Thursday 14 September 2017

Subsea contractors expect a rebound in orders on renewed field development activity amid cost-cutting by operators, with a raft of prospective projects on the tendering radar screen.

Major players TechnipFMC and Subsea 7 believe further awards are on the horizon as more subsea projects are sanctioned for investment over the next 18 months, having already picked up lucrative contracts earlier this year.

“We are confident that we have seen the inflection point for subsea orders. They are recovering from a trough last year and we believe there will be a step up in inbound orders in 2018,” TechnipFMC’s chief executive Doug Pferdehirt told Pareto Securities’ Oil & Offshore conference in Oslo on Thursday.

This was echoed by Subsea 7 chief Jean Cahuzac who said a “gradual recovery” is expected, after operators have earlier put the brakes on projects due to low oil prices, with a rise in tendering activity this year and awards set to increase in the first half of 2018.

Currently there are active tenders for subsea contracts on projects including Statoil’s Snorre Expansion, in which TechnipFMC is pitted against partnerships of Subsea 7-OneSubsea and Aker Solutions-Saipem for a huge deal said to be worth $1.6 billion, and Johan Castberg, both off Norway.

Other Norwegian subsea projects up for grabs include Wintershall’s Skarfjell, AkerBP’s Snadd and VNG-operated Pil & Bue.

Elsewhere, subsea players are also vying for work on Anadarko Petroleum-operated Golfinho-Atum and Eni’s Mamba project, both off Mozambique.

In addition, BP is seeking bids on its Tortue scheme off Mauritania that is due for a final investment decision next year, Reliance Industries has a tender out for the R-Series project off India and the second phase of Chevron-operated Gorgon off Australia is also in the works.

Off Brazil, Petrobras is tendering for the subsea scope on its Libra project while Statoil has a tender out for the second phase of its Peregrino field.

The contracting rebound has already resulted in recent awards for TechnipFMC on ExxonMobil’s Liza project off Guyana and Eni’s Coral South FLNG scheme off Mozambique, and Subsea 7-OneSubsea on Phase Two of BP’s Mad Dog project in the US Gulf of Mexico.

A key driver for renewed tendering activity is that costs have come down significantly on offshore field projects to make them commercially viable even at lower oil prices.

According to Pareto analysts, average break-even costs for subsea developments have been cut to between $35 and $50 per barrel, compared with $70 in 2014 before the oil price slump, mainly due to efforts such as standardisation and simplification of subsea equipment, as well as lower contractor pricing.

While contractors are still waiting for fields to be sanctioned, recent months have seen an increase in the number of awarded pre-front-end engineering and design and FEED studies for subsea projects, which analysts said is “a good indicator for future subsea award activity”.

A key trend has been increased integration in the supply chain whereby contractors are offering an integrated package engineering, procurement, construction and installation of both the subsea production system and umbilicals, risers and flowlines.

This has been achieved either through merger as in the case of TechnipFMC or through contractor alliances such as Subsea 7’s tie-up with Schlumberger unit OneSubsea.

This integrated approach lowers the overall project cost for operators to encourage project sanctioning, according to Pareto.

Pferdehirt said “the market is embracing our integrated approach” with operators seeking integrated FEED work that could ultimately lead to EPCI awards for TechnipFMC.

By bringing onboard the contractor early in the project planning stage, the operator is able to streamline execution to make cost savings and reduce the time to first oil, he explained.

However, both contractors are bracing for financial fallout next year due to expected lower revenue on a dearth of fresh orders due to the downturn after earlier projects have been completed, with Cahuzac saying “2018 will be more difficult than this year for the subsea industry”.

Meanwhile, McDermott International has signalled its intent to re-enter the deep-water arena after earlier this year acquiring newbuild pipelay and construction vessel Ceona Amazon that it intends to upgrade with J-lay capability to compete for Surf work.