What next for the offshore sector?

November 20, 2012

‘BW Offshore's Yùum K'ak' Náab FPSO has been producing Pemex' KMZ field in the Mexican sector of the Gulf of Mexico since 2007. BW is also supplying the first FPSO for the US sector of the Gulf of Mexico. The BW Pioneer is moored at Petrobras' Cascade/ Chinook development in the deepwater Walker Ridge area of the Gulf.’

In a two-part review to usher in 2012, Jennifer Pallanich talks to a cross-section of offshore oil & gas industry thought leaders about what they expect or hope to see in the coming year and beyond. First, they discuss issues such as reliability, standardization, personnel, safety, training and regulatory change in a post-Macondo environment. Then they turn their attention to the offshore sector's future technology needs and challenges.

Macondo, like Piper Alpha before it, will impact the offshore industry for many years to come, transforming the regulatory landscape in the US and beyond, bringing asset integrity and reliability issues into much sharper focus and shaping a heightened industry-wide commitment to safety and training.

According to Simon Seaton, senior director of Halliburton's Deepwater Solutions, 'there is expectation that regulations to come will drive up costs for operators, which means that the message of reliability is even more important'.

Reliability's central role is a message echoed by Shell's Doug Peart, general manager of SURF projects and technology for Shell's upstream major projects in the Americas. 'Safety and the environment comes straight back to the integrity of the system,' he says. 'Our focus is on safety of the systems that we provide, the integrity of the system, the safety of the people who work with us and for us. We've put much effort into both improving the behavioral piece of safety as well as process safety in our designs.'

Mike Straughen'Customers never speak to us without mentioning costs, as you can imagine, but I have to say it's not the top item on the agenda.'

Customers want better quality and kit that will better stand the test of time, says Mike Straughen, director of the engineering division at Wood Group.

'There was a concern three or four years ago when the market was hot that quality had slipped in many areas, and there were a lot more issues on quality failures, be that on material or equipment,' Straughen says. 'Customers never speak to us without mentioning costs, as you can imagine, but I have to say it's not the top item on the agenda.'

Otto DaSilva, Exmar's VP of engineering, has had similar experience and says industry-wide, companies 'want every project to be done faster, in a more efficient way, with a better idea of cost. Many offshore projects are over budget, over schedule. It's just a problem because they go six months, a year, two years late. So what they want is to have all those things resolved.'

One way these issues could be resolved in the future, he says, is to carry out as much engineering up front as possible, rather than after first steel for the components has been cut, 'but they keep doing that'. Sometimes, DaSilva says, this results in projects where the topsides wind up too heavy for the hull design.

'The benefits we received from standardization and uniform design for the 8500 series rigs is being replicated here with these jackups.'

Ensco investor relations VP Sean O'Neill sees standardization as a wave of the future, at least for Ensco if not industry-wide. The company had already made standardization one of the main features of its ENSCO 8500 series of drilling rigs (OE'October 2009), and it is continuing this policy for its ENSCO120 series of jackups under construction at Keppel Fels. 'The benefits we received from standardization and uniform design for the 8500 series rigs is being replicated here with these jackups,' O'Neill says. As a result of using the same design and equipment, he says, the drilling company will reap efficiencies in terms of construction, training, spares, and lead times for components.

The standardization has already paid off in an unexpected way with regulatory approvals, O'Neill adds, by easing Ensco through the re-certification program in the Gulf of Mexico in the aftermath of regulations imposed following Macondo. Once Ensco's first 8500 series rig was re-certified in the Gulf of Mexico, the other four were 'vastly' faster, he says.

Shell's Peart also views standardization as key for the future. The practice for standardization is already in place at Shell, he says. 'The hardware system deployed on Perdido [in the Gulf of Mexico] was essentially the same as BC-10 [offshore Brazil] and essentially the same as Gumusut in Malaysia and will likely be the same as what gets deployed in one of the projects in Nigeria,' he says. 'Standardization and technical evolution sounds simple enough, but is a significant challenge in what we do here. We need to evolve the technology from the fundamental base line that we know and do well, repeating the things that work well for us and focusing our attention on the reliability and performance of new technology.'

Knut Eriksen'When you are in ultra-deepwater, there will always be questions about services, installation, commissioning, maintenance, etc.'

Reliability remains the watchword. 'When you are in ultra-deepwater, there will always be questions about services, installation, commissioning, maintenance, etc. The area of interface between services from an ROV and the products we deliver is a pretty exciting area to be in today,' says Knut Eriksen, Oceaneering's SVP for subsea products.

For examples, he cites ROVs operating dredging equipment, carrying out hydrate remediation and, in the aftermath of Macondo, overriding systems for BOP control. 'The utility and interest, as you can imagine, has gone sky-high,' Eriksen says.

