Friday 17 March 2017

Contractors Aibel and Subsea 7 see burgeoning prospects for field development work going forward on the back of industry cost-cutting that has made projects commercially viable at lower oil prices.

Aibel chief executive Mads Andersen said the Norwegian engineering, fabrication and maintenance contractor intends to use its international presence “to capitalise on a rebound” in the market for floating production, storage and offloading units.

The Stavanger-based contractor has previously carried out engineering, procurement and construction work on floaters including BW Offshore’s Berge Helene and Sendje Ceiba, and is seeking to make a comeback in this recovering market.

Analysts expect as many as six FPSO contracts to be dished out this year after a drought of deals in 2016 in which no awards were made to mark a 24-year low.

Andersen, speaking an an Oslo conference this week, said the contractor is touting an international delivery model including engineering capability in Singapore and its yard in Thailand that can carry out module fabrication at a relatively low cost.

This is in addition to the contractor’s main yard in Haugesund, Norway that is set to start integration work in the fourth quarter of the topsides for the drilling platform to be installed at Statoil’s Johan Sverdrup field off Norway, due on stream in late 2019.

The Aibel chief’s renewed optimism is underpinned by a recent forecast from UK-based research firm Wood Mackenzie that the number of field investment decisions is set to double to around 20 this year, from only around eight in 2016.

WoodMac expects global capital expenditure on exploration and production to increase by 3% to $450 billion this year, mainly due to a 25% investment increase in US shale.

Andersen said spending is likely to flatten out at this level, which is still 40% below the 2014 capex figure.

The historic capex reduction is due both to lower investments and also industry cost-cutting, with development costs cut by around 20% in 2016 and expected to fall by a further 3% to 7% in 2017

Seven field projects off Norway using fixed and floating platforms have seen a cost reduction of around 50% - including Statoil’s Johan Sverdrup and Johan Castberg - even as investments tumbled 16% to Nkr135 billion ($16 billion) last year and are set to fall by a further 11% to Nkr120 billion in 2017 and another 5% to Nkr114 billion next year, according to the Norwegian Petroleum Directorate.

Andersen said he was “cautiously optimistic” over prospective new field awards, though this was tempered by the fact several schemes are now approaching completion such as phase one of Johan Sverdrup, with major contracts already awarded.

Aibel is also looking to capture more modification work on facilities to be used for subsea tiebacks, as well as maintenance on existing platforms and renewables installation jobs, having implemented cost reductions to become more competitive.

The non-stocklisted contractor had an order backlog of Nkr15.2 billion at year-end, having secured new orders worth a total of Nkr6.5 billion in 2016, though this was down from a backlog of more than Nkr19 billion the previous year.

Among key contracts won last year included engineering, procurement and construction work on Dea’s Dvalin and Statoil’s Oseberg Vestflanken 2 projects, both under development off Norway, as well as an FPSO conversion deal for Woodside Energy’s Greater Enfield scheme off Australia.

In addition, it has gained front-end engineering deals for Statoil’s Snorre Expansion and Troll C schemes that could lead to subsequent awards,

Aibel notched up revenue of around Nkr10.5 billion last year, up from around Nkr7 billion in 2015.

Meanwhile, Subsea 7’s chief financial officer Ricardo Rosa, speaking at the same conference, said the contractor is eyeing prospects for subsea umbilicals, riser and flowline work on several field projects that are emerging onto the radar screen.

These include BP’s Mad Dog Phase two scheme in the US Gulf of Mexico and ExxonMobil’s prospective development of the Liza discovery off Guyana.

The contractor is also eyeing opportunities opening up off Senegal and Mauritania, while also targeting possible work Total’s Zinia and Shell’s previously stalled Bonga South West scheme, both off Angola.

Subsea 7, with a year-end backlog of $5.7 billion, is targeting integrated contracts involving both subsea production systems and Surf installation work under its alliance with Schlumberger division OneSubsea, having already secured its first such deal last year on the Murphy-operate Dalmation project in the US Gulf.

“We are looking forward to the next year with measured optimism,” Rosa said.

Other major contracts related to ONGC’s KG-DWN-98/2 development, including a huge integrated package for subsea production systems and subsea umbilicals, risers and flowlines, and a separate package for a giant processing platform are also expected to be awarded by the middle of this year.