SPECIAL REPORT: Study expects

120-175 more floating production

units during next 5 years
05/02/2011
By

Jim McCaul
International Maritime Associates
Washington, DC
In its recent analysis of floating production systems, International Maritime Associates,
Washington, forecast the petroleum industry will add 120-175 new units during the next
5 years.
The study found that currently there are 250 units in operation or available, more than
double the number of units 10 years ago.
Included in the total are 12 units off field and being remarketed. Eleven of these are
floating production, storage, and offloading (FPSO) vessels and one is a production
semisubmersible. The overall utilization rate for available production floaters is 95.2%.
FPSOs account for 62% of the current production floater inventory. The balance consists
of production semis 17%, tension leg platforms 9%, production spars 7%, and
production barges and LNG storage-regasification vessels 5%.
Petroleo Brasileiro SA (Petrobras) clearly dominates, with 43 FPSOs in operation or on
order, having a combined processing capacity of 5.1 million bo/d. China National
Offshore Oil Corp. Ltd. (CNOOC), ExxonMobil Corp., Total SA, Chevron Corp, Eni SPA,
BP PLC, Royal Dutch Shell PLC, and Malaysia's Petronas are next in line. These nine
operators account for 61% of FPSOs and 72% of oil processing capacity installed on
FPSOs. Fig. 1 breaks out by company the number of FPSOs in service and on order.
Orders
Order backlog on Mar. 31, 2011, stood at 47 units, of which there are 35 FPSOs, 6
production semis, 3 tension leg platforms, and 3 floating storage-regas units. Twenty-
four of these units will have purpose-built hulls and the remainder will have converted
tanker hulls. When delivered, new production floaters will increase operating inventory
by 20% over the next several years.
Almost half of the units on order are for use off Brazil. Southeast Asia, West Africa,
Northern Europe, and the Gulf of Mexico are other major destinations for units on order.
Production floaters currently are being built or converted at 28 facilities worldwide. Asia
is the major location for fabrication and conversion. But Brazil is becoming an
increasingly larger player and is now the second largest fabrication center for floating
production systems.
Planned projects
The study identified 194 projects in planning that likely will require a floating production
system for development. Fifty-five of these projects are at bidding or final design, with
equipment orders likely during the next 12 to 18 months. Another 139 projects are in
planning or study, with orders likely in 2013-19.
Brazil is the most active region for new floater projects. The study identified 47 projects
in planning in Brazil. Some of these projects involve multiple floating production systems
of up to 6 units in one major project.
West Africa is the second largest region for planned projects, followed by Southeast
Asia, Northern Europe, the Gulf of Mexico, and Australia-New Zealand. Fig. 2 shows
where these units will be deployed.
Forecast
Overall, the study expects orders for production floaters to average 24-35 units/year
during the next 5 years. About 80% of them will be FPSOs; redeployment of existing
units will satisfy 15-20% of new FPSO projects.
The study expects about 30% of the FPSOs to be large units similar to CLOV off Angola,
Skarv off Norway, and P-62 off Brazil. Another 30% will be midsize units such as Cidade
de Sao Paulo off Brazil, Kwame Nkruma off Ghana, and Pyrenees Venture off Brazil.
The balance will be small units such as Gimboa off Angola, Montara Venture off
Australia, and Cidade de Santos off Brazil.
The capital expenditures required for these floater orders may total $80-115 billion
between 2011 and 2016. The forecast range reflects three potential crude oil pricing
scenarios. The base scenario assumes oil stays in the $90-110 range, a price range the
futures market sees most likely over the foreseeable future.
Long-term outlook
Future growth indicators in the floating production sector are positive. Global demand for
oil continues to grow, the market is again threatened by Middle East and North Africa
supply disruptions, oil prices have pierced $100, and virtually every major field operator
has announced plans to increase offshore exploration and development expenditures.
Deepwater fields are among the major sources of hydrocarbons yet to be found or
developed. While no one knows the full extent of deepwater potential, the magnitude
undoubtedly is huge.
In Brazil alone, estimates place deepwater presalt resources at 70 billion boe, a figure
likely to grow as companies confirm more finds. Some estimates see deepwater
resources offshore Brazil, West Africa, and elsewhere providing almost 14 million boe/d
by 2030, more than double the current contribution to global supply. Importantly,
drillships and semisubmersible drilling rigs now being built will add 38% to available
deepwater drilling capacity.
A shortage of available rigs has constrained exploration and development. More rigs
looking for oil result in greater number of finds and ultimately greater demand for
additional floating production systems.
Overall, growth in the floating production sector has lots of room to run. There are no
indications of the market slowing. Rather, demand for new systems is accelerating.
The author
http://www.ogj.com/articles/print/volume-109/issue-18/drillng-production/special-
report-study-expects-120-175-more-floating.html

