Oilfield services market conditions and trends 2016 · PDF file ·...

Oilfield services market conditions and trends 2016Segments: drilling, well maintenance and workover, and geophysicsSeptember 2016

Oilfield services market conditions and trends 2016Segments: drilling, well maintenance and workover, and geophysics

© 2016 Deloitte & Touche Regional Consulting Services Limited 2

0

20

40

60

80

100

120

140

Deloitte, 30 June 2016 Worldbank, 26 July 2016

2020F2011 2012 2013 2014 2015 2016 2017F 2018F 2019F

Oil price volatility has grown considerably over recent years. The uncertainty makes it complicated for companies to establish long-term plans.

Forecasted weighted average* oil price

USD/barrel

Source: Deloitte and Worldbank forecasts

* The weighted average price is a combination of the prices for Brent and WTI crude oil taken with equal weights

High volatility and controversial trends

• The considerable reduction in oil prices and volatility on the oil market in 2014-2015 forced analysts to review short-term oil price forecasts regularly.

• As of the beginning of the second half of 2016, most experts agree that oil price recovery is going to be slow.



9985

360

550

780

61.792.9

396

607600

2016

2015

Capital investment plans for 2016, billion RUB

• According to the 2016 Russian Oil and Gas Outlook Survey, 55 percent of experts believe that capital flow into the Russian oil and gas sector will not decline for, at least, the next five years.

• The growth of uncertainty on the market has become one of the reasons why there is no trend towards changing the amount of capital investments in 2016 among the largest vertically integrated oil companies (VIOC). At the same time, the majority of market leaders are not planning to cut capital investments abruptly, which confirms the absence of exceedingly negative expectations.

• According to VIOC representatives, upstream will be the main focus for capital investments. Funds will be allocated towards maintaining and expanding exploration and production.

Despite the downward trend in the commodity markets, Russian companies have set a drilling record.

Average annual oil price and drilling metreage

9

14

19

24

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

500

1000

1500

2000

2500

3000

3500

Oil price (weighted average) Metreage

RUB/barrelMillion m

+30%

Source: Company data; the amount of investment includes foreign assets.

Neutral to positive expectations of market participants

• 2015 saw a continued disruption in the correlation between oil prices and drilling metreage: despite the sharp decrease in oil prices, metreage increased by over 10 percent.

• The increase in metreage may have been caused by market expectations. According to Deloitte’s 2016 Russian Oil and Gas Outlook Survey, based on interviews with executives from Russian enterprises, 61 percent of experts expect a rise in oil prices in 2016.

• Despite the neutral to positive expectations, in order to relieve the impact of the current decline in oil prices, the key market players aim to reduce operating costs and improve operating efficiency.

-9%

-9%

-9%

+60%

Capital investments plans for 2016, billion RUB



5.8 5.06.7

4.94.1

4.3

3.63.8

2.8

2.92.7

2.9

1.71.6

2.3

12.0

2013 2014 2015 2016*

Other

Bashneft

Russneft

Tatneft

Slavneft

Gazprom Neft

Lukoil

Surgutneftegaz

Rosneft

+13%

19.4

21.9

24.5

+12%

20.8

-7%

• In 2015, the total production drilling market grew by 13 percent.

• Most key players expanded drilling volumes having implemented their annual plans for production drilling.

• According to the representatives of most companies and actual Q1 data, companies are not planning to reduce the volumes of production drilling in 2016.

• Rosneft stands out among the key players as it is planning to boost the volumes of production drilling by no less than 30 percent.

0.15 0.17 0.11

0.22 0.200.21

0.20 0.23

0.17

0.11 0.08

0.11

0.50

2013 2014 2015 2016*

Despite the existing uncertainty on the market, according to 2016 results, production and exploratory drilling metreage are expected to grow.

Production drilling, million m

Source: “Oil and Gas Vertical” magazine (CDU TEK), company data,

*Deloitte forecasts

• In 2015, the exploratory drilling market volumes decreased by 10 percent, which was due to the uncertainty on the market and the suspension of participation in expensive exploration projects.

