Southeast Asia’s rig market, previously poised for growth in 2020 is now set to decline following the impact of COVID-19 and the ongoing oil price war.
Rystad Energy has released an analysis that shows that several oil companies have already made significant cuts to their 2020 capex budgets with E&Ps in Southeast Asia locking in rigs on long term contracts, making it unlikely that options will be exercised.
As a result, Rystad Energy predicts that if no new contracts are signed and no options are exercised for the remainder of 2020, utilisation will drop by 54 per cent in the region from March to December.
The analysis reported that of the options for the regional market in 2020, 40 per cent are for work with Petronas, making the market development his year dependant on the volume of options that Petronas decides to exercise.
Petronas has stated it is proactively striving to keep operations running as smoothly as possible, however due to the lockdown extension in Malaysia, several rigs operating in the country are expected to gear down activity due to crew timeout.
Rystad Energy senior oilfield service analyst Jo Friedmann said on a more positive note, existing rig contacts probably face less danger of being terminated in Southeast Asia.
“That is not to say there won’t be any contract terminations, but we expect the intensity to be lower than it is globally,” Friedmann said.
In addition, lower oil prices are expected to slow sanctioning actively in the region, meaning less demand for drilling and completion services.
The analysis has outlined that new deepwater projects current under evaluation by operators in Southeast Asia are likely to face delays, with the Limbayong project in Malaysia, Abadi in Indonesia, Shew Yee Htun in block A6 in Myanmar, and the Kelidang Cluster in Brunei all expected to be at risk.
Reports suggest that operators are asking service companies for a 20 per cent to 25 per cent reduction in pricing globally, a trend Rystad Energy expects to see in Southeast Asia as well.
“Should the oil price and virus issues persist for six months or more, we could again see a race to the bottom, with rig rates plummeting towards operational expenditure levels,” Rystad Energy outlined.