.5COMPETITIVE LANDSCAPE AND MARKET

POSITIONING
SEGMENTATION IN THE FPSO MARKET

The global market for FPSOs can be roughly split into three segments, with
SBM Offshore most active in large conversions:

1. Newbuild FPSOs: Capable of production volumes of over 200,000 barrels of

oil per day. SBM Offshore is involved in this segment as a supplier of large
Turret Mooring Systems (TMS). Current, on-going TMS projects are for Shells
Prelude FLNGand for INPEXs FPSO Ichthys, while the Quad204 turret was
completed and integrated into BPs FPSO Glen Lyon in 2015.
2. Large conversion FPSOs: This is SBM Offshores main market. They are
usually converted oil tankers known as Very Large Crude Carriers (VLCCs), with
typical production capabilities of 60,000 to 150,000 barrels of oil per day. The
Companys key competitor in this market is MODEC and to a lesser extent BW
Offshore. A typical Generation 3 FPSO what SBM Offshore calls its latest
design for the complex, pre-salt fields takes approximately three years to
complete, at a cost of US$ 1.5-2.0 billion.
3. Small conversion FPSOs: Based on smaller crude oil tankers, with
production rates up to 60,000 barrels of oil per day. SBM Offshore is not
currently active in this market.
Lease FPSO Market

FPSO Segmentation (assumptions based on future potential projects in the

medium-term)
 What all market segments have in common is that FPSOs are built for
specific fields. Each oil field has unique characteristics with different
pressures, temperatures, oil/water/gas mixes, corrosive and/or H 2S
elements, API factors, etc.

Due to overall reduced demand, competition is increasing as other

companies are stepping out of their segment and participating in tenders
for FPSOs, which they have not done previously. For clients, awards are
increasingly driven by pricing considerations. SBM Offshore is well-placed
to respond with its wealth of experience and its understanding of the
inherent risks and challenges of the different segments.

SBM OFFSHORES POSITIONING IN THE FPSO MARKET

Boundaries are fading as several competitors are developing execution

capabilities for larger size conversion projects and targeting a position in
SBM Offshores focus market segment.

SBM Offshore is a leader in the FPSO market both in terms of scale

economies and track record, key indicators for cost, schedule and risk
reduction. To keep this leading position, the Company continues to invest
in new technology offering new solutions for clients regardless of field
dynamics and location.

A Technology Development program that focuses on enabling access to

new frontiers and production and on reducing the cost of existing solutions
Leveraging the Companys experience and business model that is
already in place in Angola and Brazil when entering new countries in order to
develop local sustainable business, meet local content requirements and invest
in the communities
Promoting the Companys track record and historical performance in both
project delivery and operations, which should provide clients the necessary
comfort in their search for predictability of outcome
Offering economical solutions across the full life-cycle of projects, thereby,
leveraging the full suite of floating production solutions that the Company can
offer and the depth of experience and expertise, executing the work from
cradle to grave
LOOKING FORWARD

Although the company signed a few contracts and FEEDs, 2015 was a
slow year for the entire industry. With the low oil price and the pressure on
capital spending by its clients, SBM Offshore predicts that this trend will
continue for the medium term.

