Still no relief for the offshore sector

Confidence is growing that the global oil industry has entered the recovery mode in all sectors — well all except for offshore.

CEOs of the leading offshore service companies suggest that the weak offshore market will likely hang around for another two to three years. If that happens, how much damage will be done to the offshore service business now and in its future?

Recent fourth-quarter earnings calls gave offshore service company CEOs the chance to offer their views on the near-term business outlook. There is little reward for being overly optimistic about the pace of an industry recovery since there is nothing worse for a CEO than having to explain why his optimism has proven to be wrong. Almost uniformly, the CEOs offered no hope for much improvement this year.

The question for offshore workers and investors is whether they will see the first green shoots of an offshore industry recovery spring up before the end of 2017. If so, then 2018 would mark a transition year, and 2019 would be the first year of potentially normal conditions.

But even that scenario may be optimistic. Marc Edwards, president and CEO of Houston-based Diamond Offshore, told investors earlier this month that “despite some stabilization in the price of oil, we have yet to see a floor in the declining demand of deepwater assets.” He added that the industry is now entering “an unprecedented third consecutive year of declining investment in offshore spend.”

That latter point is critical, as the world will need additional oil production in the future, a significant portion of which was targeted to come from offshore and be driven by the activities of the major oil companies.

In a Feb. 6 call, Rob Saltiel, president and CEO of Atwood Oceanics, Houston, discussed the oversupply in the offshore drilling sector and his puzzlement at the slow pace of rig attrition, a condition needed to bring supply and demand back into balance. Saltiel showed more optimism, telling investors that “we may soon see an uptick in the number of offshore rigs that are confirmed as exiting the marketed supply.”

Still, no one sees any quick turnaround for the business. As Jeff Platt, president and CEO at New Orleans-based offshore service vessel company Tidewater, told his investors on Feb. 8, “We believe it will be quarters and not months before a meaningful recovery commences.”

Maybe it is always blackest before the dawn.

About the author

G. Allen Brooks

G. Allen Brooks is a 40-year veteran of the energy and investment industries, serving as an energy securities analyst, an oilfield service company manager, a consultant to energy company managements and a board member of several oilfield service companies. He is the author of the highly regarded energy newsletter “Musings From the Oil Patch” that interprets trends within all sectors of the energy business.

Leave A Reply

© Diversified Communications. All rights reserved.