Here's why offshore companies don't freak out amid economic crisis

Offshore drillers reveal that exploration and development activities remain robust.

Nomura released an analysis of rig utilisation and dayrates, capacity availability going forward and management commentary from offshore drillers which showed that exploration and development activity, especially in deepwater, remains robust.

Offshore activity momentum strong despite oil price weakness

Despite prevailing economic uncertainty and the risk of oil prices weakening further if global economy enters another period of prolonged slowdown, we have not found any evidence of a slackening in offshore activity. Commentary from offshore drillers has been positive highlighting strong activity levels, especially in deepwater and ultra-deepwater segments. Utilisation and dayrates, too, have been resilient and though there has been a pause in new order activity, drillers continue to remain confident of continued strong demand amid solid exploration success around the globe.

Offshore activity sensitive to structural changes, not volatility in oil prices

We had highlighted in the May 29, 2012, issue of Singapore O&M Radar that given long gestation periods for offshore oil and gas projects, exploration and development activity is sensitive to structural changes in oil prices, not temporary volatility. We believe that
our view has been affirmed in comments by managements of Noble Corp and Transocean. Additionally, according to a Bloomberg article dated July 7, 2012, Total’s CEO Christophe de Margerie recently commented that the current oil price of ~USD100/bbl is
“good for long-term investment, for long-term vision of what we need to develop”.

New and technologically-advanced rigs in demand

2QFY12 earnings commentary across offshore drilling companies has again highlighted oil and gas companies’ preference for new and technologically-advanced rigs. For example, Noble Corp, Atwood Oceanics and Ensco have all highlighted that given stricter safety regulations, oil and gas companies have shown an increasing interest in having a two-BOP system. BOP reliability and redundancy are fast becoming key focus areas for companies.

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