The current vicissitudes of the offshore industry hardly need to be spelled out, but sometimes getting real numbers explains why it all hurts so much - development and exploration costs are rising, forcing operators to pull back on projects and contracts.
Energy Industries Council’s quarterly monitor gave new meaning to the term ‘contracting’ which is just what has been happening in the upstream sector.
Its analysis of activity in the third quarter of 2014 showed a 40% decline in the number of major contracts awarded - ie EPC, FEED and subsea/SURF - from the previous quarter and just under 50% from the same period in 2013. Just 40 contracts were awarded on 35 developments compared with 68 the previous recording period.
The contracts were broken down to 22 EPC, 12 FEED and six subsea/SURF jobs.
This sector took a much bigger hit than the general energy business which saw a 7% decline in contracts from Q2 (to 139) and 22% decline from Q2 2013.
It was not just the decline in contracts awarded - the result of the falling oil price and a surplus of crude oil in the market - but also squeezed margins.
IHS reported that despite a significant amount of capex allocated last year - $720bn in all - there was little sign of growth and profits.
Squeezed
Its Global Upstream Performance Review showed that since 2000, net income return on capital has fallen from 23% to 11% at least partly as a result of rising costs.
There has also been a problem for operators to grow reserves with only a limited number of sectors showing compound annual growth rates - Canada, onshore US, Russia and the Asia-Pacific region.
While the review revealed significant spending on buying acreage and licences, a number of the spenders were buying unproven assets.
Big spend
Also, the recent Oil & Gas UK report (SEN, 31/15) on the value of the decommissioning market noted that plugging and abandoning wells would represent nearly 45% of the nearly £15bn spend.
For good reason too - the average cost of P&A of a well is coming in at 70% over budget, according to a stateTent made a a recent decommissioning conference.
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