Mega mergers like FMC Technologies and Technip, Schlumberger and Cameron, and GE Oil & Gas and Baker Hughes have changed the subsea industry landscape forever, says Mike Beveridge, managing director at Simmons & Co. International.
And there’s more likely to come – Aker Solutions has reportedly been eyed by Halliburton and Saipem and what will Subsea 7 look like in future? But, could there be room for another dramatic change – is it time for contractors to be handed responsibility for the hardware on the seafloor, just as some contractors hold duty holder responsibility for topsides facilities?
Speaking at the Society for Underwater Technology’s (SUT) Aberdeen Global Market Outlook business breakfast yesterday, Beveridge said the industry is shrinking – just look at falling revenues and share prices – and there’s little by way of short-term improvement in the offshore rig market on the horizon.
It’s far cry from just a few years ago. “A few years ago there were new tier two [subsea] contractors looking to come in to the market,” he told the SUT event. “That’s not played out and several have evaporated. Harkand, for example. Bigger players adjust.”
With the mergers of GE Oil & Gas, Cameron, FMC, Technip, Cameron, etc., the subsea market has seen some major changes. “The landscape has changed forever and you can expect others to follow. What does Aker look like, what does Subsea 7 look like, in the future? It’s not stopped, that’s for sure.”
Some of it is about business models, reducing interfaces, and the like, but also leveraging tools from one business to another, with Schlumberger applying its data and monitoring capability across to the subsea and rig businesses. Ultimately, they’re all shrinking businesses, Beveridge says, born out in falling share prices and revenues. The backlogs companies are still working through will deplete and it will take a while for new final investment decisions to filter down into contracts and work.
There could be 20 facilities through final investment decision (FID) in the next couple of years, based on a break-even $60/bbl oil price. Most will be floating production facilities, said James Hall, of analysts Wood Mackenzie, who was also speaking at the SUT event. Some projects from 2013, set at $80-85/bbl breakeven, have been brought closer to $65/bbl, using synergies and going back to the drawing board, says Hall. Indeed, there’s been an uptick in front end engineering house recruitment in recent weeks. But, there will still be a lag between when FIDs are made and work starts. Subsea tree order projections reflect this sentiment. Total 2016 subsea tree orders are expected to be about 85 (compared to a record 547 in 2013). For 2017, Wood Mackenzie’s prediction is a very modest increase to about 100.
But, there are some areas for potential, says Beveridge, whose firm advises others on corporate mergers and acquisition activity. Beveridge says well plugging and abandonment (P&A) has potential, with some 5000 wells to be P&A’d on the UK Continental Shelf, 1000 of those between 2017 and 2024, according to estimates. Over the next 10 years, it could amount to US$6 billion of work, he says. “The challenge is scaling it. We need different business models and mind sets. I think there’s definitely a big market for the UK,” Beveridge says.
There’s also a big prize around doing more with what’s already there. “Current maintenance systems are not very sophisticated, from the seabed to surface,” he says. “There’s also well intervention. We are also doing more work with offshore wind. It [offshore wind] was overhyped six years ago. Now it’s underhyped. There is a lot of investment in this space.”
And while the UK North Sea industry expected to achieve $20/bbl opex costs by the end of 2017, some believe that at least some of the cost reductions might have been made through deferred maintenance activity, which cannot be put off forever. “Our view is that we will see an uptick in opex in the later part of 2017,” says Hall. “The cost base to do the work is lower and deemed more attractive. There will still be some deferral, but we see an uptick coming.”
Beveridge also believes that not enough has been done around changing mindsets. “I don’t think the mind-set change is happening quick enough,” he said. “There is a big opportunity out there.” He cites how, in the past, operators first outsourced topsides maintenance and operations to contractors. Some then went further and handed over in full duty holder responsibilities to contractors, such as Wood Group and Petrofac. “When are they going to do that with subsea [facilities]? They have been holding on to it a long time,” he says.
While monitoring, life of field, use of data, inspection, survey and well intervention offer potential focus today, the subsea factory is also still waiting in the wings, says Beveridge. “I think this will return,” he says, offering some hope to the subsea systems suppliers who make it through until some orders start to come in.
Image: Technip's Deep Energy.
Subscribe