In response to the current climate and to re-ignite SBM Offshores

presence in the market, the Company adjusted its organization in January
2015, with the aim to further improve its client-focus for a more
collaborative, solution-driven approach.
To further match its clients expectations as well as increase the
Companys competitiveness, SBM Offshore revised its business
development and commercial approach in closer coordination with project
execution, in addition to creating Regional Centres with a specialization on
a set of Product Lines.

With dedicated teams focused on providing best possible technical and

commercial solutions and by leveraging its core competencies with a more
efficient and responsive organization, SBM Offshore expects to be able to
capitalize upon new opportunities and prospects.

Download full report

http://www.sbmoffshore-annualreport.com/at-a-glance/competitive-landscape-
and-market-positioning

Offshore industry expected to

see modest capex growth in
2015
01/14/2015

Latin America to have largest share of deepwater investment

George Griffiths
Infield Systems Ltd.

Despite uncertainty in global energy prices, which are likely to prompt

operators to re-evaluate their development budgets, Infield Systems
expects the offshore oil and gas industry to see continued increases in
capex demand in 2015 compared to 2014 (+6%), albeit a lower increase
compared to the 2013-2014 period (+19%). Although the majority of
regions will see increases in offshore capex demand, a few are likely to
see a slight fall. Capex demand is defined here as the amount of capital
expenditure projected to be required by an operator, or how much they
are expected to spend on projects over the forecast period.
At a regional level, Europe is expected to have a positive outlook, with a
forecast increase in offshore expenditure of almost 42% compared to
2014, propelling the region into first place in terms of its share of global
offshore capex.

Offshore Europe, capex will continue to be driven by developments in the

North Western European continental shelf (NWECS) which has historically
been the mainstay of activity, with both the UK and Norway projected to
account for the largest combined share of offshore expenditure in Europe
(57%). From an operator perspective, Statoil is likely to dominate the
market, and is expected to account for a fifth of Europe's offshore capex.
Statoil's Aasta Hansteen gas field in Norway and the Mariner heavy-oil
field in the UK are forecast to require significant investment throughout
2015, both of which are currently expected to come onstream during
2017.

Projects in Eastern and Southern Europe will contribute towards the large
increase in the region's overall projected expenditure levels. Almost 67%
of offshore capex demand in Eastern Europe in 2015 is anticipated to be
associated with the offshore sections of the South Stream pipelines which
will transport gas from Russia into Europe. However, with the current
turbulent political situation between the West and Russia over Ukraine,
the progress of the pipeline development could see potential difficulties in
2015 as it has in 2014. In Southern Europe, Italy is likely to drive growth in
offshore capex demand during 2015, with the possible construction of the
Trans-Adriatic Pipeline and the development of a gas interconnector
between Sardinia and Italy.
Despite a slight reduction in forecast expenditure, Latin America will
account for the second largest share of global offshore capex demand in
2015, mainly as a result of activity in Brazil, which is projected to account
for 84% of the region's total capex demand. The slight reduction in
forecast expenditure relates to the decrease in spend associated with
Petrobras' Roncador, Sapinhoa North, and Iracema Sul fields in Brazil. With
Brazil dominating activity in the region, the country's national oil
company, Petrobras, will continue to account for the largest share of the
region's offshore operator capex. Projections indicate that the largest
proportion of the Petrobras's expenditure will be on its ultra-deepwater
Iracema North FPSO development in the Santos basin, which is expected
to start production in 2015. As a result of its significant investments
offshore Latin America, the operator is also expected to continue to hold
the largest share of global operator capex demand during the year. From a
sector perspective, Latin America will not only account for the largest
share of deepwater and ultra-deepwater investment in 2015, but is also
likely to account for the highest levels of floating production systems
spend, driven by Brazil's demand for FPSOs to develop its deep and ultra-
deepwater fields. The subsea market is also expected to be boosted by
the deepwater developments in Brazil during 2015, with the country
accounting for 28% of global subsea market capex. Mexico is also likely to
have a positive future outlook due to the Mexican government passing the
Energy Reform act in the summer of 2014; it is designed to allow foreign
companies to invest in the country's energy infrastructure. This is likely to
open up deepwater areas of the Gulf of Mexico which require foreign
investment and technology to unlock any potential reserves.

