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1、Trends in the oil service market have we seen the bottom?,11th June 2009,Andreas StubsrudDirect:+47 2431 2116 Mobile:+47 9179 7565Email:andreas.stubsrudpareto.no,2,Summary,Oil demand down 3%in 2009,down marginal in 2008Oil consumption has not shrunk two years in a row since early 1980sOil inventory
2、at record high levelsOECD inventory at 62 days,avg last 5 years 52 daysOPEC cuts working4.5m b/d cut so far,spare capacty around 6m b/dHOWEVER,oil price is reboundingFear of oil“shortage”in the future:“Easy”oil is history,the hunt for the next barrel is expensiveAgain we will under investSpending pr
3、ojected to decrease by 10%to 15%in 2009However,an increasing oil price will again spur investmentsRig Count increased by 7 units to 993 rigs in May comapred to April.Oil price went from mid USD 50s to mid USD 60 per barrel,The oil market looks challenging with low demand,high inventory and high spar
4、e capacityHOWEVER,oil price is rebounding on fears of“shortage”of oil in the futureThe result is again underinvestments in the oil market.But a higher oil price will spur investments,and we might already have seen the bottom and see contracts again being signed in the oil service market,3,Table of c
5、ontents,Oil market why own oil serviceOil service market spending trendsOil service market no more easy oilRig market why own deepwater exposure?Significant rate drop reflected in UDW drillersAttractive companiesConclusionAppendix,4,Oil market:Year Of The Overshoot,Est.09-10range,USD,Oil price,Brent
6、,Source:Pareto Securities est.,”Peak Oil”overshoot,”Demand Destruction”overshoot,5,Megatrend:Oil demand per capita is rising outside OECD,Share of world population,Share of world demand,OECD,Non-OECD,Source:IEA,6,Time is(less)money,USD,Source:Bloomberg,Contango(forward price spot),Backwardation(forw
7、ard price spot),Forward premium nearly gone.Signals tighter market.,Time spread(1.mth vs.2.mth,WTI),7,Conclusions:Delayed squeeze,Price recovery has begun but unlikely to gather pace before 2H 09.Demand:Has taken a big hit from financial crisis but Q2 09 is likely to be the low point.Downturn is cyc
8、lical,not structural,and should revive with economy-eventually.Supply:Is likely to stay low in 2H 09 as Opec keeps compliance high.Non-Opec challenges expected to intensify.Downside risks:Prolonged demand slump would pressure Opec compliance.Oil price forecast:$55 in 09$80 in 10,8,Table of contents,
9、Oil market why own oil serviceOil service market spending trendsOil service market no more easy oilRig market why own deepwater exposure?Significant rate drop reflected in UDW drillersAttractive companiesConclusionAppendix,9,E&P spending in 2009 we estimate 10-15%decline,Overall E&P spending reduced
10、,but long awaited contracts could be around the cornerWe estimate 10-15%reduced spending from 2008 to 2009,E&P spending among the largest spenders,Source:Pareto,10,Historical E&P spending we are doing the same mistake every time,Note that this shows overall spending,while spending in some markets,li
11、ke seismic jackup drilling are much more volatile,1999 and 2009 are years with decreasing overall spending,Source:Pareto,11,Seismic supply Actual supply growth well below previous projections,Our 09e estimate indicates a fleet capacity increase of 2%and another 4%in 10eOn paper 09e 11e newbuild flee
12、t growth is 55%Funding issues at yards and seismic companies will reduce supply growth significantlyOur base case anticipates a 33%fleet increaseIn addition to reductions in newbuilds coming to market,seismic companies has started to stack or scrap vessels,which will further decrease the effective s
13、upply growthWe do not expect newbuilds to be ordered in the short to medium term.2D market+low end 3D market extremely though.SMNG reportedly has 5 out of 6 2D vessels idle and the BGP Pioneer(3D)is also said to be idle.Limited M&A opportunities left Big 3+Fugro controls 80%of total capacityOnly lik
14、ely candidate at current is Polarcus,Streamer capacity historical and estimates,Source:Pareto,12,Rig count significantly down since summer 2008,Change last month(April):-36 rigs Change on 1 mth:-5.0%Change on 1 year-8.0%Decline in all regions,North America rig count,Source:Baker Huges,13,Jackup fixt
15、ures,Few contracts signed since 127 idle jackup rigs120 jackups are coming off contracts/newbuilds without a contract remaining of 2009 meaning next 212 daysNumber of rigs coming of contracts exclude 20 mat jackups,Source:ODS,Pareto,14,Floater fixtures,Few fixturesMost of the fixtures are subletsHow
