Double black swan looms over offshore industry

The April 2020 issue of Offshore Marine Monthly discusses the looming effects of the oil price crash and the Coronavirus disease 2019 (COVID-19) on the offshore supply vessel (OSV) market. You cannot see it in the numbers yet, but global OSV utilization will fall and the already low day rates are vulnerable. Exploration and production (E&P) company plans are in the midst of changing, and vessel demand is expected to fall over the next few months. Most of the operators active in the Americas have already announced dramatic cuts in 2020 spending.

After the 2008 and 2014 downturns, operators in the Gulf of Mexico halted many drilling programs, sometimes idling rigs that were still under contract. We can expect to see fewer wells drilled than planned in the third quarter of this year. If the oil crisis continues, we should expect to see wells shut in. E&P companies operating in the US Gulf have been historically quick to respond to falling oil prices. As offshore drilling rigs are idled and contracts are terminated early, excess capacity in the OSV spot market will grow, which puts downward pressure on day rates. The backlog of drilling activity has already started to erode, and more drilling programmes will get suspended or outright cancelled in the coming months.

Learn more on the global OSV market and other topics on the offshore, upstream oil and gas market covered in the Petrodata Product Suite.

Richard Sanchez is a Senior Marine Analyst at IHS Markit.

Posted 20 April 2020

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.