Asia is expected to hold the third-largest share of global capex demand

during 2015, driven by offshore developments in Southeast Asia. Malaysia,
which has traditionally been a key player in the region alongside China
and Indonesia, is expected to lead offshore expenditure demand going
forwards. Dominated by state operator Petronas, the Malaysian
government aims to increase the country's production capacity to meet its
domestic and foreign energy demand, with the country also positioning
itself to become a major oil and gas hub by 2017.

The country will continue to expand its world leading LNG industry with
the continued construction of the country's first FLNG project. All the
topside modules of Petronas' PFLNG-1 FPSO are scheduled to be installed
during 2015, and the FLNG FPSO is expected to start production in 2016.
Asia will continue to dominate global shallow water (0-99m [325 ft])
expenditure throughout 2015. Indeed with the region characterized by
many shallow-water developments, Asia is expected to continue to be a
major driver for fixed platform developments.

Africa is projected to see a 10% increase in offshore expenditure during

2015, with West Africa remaining the primary driver, accounting for just
over 83% of African offshore capex demand. Angola is expected to
continue to lead capex demand in the region throughout the year, with
key operators Eni, Chevron, and ExxonMobil expected to account for 71%
of the total capex in the country. Noteworthy projects likely to be
developed offshore Angola during the period of analysis include Cabinda
Gulf Oil Co.'s (Chevron) Mafumeira oil field and Eni's N'Goma oil field, both
of which are expected to require significant expenditure throughout 2015.
Other important West African countries which are expected to support the
region's offshore activity include Nigeria, Ghana, and Congo (Brazzaville).
Key projects driving offshore expenditure in these countries throughout
2015 include Total's Egina and Moho Nord Marine oil fields and Tullow's
Tweneboa oil field, which is a part of the TEN developments in the
deepwater Tano license area. While South and East Africa are projected to
account for the smallest share of African offshore capex demand in 2015,
they hold great potential for the future, with a number of frontier countries
such as Mozambique and Tanzania emerging as important players.
Mozambique is expected to see the start of its first offshore field
developments in 2015, which include Eni and CNPC's ultra-deepwater
Mamba South field and Anadarko's Golfinho/Atum field. However, with low
oil prices, offshore developments in these frontier countries could suffer
delays.

Offshore North America is expected to see an 11% fall in expenditure in

2015, caused by a decline in operator spending in the US Gulf of Mexico
(US GoM). This decline is due to a number of projects that will require less
expenditure as they progress through their construction phases, such as
Anadarko's Lucius field, LLOG's Delta House field, and Chevron's Big Foot,
Jack and St Malo fields. The US GoM, along with West Africa and Brazil,
forms a deepwater locus, and as production declines from the shallow-
water fields, operators have the opportunity to explore deeper waters.
With the US GoM projected to account for 86% of the North American
region's offshore capex demand, almost 80% of this expenditure is likely
to be focused on developments situated in water depths of more than
1,000 m (3,280 ft). Examples of projects contributing towards deepwater
capex demand in the US GoM throughout 2015 include Shell's Stones
field, the first phase of the ExxonMobil-operated Julia field, and Anadarko's
Heidelberg field. Although there are deepwater opportunities in the US
GoM, the current low oil price is likely to have an adverse effect on the
economic viability of deep or ultra-deepwater developments, which
require higher levels of expenditure compared to shallow water
developments.

