Hit where it hurts: contractors are feeling the pinch
Contractors hit as spending falls
Capital expenditure on oil and gas developments is expected to fall 23% this year, with the majority of contractors expected to bid low amid deflationary pressures and a growing urgency to arrest a decline in order backlogs.
Despite a September quarter increase of 21.3% and two consecutive quarters of growth in new orders, contractors continue to struggle to replenish backlog levels, an ODS-Petrodata analyst said.
New orders this year are expected to be around 70% of last year’s as international oil companies hold back on project sanctions after a drastic plunge in commodity prices in the second half of 2008.
Only a handful of contractors surveyed including Hyundai Heavy Industries, Aker Solutions Subsea, JGC, Technip, Acergy and Subsea 7, are beneficiaries of large but fewer contracts awarded over the last two quarters.
ODS-Petrodata’s lead analyst Oliver Stephenson expects the trend to continue, as small and medium-sized players continue to be sidelined in competition for new orders from Gorgon LNG and other large-scale projects.
These contractors would face pressure to submit more competitive bids at least through first half of next year, Stephenson said.
This would provide a favourable window for oil and gas operators to sanction their projects, he added.
However, Stephenson also sees a possible change in landscape in the second half of next year.
Contractors may have cut jobs during the downturn but would be hesitant to move too aggressively on hopes of rebound over the next two years, he said.
Stephenson was citing findings from a third report in an ODS-Petrodata’s quarterly series on backlogs and new orders for oil and gas contractors.
The latest report draws on a survey on 15 suppliers and contractors from four sectors: engineering, procurement and construction, construction yards, subsea equipment suppliers and offshore construction vessels.