• At the same time, according to the results of the first half-year of 2016, exploratory drilling grew by 11.2 percent as compared to the same period last year.

• Hence, in 2016 exploratory drilling metreage is expected to grow, and, by the end of the year, metreage is predicted to be 18 percent higher than in 2015.

Source: “Oil and Gas Vertical” magazine (CDU TEK), company data,

*Deloitte forecasts

+1%

0.820.74

0.82

-10% +18%

0.87**

1st

half-y

ear

1st

half-y

ear

** The forecast has been reviewed due to the positive trends demonstrated by the companies at the end of the first half-year of 2016.

Exploration drilling, million m



4.43.4

4.5

4.6

3.8

3.9

2.7

2.81.9

2.4

1.5 1.2

1.5

1.31.7

2013 2014 2015

Other

Bashneft

Russneft

Tatneft

Slavneft

Gazprom Neft

Lukoil

Surgutneftegaz

Rosneft1.4 1.6

2.20.4 0.3

0.40.9

1.0

0.90.5

1.3

1.6

0.8

0.9

1.0

0.3

0.4

0.6

2013 2014 2015

Horizontal drilling remains a key driver for metreage growth in 2015; directional drilling is growing more slowly.

Directional drilling, million m

16.6

+4%

5.8

7.4

+27%

• The 2015 market continued the trend observed in 2014: horizontal drilling metreage increased considerably as compared to the previous year—by 27 percent. It is horizontal drilling that currently drives the metreage growth in the Russian Federation. Most key players continued to increase metreage in horizontal drilling. According to the year’s results, metreage in horizontal drilling exceeded metreage in directional drilling at Gazprom Neft and Slavneft.

• Metreage in directional drilling grew by 4 percent in 2015, which was not as considerable as the growth in horizontal drilling metreage. The major boost in directional drilling volumes was due to increased drilling by Rosneft (by 32 percent) as well as by small and medium-sized oil companies. At the same time, Lukoil and Gazprom Neft have reduced directional drilling metreage considerably.

Source: “Oil and Gas Vertical” magazine (CDU TEK)Source: “Oil and Gas Vertical” magazine (CDU TEK)

14.6

+32%

+3%

-34%

-17%

+40%

+38%

-7%

+31%

+5%

-23%

-17%

+4%

-39%

14.0

-16%

+16%

-16%

+11%

+176%

+23%4.3

+33%

Horizontal drilling, million m



Western Siberia remains a leader in drilling volumes; however, the share of other regions has grown considerably over 2014-2015.

Metreage distribution in production drilling

• Western Siberia is still Russia’s main oil region, accounting for 78 percent of metreage in production drilling and 52 percent in exploratory drilling in Russia in 2015. However, since 2013, the share of Western Siberia in the total metreage across the abovementioned regions has decreased by 6 and 13 percentage points, respectively.

• Stable and fast growth in drilling volumes has been continuously observed in Eastern Siberia: metreage for 2013-2015 is three times higher, and comprised 5 percent of production drilling and 13.5 percent of exploratory drilling in Russia in 2015.

• Drilling volumes in the Far East continue to change considerably year-on-year: while in 2015, the share of production drilling increased by 0.7 percentage points, a fall by 1.4 percentage points was observed in exploratory drilling.

84.2% 79.1% 77.9%

10.0%12.2% 14.2%

5.8% 8.7% 7.9%

2013 2014 2015

Other regions

Volga District

Western Siberia65.5%

56.3% 52.2%

24.5%27.8% 30.4%

10.0% 15.9% 17.4%

2013 2014 2015

3.4% 5.8%

13.5%5.3%6.3%

2.7%

2013 2014 2015

Source: “Oil and Gas Vertical” magazine (CDU TEK), Deloitte analysisSource: “Oil and Gas Vertical” magazine (CDU TEK), Deloitte analysis