In terms of North American operator capex demand, ExxonMobil is

expected to account for the largest share, with the IOC's Hebron oil field
offshore Canada comprising the largest proportion of the company's 2015
offshore investment. Hebron will consist of a gravity platform which will be
installed in water depths of around 93 m (305 ft). The platform is designed
to withstand sea ice, icebergs, and harsh meteorological and
oceanographic conditions. The gravity platform will store around 1.2
MMbbl of oil. The field is expected to come onstream in 2017.

The forecast for the Middle East and Caspian Sea market shows an
increase in offshore expenditure (11%) during the year, with Azerbaijan
forecast to see a massive increase in expenditure caused by the second
phase of BP's Shah Deniz field. The largest proportion of offshore
expenditure for the field development will be focused towards the three
90-km (145-mi) export lines from the field to the onshore Sangachal
terminal which is currently undergoing major modifications. Besides
Azerbaijan, Qatar is also likely to see stronger levels of offshore
investment in 2015. The main driver of capex demand in Qatar will be the
Bul Hanine oil field operated by Qatar Petroleum. The field has produced
since the early 1970s but requires redevelopment to continue production.
The redevelopment will require a new offshore central production facility
and a new onshore gas liquids processing facility at Mesaieed.

Australasia has the lowest offshore capex demand forecast in 2015, with
the majority of the region's expenditure likely to be focused on projects
offshore Northwest Australia, which has emerged as the regional hub of
offshore oil and gas activity in recent years. Australia is becoming an
increasingly important LNG exporter and could one day rival Qatar. The
country is expected to continue to capitalize on FLNG throughout the year
with the country projected to account for almost 55% of global FLNG
capex demand, with Shell's Prelude FLNG FPSO remaining the primary
driver of the country's projected FLNG expenditure during the period.
INPEX is likely to dominate investment in the region during the period,
with its Ichthys development expected to form 100% of the operator's
expenditure in the region. Chevron is also expected to invest heavily
during 2015, and like INPEX, is forecast to focus all of its Australasian
offshore expenditure in Australia. Collectively, field developments in the
Greater Gorgon area are projected to account for the largest proportion of
the company's offshore expenditure during the year, with the offshore
section of its Wheatstone LNG project also likely to require significant
investment.

Overall, Infield Systems expects capex demand to continue to increase

during 2015, albeit at a lower rate compared to the previous year.
Although 2015 will be a year of growth, uncertainties surrounding energy
prices could affect the progression of some projects, especially those in
challenging and risky environments. The fragile global economy and the
political issues surrounding the Ukraine crisis could also impact the global
offshore oil and gas industry during 2015, ultimately affecting offshore
capex demand.

The author

George Griffiths is Senior Energy Researcher for Infield Systems Ltd.

Low Prices Curtail

Deepwater Capex
06/10/2016
OFFSHORE ACTIVITIES ARE EXPECTED TO RESPOND TO ANY FUTURE
OIL PRICE RECOVERY

MARK ADEOSUN, DOUGLAS-WESTWOOD, FAVERSHAM, UK

THE CONTINUED SUPPRESSION of global oil prices has impacted the

development of oil and gas fields both onshore and offshore. However,
deepwater developments are bearing the brunt, with the economic
viability of a number of large and ultra-deepwater projects called to
question - resulting in cancellations and deferred sanctioning.

Prior to the downturn, capital expenditure (capex) and operational

expenditure (opex) rose, arguably, to unsustainable levels, putting
pressure on operator budgets. The "lower for longer" oil price environment
has prompted an industry rethink - increasing the focus on the
standardization of subsea equipment, supply chain efficiency, and project
simplification to streamline development processes. Despite these
improvements, project execution challenges are set to continue due to the
typical risks associated with local content issues, prompting widespread
delays.

The Norwegian semi-submersible deepwater platform,

leased by Repsol for drilling offshore Cuba.
Repsol photo
As production from mature onshore and shallow-water basins declines,
development of deepwater reserves has become increasingly vital. The
need to offset declining production from these matured basins, as well as
the ability of IOCs to access world-class reserves with the use of new
exploration and production technology will continue to drive deepwater
expenditure. However, plunging oil prices have increased concerns in the
sector - specifically, whether or not deepwater projects can be viable at
current oil prices.

