The news continues to be ominous for rig and boat operators in the Gulf oil patch. Oil prices hit a six-year low today with WTI falling below $44 bbl. for the first time since 2009. There is plenty of oil out there and U.S. production reportedly continued to increase last week.
As most workboat industry veterans know, the OSV and rig markets and oil prices are cyclical. Sure the market has soured recently and prices are expected to remain depressed for another 12 to 24 months, but the good news is that the industry is now better prepared for it. Most have learned from past boom cycles not to get too high or too low.
Despite this ominous atmosphere, yesterday’s Offshore Marine Service Association meeting in New Orleans was well attended. And while the crowd was bombarded with a lot of bad news over the course of the day, the mood wasn’t as bad as I expected. I believe part of the reason is that this is one tough bunch and the current down cycle isn’t their first rodeo.
During his presentation to OMSA members, marine analyst Richard Sanchez of IHS-Petrodata delivered plenty of bad news, but he did offer a glimmer or two of hope for OSV operators in the crowd. First, while he predicted the downturn will last two to three years, it will not be as bad as 2010. Also, the deepwater and ultradeepwater market will actually grow in 2015 and the big deepwater projects will continue to move forward.
Still, Sanchez delivered much of the same gloomy news that we have been reporting and the operators have already heard. The majors are under pressure to cut spending, which means they want discounts and day rate relief. Also, it may be argued that the PSV market is now oversupplied with about 18-20 new PSVs scheduled for delivery in 2015.
Still, believe it or not it could be worse.
but we aren’t at the bottom yet so it will be worse
I think this was a deftly crafted “crisis” to maximize the profits of the big companies. Sure, they were other tangible reasons why this transpired, but it was a perfect opportunity to put the high wages in check. Your thoughts c capee…I like your take on a lot of the issues.
[QUOTE=skip jiblet;153326]I think this was a deftly crafted “crisis” to maximize the profits of the big companies. Sure, they were other tangible reasons why this transpired, but it was a perfect opportunity to put the high wages in check. Your thoughts c capee…I like your take on a lot of the issues.[/QUOTE]
I think all the deepwater players came to realize they were spending way too much on E&P before the downturn in price started and in order to appease angry shareholders were going to start squeezing on their suppliers and contractors. With the downturn in the price of crude, it became a perfect storm of spending too much cash to earn back too little (at least in the short term and shareholders have a hard time looking ten years down the road) so now are absolutely forced to say NYET to any more mega projects or wildly optimistic wells. I say conservatism in spending will be a new philosophy which all will follow in the years to come but the immediate situation is that many projects are already greenlighted and contracted for which would be far too expensive to cancel now. Also, many existing charters have a longtime to run but don’t expect anything in the future to look like it did in the past. THOSE DAYS ARE DEAD JIM!
[QUOTE=AHTS Master;153347]We are nowhere near the bottom.[/QUOTE]
c.captain, you quoted in your original post here that …“Sure the market has soured recently and prices are expected to remain depressed for another 12 to 24 months…”. What are OSV companies doing to deal with these depressed prices? Are they laying up boats, laying off workers, cutting day rates? I know for sure that trying to get hired on now is a crap shoot, but how are the workers that are already there? What’s the latest talk of a turn around in the oil prices? April is a common time frame that I’ve been hearing.
BOEM is having another Lease Sale , I think 235 in the Central Gulf. The had big bids the last couple of years for the leases. Seems eventually, maybe later this year or next, that things will pick up. It will be interesting to see the prices of the leases.
[QUOTE=RoTc4;153891]c.captain, you quoted in your original post here that …“Sure the market has soured recently and prices are expected to remain depressed for another 12 to 24 months…”. What are OSV companies doing to deal with these depressed prices? Are they laying up boats, laying off workers, cutting day rates? I know for sure that trying to get hired on now is a crap shoot, but how are the workers that are already there? What’s the latest talk of a turn around in the oil prices? April is a common time frame that I’ve been hearing.[/QUOTE]
oil has already hit bottom and will be higher by summer but what is now the anchor dragging the offshore down is all the shale oil being produced which is cheaper to get to market the deepwater oil by a fair margin. That oil is not going to go away and the price is going to be down as a result, but for how long is the question? One year or two? Is oil now going to always be depressed due to new cheap sources so that a new normal will be $60 to $70/bbl? If that becomes the new normal, how much will the operators pull way back on their deepwater exploration and production? I say it will have a major negative impact.