Douglas-Westwood Forecasts USD 335 bln Spending in Offshore O&M Sector

The 2nd edition of the World Offshore Operations & Maintenance Market Forecast, by Douglas-Westwood (DW) forecasts over $335 billion worth of expenditure from 2012-2016 on offshore oil & gas operations & maintenance (O&M).

With O&M markets considerably less vulnerable to economic downturn than their capital-led counterparts DW predict growth of 8% per annum during the forecast period.

Offshore O&M activity is driven by a variety of supply-side and demand side factors:

* Growth in global energy demand which, for the medium term, means demand for hydrocarbons. The long term trend towards increasing energy consumption is clear.

* As onshore reservoirs continue to mature and new prospects become few and far between, a greater proportion of oil and gas production will be met by the offshore sector. Cost inflation and the price of oil do not have such an impact on O&M activity as the market for these services are more robust than those led by capital expenditure. Oil price fluctuations do not generally have the same level of impact on O&M expenditure compared to capital expenditure related activities such as drilling and field development. This is mainly due to O&M expenditure being vital to ensuring ongoing production levels, the principal revenue stream for offshore operators, are maintained. As a result DW expect that the majority of the markets covered in the World Offshore Operations & Maintenance Market Forecast are considerably more robust than those relating to the initial development of oil and gas fields with any significant upturn (or downturn) in global expenditure being driven principally by industry cost inflation (or deflation).

Despite this a number of the services covered in this report such as well stimulation, wireline operations, subsea well intervention and platform drilling are highly price sensitive and their economic viability is dependent upon a number of criteria including oil price, vessel,unit & rig rates and potential upside in oil or gas flowrates.

Market Forecast

Offshore oil & gas O&M covers a variety of sectors:

* Operations-related:

o Production Services (power generation, produced water management, wireline services and stimulation services)

o Support Services (hotel services, deck crew and miscellanous personnel)

o Platform Drilling (rig & crew, well construction & integrity and consumables)

o Logistics (crew boat, platform supply vessels and helicopters)

Maintenance-related:

o Asset Services (fabric maintenance and floating platform lease market)

o Subsea Inspection, Repair and Maintenance (field related, subsea well intervention and subsea

asset integrity)

In 2011 the global demand for offshore O&M services was over $52 billion, having grown at a compound rate of over 6% over the prior five years. Over the next five years DW expects a greater level of growth as the market recovers from the effects of the global downturn of 2008-2009. This will be driven by a combination of high oil prices, buoyant offshore development activity and rampant price inflation for equipment and services.

Whilst global offshore drilling activity dropped by an estimated 14% between 2008-2009, total offshore production (the principal driver for all operational activity) grew by 1%. The global offshore O&M market fell, but only slightly, despite widespread price deflation for equipment and services. Historical dominance of mature western basins is set to be challenged. Between 2007-2011, 40% of global O&M demand was accounted for by Western Europe and North America. Although DW expect market growth in all regions (despite the UK and Rest of Western Europe regions facing terminal production decline) DW expects the Western Europe and North American share of global demand over the forecast period to drop by a few percentage points. This shift will be driven by a combination of increasing offshore production in regions such as the Middle East and the movement towards deepwater in less mature regions such as Africa and Latin America.

The Asset Services market has seen a flurry of M&A activity in recent years as the sector has expanded. Recent activity included Wood Group acquiring PSN in 2010 to expand its brownfield services offering, Cape acquiring Shoreguard in 2011 to strengthen its regional presence in the Asia Pacific region and Stork Technical Services acquiring RBG in 2011 as a means of increasing global presence in the sector.

Key Themes

Production services dominate O&M market expenditure. Over the 2007-2011 period demand for production related services accounted for 44% of global O&M demand. These services are directly associated with production levels from offshore facilities and are intensified as an oil or gas reservoir matures and requires additional effort to sustain production. The inevitable maturing of offshore fields will drive compound growth of over 7% in the production services sector as operators struggle to come to terms with decreasing downhole pressure and increasing water cuts.

The Asset Services market is set to outgrow all other market sectors. This growth is a function of both increased volume and complexity of activity in the sector and also the propensity to lease production platforms such as FPSOs. This will drive significant compound annual growth in the Asset Services market over the next five years of over 12%.

[mappress]
Douglas-Westwood, April 25, 2012