Every project that has been deferred since the oil price plunge has been added to the future backlog of projects to be awarded. This jackpot has grown 200 USD billion, which is the sum of 63 development projects’ oilfield service purchases. This stack-up of projects will be a vital prize for the service industry once the oil price picks up.

Rystad Energy is tracking delays announced (or inferred) since the second half of 2014 for development projects where sanction could reasonably have been expected within two years of the delay. If we analyze these projects’ investments and oilfield service purchases, we see that their spending amount to about 230 and 200 USD billion respectively. These projects are being re-worked and are benefitting from lower unit prices with each passing day; and that is good as more and more projects will be likely candidates to be awarded once the oil markets show signs of improvements. The largest piece of this service backlog is the engineering, construction and installation (EPCI) of facilities that amounts to about 85 USD billion. This represents 80% of an average normal year of greenfield EPCI awards, or a backlog-to-annual award ratio of 0.8. Half of these EPCI purchases stems from the 10 largest projects that have been deferred. Bonga-Southwest-Aparo, Tengiz FGP and Kasawari make up the EPCI prize podium.

Subsea has been impacted vastly by the drop in the oil price as it is driven by field development on the high side of the cost curve. 1.2 years, or 30 USD billion have been delayed and await to be picked up by hungry SURF and Subsea Equipment companies once the market turns. One third of these projects sits in West Africa and is operated by the E&P Majors which have been forced to cut in offshore activities.

Well Services and Drilling Contractors make up more than 50 USD billion of delayed spending. This has especially hit offshore drillers as their exposure to the same deepwater regions has made a large impact. 100 rig years have so far been pushed out in time and represent more than a year of normal greenfield awards. Deep and midwater regions such as Europe, South East Asia and North America, make up three quarters of these delays and consequently punished drilling contractors with semi-submersible focus.

All in all, the backlog of deferred projects plus the normal activity would yield large volumes of projects to be developed over a short period of time. These delays have caused 3 million boe/d of supply to slip that would spur a large demand for new resources to be developed. It seems now that the service industry might reduce capacity too much in the current environment, making it unable to take on the new growth cycle. In conclusion: those few that will have the capacity are the ones that will win the jackpot.

This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
a qualified investment adviser. More

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