Report: Deepwater Development Will Outpace Equipment Supply

Tuesday, October 24, 2000
The booming global deepwater oil industry is on course to outpace supply of offshore development hardware in the next two years, according to an analysts' report. "Deepwater construction capacity will be insufficient to handle anticipated demand requirements in 2002 and particularly 2003-04," said an oilfield and equipment services report by Schroder Salomon Smith Barney. "We believe a rush of field development plans will be sanctioned in 2001, followed by major contract awards to marine contractors," it added. With oil prices having tripled in 18 months, companies are loosening constraints on exploration and development spending imposed during a price slump in 1998 and early 1999. But a backlog of potential developments could grow as limits emerge to equipment supply. "Rapidly accelerating demand and limited new capacity set the stage for robust earnings growth for deepwater-focused construction contractors," the report said. The report said after a five to 10 percent decrease in 2000, spending by major companies on deepwater development is set to rise 20 to 25 percent per annum over the next three to five years. The predicted increase in development spending would benefit firms such as marine construction experts Saipem, Global Industries and Coflexip Stena Offshore. "Major deepwater development projects have been frustratingly slow to commence, yet the amount of new discoveries continues to increase," the report said. Since 1995, more than 180 fields had been found and another 158 sites were forecast to be discovered in the next two years. "By 2005, we expect a doubling of production from reservoirs in greater than 600 ft. of water and a quadrupling in more than 2,500 ft.," the report added. As part of this growth, the firm believes several large contracts to develop sites offshore Brazil, Mexico and West Africa will be awarded in the next 12-18 months. As a result, the report restated Buy ratings for specialized marine construction firms Coflexip Stena Offshore, Global Industries, Saipem and Stolt Offshore. The firm also reiterated its outperform ratings on Bouygues Offshore, Cal Dive International and Oceaneering International.

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