Ramping up dividends

Energy Morning - 6 November 2024

Crude Quarterly Q3'24: Lower oil price

Oil inventory draws for the rest of 2024. IEA is wrong – peak demand is not imminent. Both E&P and oil service shares look highly attractive.

Crude Quarterly Q2'24: tighter oil market ahead

Oil inventory draws for the rest of 2024. IEA is wrong – peak demand is not imminent. Both E&P and oil service shares look highly attractive.

About to streamline the portfolio

Aker ASA reported a NAV of NOK 60.4bn, or NOK 813/share in Q1, down from NOK 851/share in Q4'23. The drop is mostly attributed to the share price development in AKERBP.

Limited change in EP spending

After reviewing oil companies’ most recent spending plans, we estimate offshore spending growth of c7% YOY for 2024, in line with our November update. Growth is concentrated, with Petrobras being the key driver, favouring service companies with Brazil exposure. Looking ahead, further spending growth is likely to be partly limited by total spending already being on a par with operating cash flow. Delayed energy transition spending is seen as positive for oil services, while recent E&P consolidati...

Large-cap commentary supports long-term offshore upcycle

Key takeaways from SLB, Halliburton and Baker Hughes Q4 earning calls include positive commentary on the ongoing offshore upcycle. They see continued growth in global EP spending in 2024 (high-single to low-doble digits), driven by offshore and international markets, while North America onshore outlook are less favourable. Lastly, SLB sees potential for more than USD100bn in global offshore FIDs in 2024 and 2025, while Baker Hughes expects over 300 subsea tree awards annually for the next 2–3 ye...

Solid medium-term, but mixed long-term signals from Petrobras

As the largest global consumer of deepwater oil services, Petrobras’ strategic plans tend to attract investor attention. We consider its new 5-year plan mixed, but with solid support for near- to medium-term offshore activity from increased and high spending in 2024–2026. On the other hand, 2027–2028 spending looks set to trend down c20% sequentially, despite having been revised higher compared to its previous plan. Total spending is seen up 31% compared to the previous plan, driven by downstrea...

High dayrates in Petrobras PLSV tender

Bids have been opened for the large Petrobras PLSV tender, with the key takeaway the solid dayrates offered, supporting our view that PLSVs likely will be key earnings contributors in the coming years for companies active in Brazil, namely Subsea7, DOF (via its 50% of DOFCON) and Paratus (via its 50% of Seabras). While it is unclear how many vessels Petrobras will award under this tender, we believe the high dayrates and solid industry discipline are key. For high-spec PLSVs that are mostly offe...

Aker ASA: 1 director

A director at Aker ASA sold 6,000 shares at 689.320NOK and the significance rating of the trade was 74/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two years clearly showin...

Offshore spending shifts to 2024

After reviewing oil majors’ and Petrobras’s Q3 reports and spending plans, we see a shift in offshore spending from 2023 to 2024. We now estimate offshore spending growth of c7% YOY for 2024 (c5% in our August update), mainly on delayed Petrobras spending. We expect further growth to be partly limited by total spending already being on a par with operating cash flow. Delayed energy transition spending is seen as positive for oil services, while recent E&P consolidation underpins the oil companie...

Total shows capital discipline and boosts shareholder return

Today, Total announced its strategic update. The main takeaways are no changes to its long-term spending versus 2023 and increased focus on shareholder returns as it boosts its payout ratio. From an oil service perspective, we find it surprising that Namibia was not featured more in the strategic update, as Total has had significant exploration success there. From a development perspective, Suriname is highlighted to see FID in 2024 and first oil in 2028, and we believe this region will be impor...

Focus remains on the out years

Longevity of upcycle is key Our 17th annual spending survey suggests an extended upcycle for offshore-focused oil services. High utilisation, long lead times, and growing backlogs indicate oil service capacity could be tested in subsea and offshore drilling segments. Meanwhile, oil companies are less able to boost spending, with cash flow and capital priorities key. We expect investor focus to shift to 2025. Our top picks are Subsea7, Noble, Seadrill, Odfjell Drilling and Borr Drilling.

Takeaways from Houston

We spent the week in Houston, meeting management from several E&P and service companies (onshore and offshore). We remain firm in our belief that the outlook for offshore looks solid and that nothing has changed with regards to future activity despite the recent oil price weakening. Conversely, we believe the oil price decline has to a greater degree challenged economics for (private) US onshore companies, resulting in lower activity levels. Adding well productivity deterioration to the equation...

Bay du Nord development said to have been postponed

According to local media reports, Equinor has delayed its Bay du Nord development by up to three years. There are limited details available, but according to the news reports it referenced rising costs. The project, which we consider to be a complex development in remote harsh environments, has been delayed before as well. We had expected to see FID in 2024, with most of the work for oil services taking place from 2026 onwards. No meaningful contracts have been awarded to the oil service industr...

Thoughts around project sanctioning at USD70 oil

With Brent oil prices trading close to USD70/bbl, we sense investor focus shifting to the risk of upcoming field developments being delayed or cancelled, potentially resulting in a soft read-across for oil services. On the positive side for project sanctioning, we stress that oil prices are coming down from an elevated level, being well above oil companies’ planning/breakeven prices. Thus, the two prices are now becoming aligned, supporting a limited negative impact on project sanctioning. On th...

BP cutting oil & gas production at a slower pace

Being among the more vocal companies on the energy transition, BP’s Q4 update today contained several supportive comments for the future of oil & gas, which we consider positive for oil services. Key items relate to a slower reduction of its oil & gas production and more capital allocated to oil & gas investments. It expects to spend c10% more on oil & gas in 2024–2030 than previous plans, which we believe implies flattish oil & gas spending versus the actual 2022 level of USD10bn (it had previo...

FPSOs could become a deepwater bottleneck

Two key greenfield developments have been delayed/ cancelled in recent months, partly due to FPSO-related issues. Given limited yard capacity and value-chain constraints, we could see a scenario in which FPSO construction becomes an industry bottleneck – with a knock-on effect on demand for other services (subsea and deepwater drilling), in turn likely resulting in lower peak demand, although potentially extending the cycle.

Limited, if any, offshore spending growth planned by US majors

Chevron’s and Exxon’s 2023 budgets indicate headline spending growth of 25% and 9% YOY, respectively. While the spending splits across segments are difficult to assess, our best-effort breakdown suggests flattish offshore spending for both Chevron and Exxon in 2023e. For Chevron, the solid 2023e headline growth in total spending appears to be driven by a combination of lower-than-expected 2022 spending and strong growth in US onshore, while we estimate that its offshore spending is set to be fla...

Encouraging near-term, but mind the Petrobras cliff

In its updated strategic plan published today, Petrobras increased its E&P spending budget for 2023–2027 to USD64bn, up 12% from last year’s plan and bringing spending back to pre-pandemic levels, largely in line with expectations. Exploration is flat, while growth is focused on production spending. The report is particularly encouraging for oil services demand over the next three years with E&P spending revised up 16–20% in 2024–2025 compared to last year’s plan. Beyond the strong headline figu...