Doris Leblond
OGJ Correspondent
PARIS, Oct. 18 -- Spending on oil and gas services and equipment, which began increasing during 2003-04, has accelerated this year due to expectations that oil and gas prices will remain high.
The outlook for 2006 is even brighter, reported Institut Français du Pétrole (IFP) Pres. Olivier Appert in an annual review of the services and equipment industry (SEI) worldwide.
With an average oil price of $53/bbl over the first 9 months of 2005, compared with $38/bbl in 2004, upstream investments are expected to grow by 13% to $170 billion by yearend. These figures include investments by Russia and China. Next year's outlays will increase by 8-10% to about $185 billion.
Appert noted that during 2000-05 North American oil majors and independent companies accounted for 35% and 25% of world expenditures respectively. The remaining 40% was shared mainly among Russian and Chinese companies, national oil companies, and other companies of different nationalities.
The report also noted the growing participation of Chinese and South Korean service and equipment providers, no longer as subcontractors but as direct competitors. China is growing in the geophysics market, where state-owned BGP Inc. has acquired a 20% share through an aggressive price policy, and on the drilling market, where it is emerging as a rig constructor. South Korea also is positioning itself in the offshore segment, particularly in the construction of floating production, storage, and offloading vessels.
A growing trend is the demand by producing countries for technology transfer and rising local content, Appert noted.
High oil prices
Appert noted that oil majors, which have been basing investments on oil prices of $20-25/bbl, increasingly are anticipating prices closer to $35/bbl.
Three areas of the worldwide SEI emerge from the IFP review as particularly dynamic: drilling, offshore construction, and geophysics, as seismic services emerge from a decade of doldrums.
Based on the first half of 2005, the geophysical services and equipment market can be estimated over the year at $6.5 billion, 25% more than 2004, and the outlook for 2006 points to $7 billion. Geophysical services are benefiting from operators' needs to maintain production in mature fields and to replace reserves. In the longer term, notes IFP, this segment should develop further with the progressive use of 4D seismic.
With 83,000 wells expected to be drilled worldwide, the drilling market should remain close to $26.7 billion, a 13.5% increase over 2004, IFP said. Growth should be strongest in the offshore area, up 16% to $16 billion. The onshore market will increase by 10% to $10.5 billion.
With utilization of offshore drilling capacity exceeding 90%, contractors are investing in new equipment, which should enter the market gradually between yearend 2005 and 2009. In 2006, the growth rate of the onshore and offshore drilling markets should increase by only 5% and 10% respectively.
The engineering, equipment, and construction market, which is more difficult to assess, should post a 15% growth rate this year to about $28 billion, IFP said. It is expected to jump 7% in 2006 to $30 billion.
Focus on France
IFP placed special emphasis on France's SEI, which ranks second worldwide after North America's. Following last year's record 16.9 billion euros, of which 95% was achieved abroad, this year's SEI growth rate should hover around 12% to 18.1 billion euros earned abroad, Appert said. France's offshore SEI segment should grow by 15.1% and the onshore segment, by 7%.
This growth will require a larger workforce, which increased 5% in 2004 to 64,500. A workforce of 66,000 could reached by yearend.
Appert said several factors may explain why upstream investments worldwide have increased by only 30% even though oil prices practically doubled over the first 3 quarters of 2005: difficult access to the best prospects, higher tax pressure on oil companies by producing-country governments, the shortage of qualified personnel, and strains on the supply of drilling rigs.
