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ROVs: A High-Tech Win-Win Investment in the Offshore Drilling Boom

An increase in offshore, deep-sea oil drilling and a nod to Shell to proceed in the Alaskan Arctic will drive demand for remotely operated underwater vehicles (ROVs) through 2015.

An ROV is a tethered underwater vehicle often employed in offshore hydrocarbon extraction. ROVs are linked to ships via a tether of cables that carry electrical power and video and data signals back and forth. The more technologically advanced ROVs also employ hydraulics, sonars, magnetometers and other equipment used to take water samples.

The offshore oil and gas industry is the largest commercial user of ROVs, which enable deepwater operations, and ROVs were instrumental in determining the scale of the damage after the April 2010 Deep Horizon oil spill in the Gulf of Mexico. The weeks following the oil spill saw the massive deployment of ROVs in the Gulf of Mexico. But this was after the fact, and that lesson has been learned.

ROVs are also used by deep-water drilling companies to assemble equipment under water and to perform delicate maintenance on that equipment.

The largest Work Class ROV currently on offer is from Oceaneering, which leads the market in manufacturing and supplies to the oil and gas industry, boasting over 250 Work Class ROV systems and more than 2,000 offshore personnel operating them around the world. Of most significance, the company’s current fleet includes a high-tech Ultra Deepwater ROV system. This comes along with a budget of over $10 million annually for ROV operations and maintenance training.

A number of developments will contribute to increased demand for ROVs, making them a new hot area of investment starting … now. Surging deepwater exploration and drilling activities have resulted in an increase in demand for offshore drilling rigs and increasing volumes of subsea construction, both of which in turn will drive demand up for ROVs. 

By 2020, offshore oil production could account for as much as 34% of all oil production worldwide. This represents an increase of nearly 10% since 1990. Specifically, ultra-deep water drilling activities are seeing a surge in profits, and this is where ROVs will be indispensible. The focus is now on making oil rigs more versatile and decking them out with the most advanced technology, so all related market segments stand to benefit. 

While drilling shares have slumped a bit lately as a result of falling oil prices, the long-term prospects are strong and those shares are expected to continue to rise on growth in China and emerging markets in particular. But a large share of new demand will be met via a more specialized type of drilling, specifically offshore drilling and fracking. This will translate into an increase in demand for specialized technology.

So why the ROV, specifically? The oil and gas industry is under immense pressure to ensure there will be no repeat of the Gulf of Mexico oil spill, for instance in the Alaskan Arctic. Drilling in the Alaskan Arctic is an unknown, risky venture, and the use of the latest in ROVs will be essential both in terms of Shell’s own exploratory operations and in terms of helping to stave off any potential environmental damages. 

Though Shell has not been given the official green light to begin test-drilling, there are no doubts that it will begin as soon as this month. And there are a number of other offshore drilling prospects in the works, all of which will necessarily drive up demand for ROVs, along with other specialized underwater drilling support equipment. 

On 2 July, Senator Lindsey Graham (Rep-South Carolina), introduced a bill to grant the state self-determination over the use of its coasts for offshore drilling and only then to petition the federal government for final approval. Republicans in South Carolina would like to see more offshore drilling opportunities, and they are likely to get them. Likewise, the state of Virginia is also pushing to open up more of its coast for oil and gas drilling.

There is one drawback: While the existing ROVs have been essential to every level of deepwater drilling and environmental damage control, it is equally clear that they have not reached their potential. We believe that is about to change and expect a number of innovations by 2013 which will further increase demand.

There is a clear advantage in investing in the ROV market now as it is poised to unveil technological innovations in the near-term and as specialized deepwater drilling efforts are getting underway in Alaska, while other US states scramble to open up new offshore drilling areas.

No longer will it be the odd ROV—the future will see the deployment of massive fleets of ROVs both to facilitate drilling and to head off (rather than simply determine the scope of) environmental disasters. 

By. Oilprice.com Analysts

Oilprice - The No. 1 Source for Oil & Energy News