20.8 million m 19.4 million m 21.9 million m 0.82 million m 0.82 million m 0.74 million m

Metreage distribution in exploratory drilling

1.7%

4.5% 5.0%3.4%

3.8%1.9%

2013 2014 2015

Far East

Caucasus and Southern

Federal District

Timan-Pechora

Eastern Siberia



28%21%

21%

20%

14%

15%

28%33%

2014 2015

Other

KAToil-Drilling

Targin

Tagras

Eriell

RN-Drilling

Surgutneftegaz

EDC 25%30%

21%20%

20% 13%

14%13%

6%6%

8% 11%

2014 2015

Other

Russneft

Bashneft

Tatneft

Slavneft

Lukoil

Gazprom Neft

Surgutneftegaz

Rosneft

Source: Company data Source: “Oil and Gas Vertical” magazine (CDU TEK)

Supply and demand on the drilling market has not seen significant changes; however, EDC’s share has been decreasing, and the number of medium and small suppliers is growing.

Supply on the drilling market (based on metreage)

High demand concentration and considerable segmentation of suppliers

• The four largest Russian oil companies continue to account for most of the drilling demand on the market–more than 75 percent.

• EDC remains the only large independent supplier on the drilling market; however, its market share shrank considerably over 2015–from 28 to 21 percent.

• Despite market expectations, Rosneft has not demonstrated significant growth in the use of its own drilling capabilities.

Demand on the drilling market (based on metreage)



164.2 178.5227.5

79.0 84.6

103.8104.5136.1

109.862.8

66.677.5

28.3

33.0

31.661.7

47.5

74.8

2013 2014 2015

Other

Bashneft

Russneft

Tatneft

Slavneft

Gazprom Neft

Lukoil

Surgutneftegaz

Rosneft

The increase in the volumes of capital investment in the construction of production wells is due to the desire to sustain production levels at mature oil deposits.

Capital investment in the construction of production wells, billion RUB

Source: “Oil and Gas Vertical” magazine (CDU TEK)

344.3 370.4435.3

91.7119.9

124.141.5

51.0

70.636.3

2013 2014 2015

Far East


Federal District

Timan-Pechora

Eastern Siberia

Volga District

Western Siberia

523.4

+15%

Source: “Oil and Gas Vertical” magazine (CDU TEK)

669.8

581.9

+11%

• Western Siberia accounted for the majority of capital investment in 2015. Capital investment in Russia’s main oil region increased by 17 percent as compared to 2014.

• Capital investment in Eastern Siberia has increased by 70 percent since 2013, which is due to increased production in the region.

• Most key players on the market have increased their capital investments as compared to 2014, which is due to the depletion of major highly-productive “old” fields (experiencing the necessity of increasing their oil recovery and replacing worn out equipment).

• Most companies claim that they are not planning to reduce capital investment in the construction of production wells in 2016.

523.4

+15%

669.8

581.9

+11%



29.4 32.3 33.3

13.918.6 19.9

11.917.1

3.9

8.13.3

2013 2014 2015

Far East


Federal District

Timan-Pechora

Eastern Siberia

Volga District

Western Siberia 11.520.6

14.1

9.8

12.420.3

16.4

22.3 17.0

3.56.0

6.8

4.110.9

2013 2014 2015

Other

Bashneft

Russneft

Tatneft

Slavneft

Gazprom Neft

Lukoil

Surgutneftegaz

Rosneft

Due to uncertainty on the market, companies are reducing capital investment in the construction of exploration wells.

Capital investment in the construction of exploration wells, billion RUB

53.2

-1%

75.776.3

+43%

• As compared to the considerable increase in capital investment in the construction of exploration wells in 2014, 2015 saw a small fall.

• Capital investment increased by 16 percent in Eastern and Western Siberia, but fell considerably in the Timan-Pechora Region.

• Pressured by the uncertainty on the market, key players have reduced their capital investment in the construction of exploration wells.

• Surgutneftegaz is one of the few companies on the market that has expanded capital investment, having increased it more than 1.5 times.

