Axiom EMI: supply chain over-correction to subsea project delays will result in a weaker service sector, further schedule delays and cost escalation. Is the sector as badly impacted as the rhetoric has us believe?
The below chart highlights Axiom’s view on how the 2020-2024 subsea market forecast has evolved through February to June 2020.
Our research indicates that 48% of subsea tree installations are still on track to be installed within the target development timeline. Of those delayed, the majority are forecast to witness a schedule push-back of up to one year. These delays are associated with a mix of pre and post-FID projects, but are highly weighted towards those that have not reach final investment decision. Less than 10% of installations are expected to see delays greater than one year and primarily impact the market through 2022-2024.
The trees associated with canceled projects, or changes to field development plans eliminating subsea tree requirements, are more than counterbalanced by accelerated 2025/2026 project timelines and newly announced small-scale subsea developments. These projects could still get the green light in a 40$/bbl environment.
We believe the recent impact of Covid-19 and lower oil price on the 2020-2024 subsea installation market is of the magnitude of -15% from where we were at the beginning of the year. This should not be confused with the 25%-30% budget cuts announced by the E&Ps. When looked at from a subsea investment perspective, the budget cuts have undoubtedly impacted the sanctioning of larger-scale projects, however a sizeable component of the subsea market is linked to infill expansions and small-scale tiebacks with more favorable economics.
Sentiment across the wider OFS space is negative and many companies have once again entered survival/crisis mode, resulting in reductions in headcount and service capacity. Moreover, an accelerated shift in focus to deploy greater resources towards offshore renewables will further dilute capacity.
A fine balance needs to be struck between hunkering-down on the one hand, and not losing the efficiency and technical gains generated by the previous downturn on the other. In addition to that, a further deterioration of the health and resolve of supply chain could lead to the exacerbation of delays and result in E&P cost escalation in a lower oil price environment.
For more information on the underlying data of the above analysis, please get in contact.
Source: Axiom – Subsea Market