Floating LNG is a topic that's picking up steam, a trend even more evident since Shell sanctioned its Prelude FLNG project earlier this year (OE July 2011). 'We're seeing a little bit of an uptick on floating LNG studies, particularly for smaller amounts of gas,' Wood Group's Straughen says about operators looking for ways to handle associated gas. 'We're finding quite a few are looking at that.'

John Westwood, group chairman at energy business advisors Douglas- Westwood, called FLNG 'a whole new game.' Given the large amounts of stranded gas offshore that is too far from the beach for pipelines to be applicable, FLNG is a logical way forward. However, Westwood notes, it's a 'helluva challenge. Shell's Prelude FLNG facility will be the largest floating structure ever built. At 1601ft long, and 600,000t, it will weigh six times of that of the largest aircraft carrier.' FPSO market uptick

Marshall DeLuca, VP sales & marketing at Wison Floating Systems, has seen an uptick in FPSOs – which he calls 'by far, far and away the biggest market'.

Claude Rouxel'I'm not sure our industry is attracting the people that it should. It's not easy to find the right expertise.'

Claude Rouxel, EVP for business development at BW Offshore, says he believes the future for FPSOs will be strong, adding 'there are more projects than we can handle, just to tender or study'. That, in and of itself, could pose a problem from a standpoint of financing. For instance, Rouxel asks, how many different projects involving $1.5 billion in capex can one firm afford to be involved in? 'I think the industry is going to be facing a situation where there won't be enough financing capacity' on the contractor side, he says.

Rouxel believes there will be a number of opportunities for FPSO projects in certain regions, namely offshore Brazil, Indonesia, China and Malaysia, as well in the Gulf of Mexico in addition to the already established regions for FPSOs such as West Africa and the North Sea. In certain regions, he notes, it's not so much a technical challenge to place an FPSO in the water as it is a local content challenge where higher prices may reign, schedules may be tight or the number of available personnel may be low, if not all three. 'But it is our intent to promote the local content,' he says about BW Offshore's strategy.

But finding specific personnel may prove difficult, Rouxel cautions. For instance, it's easy to find specialists like welders, but it's more difficult to find someone who's managed an FPSO project. 'I'm not sure our industry is attracting the people that it should,' he says. 'It's not easy to find the right expertise.'

The ENSCO 8503 has been under contract offshore French Guiana for Tullow. The drillship is then expected to resume a two-year contract with Cobalt for operations in the Gulf of Mexico.

That expertise is important not just in managing projects but in almost any element of the industry, but nowhere more so than deepwater, where, Rouxel says, 'you cannot afford to be wrong'.

Jay Cotaya, Exmar's director of marketing, foresees a retirement issue within the next five years, largely attributable to the industry's downturn in the 1980s. 'There are going to be a number of people with gray hair who have experience in this industry who are going to be retiring,' he says. Cotaya notes some formerly retired personnel have returned to the industry to take on lucrative contracts. 'Some of them will finally pack it in and go to the ranch. We have a challenge of hiring and training replacements for those individuals.'

Part of Exmar's solution to the looming crew change is internships through the engineering department at Memorial University in Newfoundland; Exmar has later hired several of those interns and expects to continue 'growing experience' in-house.

'The oil & gas industry did these baby steps into the deepwater,' says Katie Potter, lead executive search consultant at NES Global Talent. 'We're in that pioneering stage where things are being developed faster than they used to be because we realize that these things are possible.'

That, naturally, puts a strain on resources, particularly of the experienced human variety. 'You can't find these experienced people without pulling them from other companies. They're already working,' Potter says. As a result, she expects to see salaries creep up and improvements in benefits for experienced personnel in an effort to poach employees from competitors.

Right now, she notes, 'mentoring is the way they're getting around the crew change' when the experienced personnel retires and a younger generation of workers takes the reins. In this scenario, Potter says, companies will often hire a 35-year expert to work as a consultant and mentor for a new hire if the company was unable to find a specific type of engineer with a decade of experience.

Regulatory game changer

Brady Como, Delmar Systems EVP, views operations in the Gulf of Mexico with a pre- and post-Macondo dividing line: 'Macondo was a game changer, and in the near future I think it's going to continue.' The drilling moratorium halted drilling activity in the Gulf in 2010 before it slowly began resuming earlier this year. At the time of the Deepwater Horizon explosion, over 33 floaters were drilling in the Gulf, while in late 3Q 2011, that number had not quite reached 20. 'On the drilling side, it's been a slow process to increase activity,' he says.

Part of the delay comes from thoroughness and a learning curve on the part of the US government regulatory agencies in evaluating drilling permit applications, and part of that has been attributed to the need for an acceptable well containment device to be devised for use in the Gulf of Mexico. The permits are being awarded at a measured pace on a one-off basis.