16、ever,it looks like the number contract awards are not falling further,Source:ODS,Pareto,15,Subsea market many prospects,but cost must adjust,Cost adjustment needed for contract awards,Further possibilities for 2010 work mainly fromPetrobras Hybrid Flex Lay(Polar Queen)Kizomba(Exxon)Pazflor with 21 a
17、dditional wells(ref.FMC)EGP3A(Chevron)Other major contracts with H209/H110 award:Gorgon,Clov,Goliat,Source:Pareto,Chevron,Project backlog is significant,some examples:,Costs are coming down and we are likely to see overall project costs down 20%from peak by mid 2009e.We estimate overall project to h
18、ave come down some 15 20%from peakIn general,oilcos are targeting 30 40%cost increases,16,16,Offshore Supply vessles:Spot rates spike on utilization above 90-95%,The chart indicates that spot rates spikes when#available vessels is bellow 3.The spot rates has been low during the winter season.However
19、,this season is normally the low season.Summer season should increase demand for all types of support vessels.The main risk to our rate estimates is a drop in rig utilization.Pareto estimates assume effective day rate of NOK 240/day for 18 bhp AHTS in 2009,AHTS spot rates vs.available vessels,Source
20、:JGO/Pareto,17,Table of contents,Oil market why own oil serviceOil service market spending trendsOil service market no more easy oilRig market why own deepwater exposure?Significant rate drop reflected in UDW drillersAttractive companiesConclusionAppendix,18,Source:Infield/Offshore Research,Robust o
21、il and natural gas pricesDevelopment and drilling activity in mid to deep waterSubsea tie-backsIncreased maintenance activity on ageing offshore fieldsNew FD solutionsConclusion:Easy oil is history,we are going to develop the more challenging regions like Sub-salt in Brazil and GoMDeepwater of Afric
22、aHarsh environment in the Artic regions,Key drivers,Growth will come from deepwater fields,19,Table of contents,Oil market why own oil serviceOil service market spending trendsOil service market no more easy oilRig market why own deepwater exposure?Significant rate drop reflected in UDW drillersAttr
23、active companiesConclusionAppendix,20,Summary-drilling,Long termDeepwater drillers still resilient tight if Petrobras wants to develop Tupi etc.Jackup/mid-water valuation very lowWill come back with better financial markets and an oil price stabilizing in the USD 60-65+Short termOverall,drilling mar
24、ket looks challengingRates and prices on the way down utilization an issue going forwardIncreasing sublet activity,Long term bullish related to oil price view and deepwater growthShort term neutral related to financing issues for marginal demand(i.e.smaller oil comp and deferred project startup),21,
25、Jackup fleet 63%of total fleet(2011)built before 1984,In 2005,85%of fleet was built before 1984After all newbuilds are delivered this figure drops to 63%Even if the jackup segment is not growing significantly the reality is that the fleet is very oldJackups built the last 10 years are approximately
26、30-35%more efficient than 25-35 year old jackupsConclusion:Utilization will be challennging in the near to medium term,but newbuild jackups should be able to get healthy dayrates and utilization with an oil price above USD 65,Jackup fleet by age,Source:ODS,Pareto,22,Floater fleet going from mid-wate
27、r to deepwater,Floaters built in the first two cycles(1973-77 and 1980-86)were mid-water rigs which are called 1st to 3rd generation rigsSome of these unties are upgraded and can operate in deepwater5 generation untis(water depth above 7500ft called UDW)were built in 1998-2001In 2002 the floater fle
28、et was approximately 200 world wideAround 35 of these 200 were UDWLast cycle adds around 100+floaters,95%UDWConclusion:Even though the order book in the UDW segment is significant the demand growth should be able to absorb the incremental supply and dayrates should start to stabilize,especially with
29、 an oil price above USD 65,Floater fleet by age,Source:ODS,Pareto,23,Oil price and rig rates since year 2000,Rig supply deficit pushed rates higher in 2004-2008Much capacity will enter the market between 2007-2011Significant demand for rigs expected if oil price recoverIn our view,an oil price above
30、 USD 65 will again increase activity,Oil price and jackup/ultra deepwater rates-rebased,Source:Pareto,24,UDW rates still 500$/day,Source:Pareto,25,Current UDW supply still very tight,Source:Pareto,26,Selected UDW demand,Source:Pareto,ODS-Petrodata,27,Brazilian deepwater newbuilds:risk for delays/can
31、cellations,Source:Pareto,ODS-Petrodata,28,Current sublets no discount and short sublet period positive,Source:Pareto,ODS-Petrodata,29,Jackup market overview weakening as more jackups becomes idle,Source:Pareto,ODS-Petrodata,30,Support to our estimates at USD 65 per barrel,Source:Pareto,ODS-Petrodata
