`Much Higher' Offshore Activity Predicted

All of the leading indicators for offshore construction activity point to "much higher levels of pipelay, derrick and diving activity," and underlying fundamentals driving the offshore construction industry continue to be "very robust," according to Raymond James Energy's "Stat of the Week" for last week.

Analysts Marshall Adkins and James M. Rollyson noted in their research that there are more rigs operating in the Gulf of Mexico today than there have been in the past 10 years, and "given that every successful well drilled will eventually need to be hooked up to some sort of production facility and a pipeline, this certainly bodes well for future construction activity." They also noted the recent strong interest in the Gulf's lease sale, "particularly the shallow water regions," where they found that drilling year-to-date is up nearly 85% over last year.

"Offshore construction permits, which represent plans filed with the Minerals Management Service, have also been on the rise," they said. There were 143 permits filed in the first quarter, representing a 65% increase over the same period of 2000 and an 18% increase over the fourth quarter. "Clearly, as E&P companies continue to generate record cash flows and increase capital budgets, a sizable chunk of spending will be geared toward the offshore market. Since the hook-up represents the last step between capex [capital expenditures] and cash flow, it seems only logical that it will appear."

Particularly in the Gulf of Mexico, Adkins and Rollyson noted that the "promotion of deeper drilling targets in the shallow water by way of royalty relief provides incentive to further activity and serves as a buffer on lower prices." They said that because of the "tremendous potential" in the deepwater, growth would especially come within five years.

"Given these factors, we feel very positive about the future outlook for the Gulf of Mexico offshore construction market," said the analysts. "Again, considering the short-term nature of many of the shallow water bread-and-butter projects, there is little visibility. Longer-term, these major driving factors should lead to significant increases in offshore activity."

If the amount of pipeline miles laid in the Gulf of Mexico goes to 1997 levels, which they said was "very possible" in 2002 or 2003, "the market would be more than double its rate in 2000. With the 190+-mile Gulfstream pipeline project, combined with the recently announced 100-mile Okeanos deepwater gas pipeline from B P and Shell, offshore construction visibility for 2002 is already improving."

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.