Como is concerned this approach will damage all operating companies who want to work in the Gulf, particularly the mid-level companies. As he puts it: 'they simply cannot afford to have an exploration program one permit at a time' because operators need to spread well costs over a multi-well program. Drilling rigs, vessels, helicopters and various services are contracted over longer time periods for maximum efficiency in a well drilling program, he notes. As a result, when drilling contractors are faced with one-well versus multi-year contracts, he adds, they will opt for the longer contracts and operate in places like West Africa or Brazil where they can obtain multi-well or multiple-year contracts. There is too much risk waiting for the next single well permit approval to leave expensive rigs here idle waiting on the government, he adds.

The larger operators 'have personnel resources to wade through the permit applications, and the rest have taken a wait and see approach. They've moved to land or abroad,' Como says, noting the former approach doesn't fly for strictly offshore companies.

Shell, for example, has obtained multiple drilling permits.

The service companies have announced a focus on shale technologies. Operators, drilling contractors and service companies have all moved assets out of the Gulf into areas like Brazil, West Africa, Southeast Asia and the North Sea.

Horst Moll'We might get to 12,500ft, but from a technical point of view, that's pretty easy to achieve.'

Horst Moll, VP for subsea products at Aker Solutions, says in his 13 years in the industry, paper requirements have changed substantially, with the amount of information 'doubling, tripling, quadrupling' over the years. 'Sometimes we kid that the documentation weighs more than the equipment we deliver,' he says.

Icy and fragile

Arctic conditions will pose their own challenges, Straughen notes. Wood Group, which has sponsored a chair in arctic engineering at Memorial University in St Johns, Newfoundland, is looking at issues particularly relevant in the arctic, such as logistics, ice scouring, iceberg management, reliability and integrity in icy conditions, and the need for a closed loop, environmentally (OE last month).

'Equipment failures have the potential to lead to some disastrous results,' Straughen says.

Jørn Madsen'We'll see extra rams in the BOPs, we will see a regulatory regime catching up and setting new standards.'

When it comes to protecting fragile Arctic environments, COO of Maersk Drilling Jørn Madsen says he expects to 'see a focus on having even more safety barriers on the drilling side to prevent things from happening. We'll see extra rams in the BOPs, we will see a regulatory regime catching up and setting new standards.'

Madsen believes Maersk Drilling is prepared for that challenge: 'The investments that we've made are in fairly advanced equipment. It's equipment that will take us deeper. We haven't gone to 20,000psi but that's because the equipment hasn't gotten there. But it will be.' OE

Spending on the up

Energy business advisors Douglas-Westwood expect capital and operating expenses for oil & gas to go up over the next five to 10 years. 'The cost of accessing the oil reserves is increasing so the proportion of spend in the offshore sector will continue to increase,' says group chairman John Westwood.

For 2011, he says, it looks like total onshore and offshore capex and opex will be close to $500 billion, with offshore grabbing about 50% of that spend. Subsea hardware – including wellheads, control modules and flow lines – is expected to reach $135 billion over the next five years based on projects that have been sanctioned or are far along in the appraisal phase, according to Douglas-Westwood. 'A lot of it goes to the deepwater golden triangle' of Brazil, the Gulf of Mexico and West Africa, Westwood says, which is 'certainly taking a larger and larger share.

'Accordingly, deepwater capex will grow – by 180% over the period 2011-15 compared to the previous five-years to total over $200 billion. The largest part of the spend will be on drilling all those deepwater wells and will total $72 billion (35%). We are also beginning to see the emergence of subsea processing and expect companies to spend some $2.6 billion on (subsea separation and processing) SSP technology during the period. But the deepwater numbers don't yet include the main timeframe for Brazil's pre-salt developments, so expect spend to continue to grow 2016 onwards,' he says.

Westwood notes offshore operations and maintenance spending tends not to make headlines, but those activities are expected to exceed $330 billion over the next five years. 'The logic is, when you think of the sheer, vast number of fixed and floating installations offshore, they all have to be maintained,' Westwood notes.

Other drivers for investment include increased drilling expenditures, which has led to a rig building boom. Westwood believes the number of new rigs on order is the highest on record since the late 1970s/early 1980s, well beyond the rate one would expect for mere replacement of retiring rigs. 'You expect older rigs to be decommissioned but there are not that many floaters being decommissioned . . . or they're being moved to less prime locations,' Westwood says. In 1H 2011, he notes, 54 offshore rigs had been ordered. The sheer number of new rigs expected to enter the market in the next few years – from jackups on up to ultra-deepwater drillships – could spur the 'next cycle' in the drilling contractor world, he believes.

The offshore wind business is another area that Westwood believes will see substantial spend. Drawing on skills developed in offshore oil & gas, the wind business 'is becoming a real major sector,' he says, estimating over 3900 offshore wind turbines will be installed between 2012 and 2016, with a projected spend of €38 billion during that time frame and more to come. 'We are at the beginnings of yet another offshore industry,' Westwood contends. OE



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