Perhaps the most striking was how the onshore vision versus offshore oil production has reversed. Having previously talked about onshore flexibility, infrastructure problems and high costs for barrels in the ground are now being seen. The deep-water view has improved, driven by strong offshore cash flow. Even though costs in parts of the value chain should increase, offshore developments will still be attractive with today's oil prices.

In US onshore, the main theme is delivery issues from the Texas based Permian Basin. New pipelines are under construction, but lacking infrastructure is seen in the next 12-18 months. This can restrain the strong production growth. The Permian Basin will nevertheless be an important contributor to meeting the world's oil needs in the future. One industry player believed that Permian production will grow from 3.5 million barrels per day now to 7-8 million in a few years.

Brazil and Mexico become jokers in terms of global offshore activity. The suppliers we talked to seemed tepid to the activity in Brazil in the short term. This is partly due to the Brazilian elections in October. In the long run, however, one sees a strong activity, with the development of new large fields. This contributes to optimism in the floating production units market (FPSOs). Brazil will eventually need many new floating production ships. In Mexico, we were told that the new president is ambitious in his plans for future production growth, but at the same time has stopped new auctions in the Gulf of Mexico for the next 2 years. A representative for an international rig contractor told us that in the future he sees the Gulf of Mexico as one of the most exciting areas for rig demand.

There was agreement on large available capacity for the production of subsea wells and equipment (SPS). The number of subsea wells that are installed is sharply down from the top. However, suppliers have cut costs and changed the number of shifts at their factories. Previously, the oil companies would have tailor made on subsea equipment, with their own specifications ranging from pressure tolerance to paint color. One now sees solid signs of equipment standardization. One actor said they had recently delivered the same subsea well to two different oil companies in the North Sea.

When it comes to offshore seismic we noticed a few things. Oil companies now seem more positive to seabed seismic. The cost of using node on the seabed has fallen, and it is thought that it can be used for traditional oil exploration. Furthermore, oil companies see processing of seismic data as an important differentiator. Both internal and external processing are looking for a broad analysis of different types of seismic data, and they are often used by specialized actors for such analysis.

Digitalization was an overall buzzword at this year's conference, but what does digitalization actually mean for the oil and gas sector? Monitoring was often a theme mentioned by oil companies, in example during the production phase, efficiency or pressure. Modern rigs have many sensors, and the oil companies have a huge amounts of reservoir data. Within seismic, tools are used to find anomalies in large datasets, based on different types of seismic data. Oil companies see digital tools as an important part of their further efficiency, although much is still on the drawing board.

Meeting the energy needs of the future was one of the final major themes of the conference. This is especially true in Western Europe, where there are few natural sources of energy. At the same time, political decisions have been taken to phase out coal power and nuclear power. Norwegian natural gas will be an important part of the solution to meet Europe's energy needs. In 2017, Norway's exported volume of natural gas increased by 8 percent. But Norway's contribution alone will not be sufficient. We see that Germany now wants more natural gas from Russia through the "Nord Stream 2" cable – a controversial decisions among western allies.

Offshore wind can help meet the energy needs of the future in Europe. Several at ONS believed that offshore winds can now handle completely without subsidies. New projects are expected in countries such as the UK, Germany and the Netherlands. This will also provide work to the offshore supplier industry. Several of the companies we spoke to saw opportunities for work. In addition, Equinor announced at the conference that they are investigating supplying Snorre and Gullfaks with power from wind turbines.

Summed up ONS 2018 was filled with cautious optimism for the future. These days, oil companies’ investment budgets are set for 2019. In light of high oil and gas prices, it will be exciting to keep track of the oil companies' capital disciplines in the future.

Arctic Norwegian Equities follow the companies in the Norwegian oil service sector closely and invests in the companies whom the portfolio managers at all times consider to be best positioned within the sector. Invest in Arctic Norwegian Equities in at private.arctic.com or by contacting mail.afm@arctic.com for more information.

 

Arctic Norwegian Equities is a equity fund managed by Albert Collett and Alexander Lagersted Lager. The fund invests in the Norwegian stock market and the funds "I" share class, has since inception in November 2010 had a performance of  150% - 35% ahead of the funds benchmark.  

Past performance is no guarantee for future returns. Future returns depend on the market, fund manager skill, fund risk level, costs, among others. Performance may become negative due to losses and it may vary considerably within periods.