Douglas-Westwood expects deepwater capex to be suppressed over the

next five years due to sustained low oil prices. This has forced operators
to cancel or defer the sanctioning of mega deepwater projects -
particularly in the usual deepwater hubs of West Africa and the Americas.
However, in the near-term, deepwater projects that were sanctioned prior
to the oil price downturn such as Total's Egina Project (Nigeria), Kaombo
Project (Angola), and Moho Nord project (Republic of Congo) - all in West
Africa - will help sustain deepwater spending. These projects will also
account for over US$9 billion of Floating Production Systems (FPS)
expenditure over the next 24 months.

MARKET SUMMARY

DW forecasts deepwater expenditures to decline at -6% CAGR over the

2016-2020 period, with expenditure totaling $137 billion - an overall
increase on the previous five-year period of 5%. Project delays have
resulted in a significantly slower growth profile than was expected a year
ago.

DW forecasts deepwater capex - excluding FPS spend - to plummet from

2014's record levels until 2018, with a gentle upswing over 2019-2020.
This will be driven by the development of mega deepwater prospects in
Brazil and the commencement of offshore activity in the East Africa gas
basin. The FPS market is also expected see a similar drop in spend.
However, this will be most evident in the latter years of the forecast
period.

Last year (2015) saw the lowest number of deepwater FPS units ordered
since 1996 - 2016 unit orders are also expected to be minimal. The longer
lead times associated with FPS projects has insulated the market to date -
most 2017-2018 installations were ordered in 2013/2014.

In addition to the low oil price environment, reduced rig demand will
impact capex growth over the forecast period. Prior to the downturn,
record deepwater rig demand resulted in an unprecedented level of rig
orders - leading to a supply-demand imbalance. Rig contractors are now
facing plummeting day rates due to a combination of oversupply and
reduced demand, with day rate suppression triggering delays and
cancellations for new rigs and widespread stacking of deepwater rigs.

COMPONENTS

Drilling and completion (D&C) is the largest segment of the deepwater

market with expenditure totaling $53 billion to 2020 - an incremental
increase on the 2011-2015 period. The majority of spend in this category
is associated with subsea well completion. Africa will have the highest
number of deepwater subsea well completions - 38% over 2016-2020.
Despite the high volume of completions in Africa, Latin America will
account for the highest level of capex, accounting for 40% of expenditure
due to lengthier D&C times in this region.

FPS account for the second-largest segment of deepwater expenditure at

28% of total capex. Expenditure in this sector is led by Brazil which
accounts for 52% of total spend. FPSOs dominate FPS expenditure
accounting for almost 81% of forecast spend. 82% of forecast units to be
installed over 2016-2020 have already been sanctioned - these projects
are expected to prevent a total collapse of the FPS market in the near-
term. However, the low oil price environment is causing operators to re-
evaluate the use of FPS in development plans. A clear example is the
Leviathan field - Noble Energy abandoned a proposed FPS unit for a
subsea tieback to a shallow water fixed platform in a bid to further reduce
development cost.

Subsea Equipment (Subsea Production Hardware and SURF) jointly

account for 27% of global expenditure over the forecast period. Subsea
production hardware spend is driven by the number of development wells
drilled - Africa is the largest market both in terms of the number of units
installed and capex. SURF expenditure will total $17 billion over the next
five years.

Pipeline capex will account for 6% of spend over the forecast period,
representing a 2% decline from the hindcast. Pipeline expenditure has
been tempered by the conflict of interest between Russia and Turkey over
Syria. This political power tussle has led to the cancellation of the Turkish
Stream pipeline, which was expected to boost expenditure in this sector
over the forecast period. Projects such as the Texas-to-Mexico gas pipeline
and the commencement of offshore installation activity of the SAGE
pipeline in the Middle East in the latter years of the forecast period will
contribute to expenditure.

