The offshore engineering, procurement and construction market is expected to quickly recover this year, boosted by projects postponed from 2020 and a resurgent Petrobras, according to analysts Westwood Global Energy Group.
Westwood’s base case outlook for 2021, which assumes a Brent crude price averaging $50 per barrel, currently forecasts firm and already awarded offshore EPC contracts of around $29 billion with a further $12 billion of probable awards and $4 billion of possible awards, compared to the $12.3 billion awarded in 2020.
A torrid 2020
“After a torrid 2020, the outlook for the offshore EPC market in 2021 looks promising, boosted by projects deferred from 2020… [this year] could match 2019’s $40 billion total,” said Thom Payne, Westwood’s head of offshore energy services.
While this outlook might appear optimistic, particularly to an industry still reeling from “the latest downturn-within-a-downturn”, a significant proportion of the 2021 market is from projects deferred in the second quarter of 2020 — which of which had already seen significant pre-sanction commitments."
Payne pointed to examples such as Shell's Whale in the US Gulf of Mexico, Equinor's Bacalhau in Brazil, and Qatar Petroleum's giant North Field liquefied natural gas projects.
These projects account for an estimated $7.7 billion of projected EPC value alone in 2021. Another $4.6 billion tranche of deferred awards are those critical to backfilling LNG trains or supporting existing gas sales agreements, such as Woodside’s Scarborough, Shell’s Crux and Santos’ Barossa — all offshore Australia.
Low investment last year
Last year will go down as one of the most challenging in the history of the oil and gas sector, noted Payne.
Investment in new field developments was the lowest in more than 30 years as companies across the board reacted to the commodity price crash, slashing an average 30% from planned 2020 capex and postponing or stalling $54 billion-worth of offshore EPC contract awards.
Just $12.3 billion of offshore EPC contracts were awarded in 2020 across 32 sanctioned projects, compared to $40.3billion in 80 projects in 2019.
Five upstream players accounted for 75% of the award value in 23 projects and the five largest projects contributed 57% of the total offshore EPC value. These were Woodside’s Sangomar in Senegal, the ExxonMobil-operated Payara in Guyana, Equinor’s Breidablikk in Norway, CNOOC’s Lufeng 14-1/4/8 offshore China and Petrobras’ Mero 3 in Brazil, added Thome.
Oil company spending
While overall upstream investment in 2021 is likely to be flat or even decline from 2020 based on companies’ guidance, increased spending by a few exploration and production players — notably Petrobras, Shell and Woodside — is driving a forecast increase in offshore EPC awards in 2021.
National oil companies account for 62% of potential awards this year and supermajors only 10%. This compares with 59% and 20% in 2019.
Petrobras, in particular, is expected to step up contract awards this year after reaffirming in November its commitment to the development of its prolific pre-salt basins.
The Brazilian state-owned company is expected to contribute around $6.5 billion of EPC awards in 2021, the highest of all E&Ps, across its Buzios 5, 6, 7 and 8, Mero 4, Itapu and Marlim revitalisation projects.