• Most companies claim not to be planning further reductions in capital investment in the construction of exploration wells in 2016.

53.2

75.776.3

-1%+43%

Source: “Oil and Gas Vertical” magazine (CDU TEK)Source: “Oil and Gas Vertical” magazine (CDU TEK)



12.2 10.6

9.18.5

7.78.4

3.2 3.8

8.22.1

2014 2015 2016*

Other

Russneft

Slavneft

Gazprom Neft

Bashneft

Tatneft

Surgutneftegaz

Lukoil

Rosneft37.0 40.4

28.830.8

16.116.3

17.5 6.6

2014 2015 2016*

45.7

+11%

109.1

130.9

+20%

43.9

39.4

-14%

115.9

-6%

The rise in expenses for well maintenance and workover is due to the desire to increase oil recovery at existing oil deposits.

Well maintenance costs, billion RUB

Source: Source:CDU TEK, * Deloitte predictionsSource: Source:CDU TEK, * Deloitte predictions

• In 2015, total well maintenance costs were reduced by 14 percent.

• Most key players, except Surgutneftegaz and Tatneft, reduced their investment in maintenance.

• Q1 2016 witnessed a 10 percent rise in well maintenance costs as compared to Q1 2015.

• Therefore, in 2016 the decrease in well maintenance costs will probably slow down and, by the end of the year, total well maintenance costs may go back to their 2014 level.

• In 2015, the total amount of companies’ investment in workover decreased by over 6 percent.

• Despite the decrease in total costs, almost all key players increased their investment in workover.

• Q1 2016 saw a significant growth in investment in workover both by large and small companies.

• Workover costs may rise by 20 percent in 2016 as compared to the previous year.

Workover costs, billion RUB



Western Siberia is losing its share in well maintenance and workover costs. In 2015, investment in maintenance in the Volga District and Eastern Siberia grew considerably.

Well maintenance distribution by region

• In 2015, the distribution by region on the maintenance market changed considerably.

• Western Siberia, which is the leader in well maintenance costs, lost 9 percentage points of its share to the Volga District and Eastern Siberia in 2015. The distribution of other regions by aggregate well maintenance costs changed insignificantly.

• The distribution of regions by costs on workover also underwent changes over the past year. The Volga District’s share grew by 3 percentage points, the Far East–by more than five times, whereas Western Siberia’s share fell by over 6 percentage points.

• The shares of the Caucasus, Timan-Pechora and Eastern Siberia in the investment in workover increased insignificantly.

58.1%48.8%

34.7%44.0%

7.3% 7.2%

2014 2015

Other regions

Volga District

Western Siberia

43.4% 37.7%

51.7%54.4%

4.9% 8.0%

2014 2015

2.8% 3.2%

0.5%2.6%

2014 2015

Source: CDU TEK, * Deloitte analysisSource: CDU TEK, * Deloitte analysis

RUB 45. 7 billion RUB 39.4 billion RUB 115. 9 billion RUB 109.1 billion

Workover distribution by region

1.1%1.8%

3.7%3.2%

1.1% 0.9%

1.4% 1.3%

2014 2015

Far East

Caucasus and Souther

Federal District

Timan-Pechora

Eastern Siberia



In 2015, the government and investors reduced financing of geophysical surveys. Offshore projects are seeing a cost decrease.

Market share of geophysical surveys in the mining and oil and gas industries

Offshore exploration works reduction

• In 2015, costs for exploration works saw a decrease. Costs for offshore works were reduced by 77 percent, which is considered the most dramatic reduction as compared to 2014.

• A high offshore production cost, which is often unjustified as oil prices are low, was the main cause of offshore works reduction.

• Additionally, a reduction of offshore exploration works occurred due to the postponement of drilling works on 10 of Rosneft’s large projects. The above was caused by the outflow of foreign partners from the country and by economic sanctions.