REGIONAL SUMMARY

The market downturn has negatively impacted all regions. However, this
varies based on ongoing and prospective projects. Over the forecast
period, Africa and the Americas will account for 87% of total deepwater
expenditure. Latin America will have the highest capex with 38% of total
expenditure, driven by the number of FPS units expected to be installed
over the forecast period. However, Petrobras' problems are likely to result
in substantially constrained future expenditure on new units.

Mexico showed much promise after reform of its energy sector to allow
foreign upstream participants, but recent interest in licensing rounds has
been tempered by the prolonged suppression of oil prices - widespread
exploration activity is unlikely in the near-term.

Pemex was expecting production from its Lakach deepwater development

by 2018. However, development of this project has been suspended for at
least a year due to budget cuts.

East Africa is expected to be the next key deepwater hub, with offshore
installation activities in Tanzania and Mozambique expected to commence
in the latter years of the forecast period. Development in these gas basins
is highly likely, as planning for these projects is well developed - Anadarko
has awarded onshore LNG contracts that will process gas reserves in
Mozambique.
North America is forecast to account for 18% of total capex over the
forecast period. Spending in the region will decline by 24% compared to
the preceding five years - the outlook is gloomy due to prolonged delays
to project FIDs and cancellations. Notable projects affected include BP's
Hopkins project and Murphy Oil's Thunder Bird. However, projects such as
BP's Mad Dog Phase II and Shell's Appomattox are expected to carry on as
planned.

Other regions have minimal deepwater activity forecast. Therefore, the

majority of capex in these is driven by a handful of specific projects such
as the Shah Deniz Phase II field development in Eastern Europe and the
FSU.

Asia is expected to see growth at a 4% CAGR over the forecast period,

while Australasia will see the fastest growth in capex, at 37% CAGR.
However, the region remains a comparatively small deepwater market.
Western Europe's capex will account for 2% of global expenditure.
Cancellations and delays to individual projects are expected to have a
substantial impact on the market outlook. For example, expenditure within
the UK is highly dependent on Rosebank, but there have been numerous
changes to contractual terms associated with the project and this has led
to a degree of uncertainty regarding development timelines. Further
delays to this project represent a potential downside to total UK capex.

CONCLUSION

Growth in the deepwater market is expected to be constrained as low oil

prices increase pressure on project economics over the forecast period.
OEMs, vessel owners, and rig owners are likely to find the next few years
difficult as project delays continue. Operators are expected to re-engineer
and re-evaluate development plans of various projects so as to improve
their economic viability. Lower drilling and equipment costs has so far
provided limited upsides for project sanctioning.

In addition to the low oil price environment, the corruption scandal and
financial difficulties rocking Petrobras will restrict the NOC's ambitious
spending plans for the foreseeable future - impacting deepwater capex
growth in the region beyond the forecast period.

In Africa, the breakup of the Nigerian National Petroleum Corporation

(NNPC) highlights continued efforts to overhaul Nigeria's oil and gas
sector. However, the future of the long awaited PIB (Petroleum Industry
Bill) remains unclear. This prolonged uncertainty and various regulatory
bottlenecks between the state and IOCs has led to a lull in the country's
oil sector, causing further delays to major deepwater projects such as
Shell's Bonga South West-Aparo, and Chevron's Nsiko which were already
challenged by the low price environment.

The outlook for North America over 2016-2020 is largely negative - there
have been major delays to prominent deepwater projects due to
cancellation or re-engineering. However, in contrast to other regions,
North America is well positioned for recovery by the end of the forecast
period due to existing infrastructure. This is likely to lead to increased use
of subsea well tiebacks for future developments. Furthermore, some
project re-engineering and various cost reduction exercises give a reason
to see the light at the end of what has been a very long tunnel. Offshore
activities are expected to respond to any future oil price recovery.