50% 100% AHTS Fleet Utilisation 100% PSV Fleet Utilisation 90% 80% 70% 60% 90% 80% 70% 50% 60% 40% 30% 20% 10% 20,000+ BHP 16-19,999 BHP 10-15,999 BHP 50% 40% 30% 500-749 m2 750-899 m2 900+ m2 0% 20% Source: Clarksons Research, Clarksons Platou Source: Clarksons Research, Clarksons Platou 7
OSV fleet age profile: The OSV fleet in general is fairly modern. Newbuilding activity forward will likely be limited Note that a large share of the older fleet is currently inactive. Not likely to return to active duty in the OSV market Source: Clarksons Research Services; Clarksons Platou Offshore 8
To sum it up... The oil market is rebalancing and offshore oil is an essential part of oil supply We are seeing green shoots across Offshore and expect the market to gradually improve The OSV market is characterized by significant overcapacity, but many of the laid up vessels will likely deteriorate and be retired from the market balance North Sea somewhat different with laid up vessels largely modern and controlled by established owners Level of maintenance and potential reactivation costs key items to consider when evaluating market balance Following a newbuilding wave, we see limited newbuilding activity for a long period Specialized vessels (e.g. for Wind) and parts of Subsea likely exceptions Thank you for listening! 9
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