Pareto World Wide Offshore AS - Pareto Project Finance

The offshore oil services marketThe activity growth continues unabated, despite oil price volatility and uncertain financial markets. The oil industryis planning for the long term, driven by reserve replacement needs and production growth ambitions. In fact, themost negative factor this year has been project delays on political hurdles or late delivery of equipment, but thisonly adds to pent up demand going forward. Overall, there is reason to remain positive on this market in the future.The oil and gas marketsSource: EIAThe oil price development this year is a reflection ofthe financial markets’ overall risk appetite and view onChina’s growth prospects. Right now, the sentimentappears moderately positive, but this could changedepending on the development of the European debtcrisis and economic data coming out of China.Fundamentally, the oil market seems well balanced,perhaps with a lack of Iranian exports as positivedriver. The natural gas markets remain regional, andso the low prices seen in the US are yet to havemeaningful impact on prices elsewhere. This could,however, change in the next decade with more LNGtransportation infrastructure coming into operation.Overall, global upstream investments are expected togrow by 13% in 2012 and initial budgets call for a10% increase in 2013. Next year’s plans are based onan average planning price of USD 95/b (Brent), whichis USD 4/b lower than for 2012 and USD 15-20/bbelow the current oil price. As such, there is upside tonext year’s investment levels, implying a potential forstronger oil service markets.Source: Pareto SecuritiesThe long term challenge for the oil industryIn this quarterly report, we examine more thoroughlythe challenges for the oil industry and why this shouldprovide for solid long term growth in the oil servicesmarkets. Consider first the fact that global oildiscoveries have been well below annual productionlevels for the past 30 years. The gap has only widenedover time. In short, the world is drawing on a decliningresource base, which is showing accelerating declinesin production.This is the most important factor behind the oilindustry’s appetite for upstream investments, muchmore so than demand growth. As can be seen in thechart to the left, the production replacement needcompletely dwarfs the pull from demand growth.Moreover, for all the hype, onshore tight oil productionwill likely have minimal effect on the overall picture,even if it delivers according to current long-termgrowth projections. We will continue to rely onconventional oil resources in the foreseeable future,although it must be said that these same resources inthe future will have to be discovered and put intoproduction in more and more complex areas, with acorresponding impact on costs.Source: Pareto Securities