32、,31,Table of contents,Oil market why own oil serviceOil service market spending trendsOil service market no more easy oilRig market why own deepwater exposure?Significant rate drop reflected in UDW drillersAttractive companiesConclusionAppendix,32,Significant rate drop reflected in pricing,Source:Pa
33、reto,33,Dayrate sensitivity SDRL the most leverage company,Source:Pareto,34,Implicit value per UDW rig YE09,35,Implicit value per UDW rig YE11,36,Implied values jackups YE09,Source:Pareto,37,Implied rig values,Source:Pareto,38,Table of contents,Oil market why own oil serviceOil service market spendi
34、ng trendsOil service market no more easy oilRig market why own deepwater exposure?Significant rate drop reflected in UDW drillersAttractive companiesConclusionAppendix,39,Seadrill:BUY target price NOK 110,40,PDE:Buy target price 33,41,Score:Buy target price 23/high risk,42,FOE:Solid back-log&strong
35、dividend,43,Songa Offshore:Buy target price NOK 34/High risk,44,Northern Offshore:Buy target price NOK 8/High risk,45,Table of contents,Oil market why own oil serviceOil service market spending trendsOil service market no more easy oilRig market why own deepwater exposure?Significant rate drop refle
36、cted in UDW drillersAttractive companiesConclusionAppendix,46,Conclusion,Short term fundamental looks challenging with high inventory and low US demandHowever,oil price is reboundingFear of oil“shortage”in the future:“Easy”oil is history,the hunt for the next barrel is expensiveOil companies will ag
37、ain invest in both existing production and explorationThe global recession was a much needed oil demand“break”and the result was an interruption of the oil/oil service“super-cycle”.We are probably in the same“super-cycle”that started in 2005 which may easily last until 2012,The oil price is reboundi
38、ng on fears of“shortage”of oil in the futureWe are again under investing in the oil marketWe are most likely in the same“super-cycle that started in 2005 which may last until 2012,47,Table of contents,Oil market why own oil serviceOil service market spending trendsOil service market no more easy oil
39、Rig market why own deepwater exposure?Significant rate drop reflected in UDW drillersAttractive companiesConclusionAppendix,48,48,Trade levels with implicit exposure pr rig around USDm 400,49,49,Implicit value UDW Rigs YE09 accretive to buy Petromena rigs-implicit exposure per rig in Pmena at curren
40、t bond prices is$398m and$426m,Buying the Petromena rigs at levels indicated would be highly accretive for existing drilling contractors,50,50,Asset backing for 1.lien DDI Bonds exposure per rig,30%of new price55%of SCORE,Sept 08:Sinopec orders a 375 feet JU from PPL Shipyard delivery 1Q-11,DDI Janu
41、aryUSDm 220 bond,DDI AprilUSDm 110 bond,DDI FrnsUSDm 160 bond,30%of new price54%of SCORE,22%of new price39%of SCORE,Source:Pareto Research,51,Recommendation and target prices,Source:Pareto,52,Multiples P/E,Source:Pareto,53,Multiples EV/EBITDA,Source:Pareto,54,Disclaimers and disclosures,V.09-01,This
42、 document provides additional disclosures and disclaimers relevant to research reports and other investment recommendations(“Recommendations”)issued by Pareto Securities AS(“Pareto”),cf.the Securities Trading Act Section 3-10 with further regulations.Basis and methods for assessmentRecommendation fo
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46、areto Securities may also provide credit research with more specific price targets.These price targets are based on different valuation methods.These methods may include analysis of key credit ratios and other factors describing the securities creditworthiness,peer group analysis of securities with
47、similar creditworthiness and different DCF-valuations.Definitions of key terms:*Equity:Strong Buy:Pareto expect this financial instruments total return to exceed 30%over the next six months.Buy:Pareto expect this financial instruments total return to exceed 10%over the next six months.Hold:Pareto ex
48、pect this financial instruments total return to be 0-10%over the next six months.Reduce:Pareto expect this financial instruments total return to be negative over the next six months.Credit:Buy:The risk premium is considered as favorable relative to credit riskHold:The risk premium is considered as a
49、cceptable relative to credit riskSell:The risk premium is not considered as acceptable relative to risk*Please note that these definitions are guidelines only.Credit RatingsPlease be aware that all credit ratings mentioned in this report are Pareto Securities own credit rating estimate unless other
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