60.4 62.8

6.1 4.114.3 5.2

2014 2015

Other sources of

finance

Federal budget

Equity capital

151.8 146.0

97.8

23.8

2014 2015

Offshore exploration

works

Onshore exploration

works

-11%

RUB 81 billion RUB 72 billion

Source: Federal Agency for Mineral Resources, Deloitte analysis

Source: Federal Agency for Mineral Resources, Deloitte analysis

Geophysical survey costs fall

• In 2015, the market share of geophysical services (Geographic Information System (GIS) and seismic survey) amounted to RUB 72.06 billion, which is 11 percent less as compared to 2014.

• Russian and foreign investors have considerably reduced financing volumes. Economic sanctions are still limiting capital inflow.

• Reduction of governmental expenses has resulted from the anticipating reduction of the federal budget. This reduction was caused by budget-saving measures.

• In 2016, investments will probably continue to decrease; however, stabilisation is expected in 2017.

* Regional budgets of the Russian Federation, credits, funds received from Russian and foreign investors

RUB 250 billion

RUB 170 billion -77%

-4%

-32%

Territorial structure of the exploration works market in the oil and gas industry



34.4 33.322.4

6.210.0

73.1

90.2

42.4

2013 2014 2015

Другие

Slavneft

Novatek

Surgutneftegaz

Bashneft

Gazprom

Lukoil

Rosneft

In 2015, the seismic exploration market saw a significant slow down.

Seismic exploration 2D*, line km

Source: Federal Agency for Mineral Resources, Deloitte analysisSource: Federal Agency for Mineral Resources, Deloitte analysis

• In 2015, in terms of the fields of 2D and 3D seismic exploration, the market was down by 44 percent and 22 percent, respectively, on a year-to-year basis.

• The 2D seismic exploration segment saw the most significant cost reduction. This is because companies are gradually shifting to 3D seismic exploration as a more informative option.

• Rosneft is considered the key demand booster on the 2D seismic exploration market with a 28 percent market share in 2015.

• Gasprom is considered the key demand booster on the 3D seismic exploration market with a 45 percent market share in 2015.

28%

112,000 line km

143,000 line km

-44%

80,000 line km

10.9

21.9

7.2

7.8

6.5

6.1

13.3

12.6

20.0

28.9 8.7

4.2

2013 2014 2015

68,000 sq. km

57,000 sq. km

44,000 sq. km

-17% -22%

* - the market includes both oil and gas and mining industries

Seismic exploration 3D*, sq. km



Trends on the Russian oilfield services market

Source: 2016 Oil and Gas Outlook Survey, company data, Deloitte analysis

Oilfield services market• Key players continue to

keep their market positions• Changes in the distribution

of regional demand• Constant work to improve

efficiency• Increasing use of internal

sources of funding

Internal obstacles• Lack of skilled labour• Depreciation of production

assets and fixed assets

Customer pressure• Requirements for continuous

quality enhancement and cost optimisation

Positive trends• Market stabilisation, “new reality” in the economy• Growth in drilling, well maintenance and workover volumes• Growth in demand for local services• Strong interest from Asian investors

Macroeconomic factors• Unstable oil prices• Retention of the sanctions regime• Rise in (foreign) equipment costs• Complexities in using and acquiring new technologies and knowledge • Difficulties in raising external capital



Contact information

Gennady Kamyshnikov

CIS Energy and Resources Leader

+7 (495) 787 06 [email protected]

Elena Lazko

CIS Oil and Gas Leader


Alexey Nesterenko

Senior ManagerCIS Oil and Gas


Steve Openshaw

Audit


Kelly Allin

Audit


Andrey Panin

Tax and Legal


AlmatyAnthony Mahon

Energy and Resources Leader, Caspian Region


KievArtur Ohadzhanyan

Energy and Resources Leader, West Region


BakuNuran Kerimov

Energy and Resources Leader, Azerbaijan


GlobalRajeev Chopra

Energy and Resources Leader

+44 775 78 53 [email protected]

Authors:

mailto:[email protected]










deloitte.ru

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