ROV Market Prospects

Andrew Reid, 6 September 2013, Aberdeen

www.dw1.com

Douglas-Westwood: Our Business

offshore

Established 1990
Aberdeen, Canterbury, London,

power

New York, Singapore & Houston

Activity & Service Lines

onshore

Business strategy & consulting

Commercial due-diligence
Market research & analysis
Published market studies

LNG

Large, Diversified Client Base

downstream

1000 projects, 72 countries

Leading global corporates
Energy majors and their
suppliers

Investment banks & PE firms

Government agencies

LNG
renewables

Macro Views
ROV Market Drivers
ROV Market Outlook
Conclusions

Global Energy Demand Is Expected To Grow.

GlobalOilConsumption(BP)

Energy intensity reaching/reached limits in many OECD countries

Developing economies will continue to drive global energy demand
Source:BP2013

Global Energy Demand

Growth since 2000

Asia Pacific

92%

Africa

47%

Middle East

81%

Europe

S&C America

42%

N America

-1%

1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011

Billion toe

Asia Pacific
Africa
Middle East
Europe
S&C America
N America

PrimaryEnergyDemand
Source:BP2013

Europe & N American consumption is almost flat-lining

Many others growing strongly but from a small base

4%

Energy Use By Type Is Changing

60% of oil is used in transportation (OECD countries) but in some it is >70%

Macro Views
ROV Market Drivers
ROV Market Outlook
Conclusions

Three Major Themes Driving Increased ROV Demand

200mn boepd

180mn

160mn

70mn boepd

Growing
offshore
production

140mn

60mn

70mn boepd

Growing
deepwater
production

60mn

50mn

50mn

40mn

40mn

30mn

30mn

20mn boepd

20mn boepd

Growing
offshore gas
production

120mn

100mn boepd

Offshore

Deep

Offshore Gas

Onshore

Shallow

Offshore Oil

Global Oil & Gas Supply 1970-2020

Offshore Supply by Depth 1970-2020

Offshore Supply by Type 1970-2020

Drilling To Increase In Deepwater

Deepwater Drilling (Indexed to 2007)

Shallow Water Drilling (Indexed to 2007)
2007

2009 2011 2013

2015

2017

Subsea Hardware Market Growing

40
35

Expenditure ($ billions)

30
25
20

Africa
Asia
Australasia
Eastern Europe & FSU
Latin America
Middle East
North America
Norway
RoWE
UK

15
10
5
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source:WorldSubseaHardwareMarket20122016(DouglasWestwood)

Picture:FMC

$135bn Capex forecast 2012-16

Golden Triangle to form 65%
Subsea gas export lines to dominate other regions spend
$35bn spend on production hardware and $39bn on SURF
10

Deepwater Capex to rise by 90%

Source:WorldDeepwaterMarketForecast201317DouglasWestwood

Five-year Capex to total $223bn

Golden Triangle $174bn of spend
Asia (20%) is a high-growth opportunity from a small base
$78bn on drilling & completion of subsea wells

Major Cost And Margin Challenges For IOCs

Structural costs:

Liquids Production - RHS

geology (HPHT deep &

CAPEX ($ billion) - LHS

260

arctic)

remote locations
extreme conditions (deepwater,

16.0

Brent ($/bbl) - LHS

15.5
210
15.0
160

14.5

marginal fields
Durable costs:

forex rates (e.g. Aus)

14.0

110

13.5
60
13.0

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

10

1999

Transient costs:

manufacturing bottlenecks
certain labour shortages
elevated drillship dayrates

mn b/d

complex)

16.5

12.5

Combined data for BG, BP, COP, CVX, ENI, OXY, PBR, RDS, STO, TOT, XOM
Source: Bloomberg via Phibro Trading LLC

E&P Costs Brazil Is Struggling

2013 will be worse

(Petrobras CEO February 2013)

2% production decline in 2012 to 2 mbpd. And 0% to -2% in 2013?

Implicit 11% natural decline rate
17% QoQ underlying lifting cost increase (11% excluding wage increases)
Why? High exploration expenses and impact of local content policies
13

Macro Views
ROV Market Drivers
ROV Market Outlook
Conclusions

Global ROV Expenditure

Africa
Asia
Australasia
Eastern Europe & FSU
Latin America
Middle East
North America
Norway
RoWE
UK
ROV Expenditure

ROV Days by Region (000s)

140
120
100

2,000
1,800
1,600
1,400
1,200
1,000

80

800

60

600
40

Total Expenditure ($millions)

160

400
20

200
0

0
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Significant growth in global ROV operations expenditure is forecast for all regions with
the exception of the Middle East, and Eastern Europe & FSU.

Global expenditure is expected to rise from $1,347m in 2013 to $1,878m in 2017.

Africa remains the largest regional market throughout the forecast period, with total
ROV expenditure set to increase from $324m in 2013 to $547m in 2017.

The number of ROV days is expected to increase from 122,958 days in 2013 to
139,476 days in 2017.

ROV Days by Driver

RM - Repair & Maintainence
DS - Subsea DV Wells
DS - E&A Wells
CS - Trunkline Installation
CS - FPSO Mooring & Risers
CS - Subsea Processing
CS - TMFJ
CS - Umbilicals & Flowlines
CS - Subsea Trees
ROV Expenditure

ROV Days by Hardware (000s)

160
140
120

2,000
1,800
1,600
1,400
1,200

100
1,000
80
800
60

600

40

Total Expenditure ($millions)

180

400

20

200

0
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

This is driven primarily by E&A and development well drilling support requirements
E&A drilling support contributes the largest proportion of future work for ROVs,
making up almost 41% of demand days over 2013-2017.

Trunkline installation days remain steady during the forecast period, as large
projects in Asia, the Americas and Europe can take years to complete.

Macro Views
ROV Market Drivers
ROV Market Outlook
Conclusions

Conclusions

Macro fundamentals are strong and support continued

investment in the energy sector

Increased investment in offshore and deepwater oil and

gas production will support continued ROV demand

Increasing costs are not sustainable and further delays

and potential cancellation of projects are expected

18

Thank You