With the oil price continuing to climb and Baker Hughes’ rig count showing a wavering but upward trend worldwide, there is a cautious optimism in the air, writes Ed Martin
As Westwood Global Energy group director Thom Payne told Riviera’s Middle East Offshore Support Journal Conference in Dubai in May: “We may have a while yet to wait before we see concrete signs of increased upstream activity. [But] we are starting to see a greater volume of offshore drilling projects being sanctioned around the world – although drilling will not start for another 18 to 24 months – so we are still a little bit off from that big recovery in global rig counts”.
Offshore and subsea construction operators reliant on such projects know all about waiting. The maturity of pre-downturn projects and the scarce, lower-margin projects that accompanied the downturn are still taking their toll on balance books.
Some are anticipating better times, though, with Norway-based DOF Subsea choosing to tempt fate by adding “Preparing for the recovery” to the cover pages of its 2017 annual report and first-quarter 2018 reports.
In the report’s forward-looking statement, the Norwegian company’s board of directors noted that the market has continued to be challenging, adding that this “may lead to reduced earnings and impairment of the non-current assets of the group.”
The statement did, however, acknowledge that the stabilisation in the oil price has led to increased tendering activity, potentially indicating an improvement in the subsea sector that could see increased demand for DOF Subsea’s services in the medium term.
The company has at least seen a boost in cash flow, to NKr293M (US$35) from NKr223M for the same period in 2017. The orderbook seems to be remaining steady as well, with a constant flow of contract awards (some short term but many long term) and renewals, which will be served by DOF Subsea’s 27 vessels and 71 remotely operated vehicles (ROVs).
Also worth noting is the delivery in June of Skandi Recife, a flexible lay and construction vessel that is jointly owned by DOF Subsea and TechnipFMC (more on whom later) that immediately started an eight-year contract with Petrobras in the Campos, Santos and Espirito Santo basins offshore Brazil.
The vessel is 140 m long by 28 m wide with a 10,800 dwt. It is equipped with a 340-tonne vertical lay system tower, a 2,500-tonne underdeck carousel and two work-class ROVs. It hold’s DNV GL’s “Clean Design” notation and can lay flexible pipes in water depths of up to 2,500 m. Sister vessel Skandi Olina is currently under construction at Vard Promar, with a high rate of Brazilian national content.
The same general theme was evident in UK-based Subsea 7’s second-quarter results presentation on 26 July.
While the company’s second-quarter revenue was US$1.2Bn, up 13% on the previous year, adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) was US$186M, down 45%. Chief financial officer Ricardo Rosa explained that the reduced Ebitda is accounted for by there being fewer completions of large projects in the quarter, projects signed in the downturn having lower margins, and lower activity levels across the company’s renewables and heavy lifting and i-Tech Services units.
The company was awarded seven contracts in the second quarter of 2018, with new projects offshore West Africa and Egypt and in the Gulf of Mexico and North Sea. Chief executive officer Jean Cahuzac noted that this represented the third consecutive quarter where the number of contracts awarded had increased, with most of the projects being tie-backs. He added “We continue to expect a gradual recovery of offshore oil and gas awards, led initially by tie-back projects and followed by larger greenfield developments.”
A major event for Subsea 7 this quarter was the completion of the company’s takeover of Siem Offshore Contractors (subsequently rebranded as Seaway Offshore Cables) on 10 April, along with installation support vessel Siem Moxie (to be renamed Seaway Moxie) and cable-lay vessel Seaway Aimery (which was previously named Siem Aimery). Part of the company’s strategic investment in renewables, Seaway Offshore Contractors was consolidated within Subsea 7’s Renewables and Heavy Lifting business unit and is largely active in the offshore wind sector.
The company is also continuing with work to establish an integrated service offering with oil field services company Schlumberger, said Mr Cahuzac, adding “We expect to complete this before the end of the year.”
Mr Cahuzac also formally announced the name of Seven Vega, a reel-lay vessel currently under construction. The new vessel features a twin-tensioner pipelay ramp that can be tilted, allowing for installation of pipelines in shallow waters or in depths of up to 3,000 m. It will be fitted with Hyundai diesel-generator sets, a Wärtsilä thruster package, and a Huisman 250-tonne active heave-compensated offshore crane. The vessel’s design focus suggests Subsea 7 is continuing to bank on tie-back projects forming a large component of its business, with executive vice president of strategy and commercial Stuart Fitzgerald saying at the time of its keel-laying ceremony, that it incorporated technologies to address “the growing trend towards longer tie-back developments.”
London-based TechnipFMC also released its second-quarter results on July 26, continuing the general theme of optimistic anticipation, with chief executive officer Doug Pferdehirt declaring “strong operational performance across all business segments”.
Looking just at offshore and subsea, while the company’s subsea revenues declined by 30%, from US$1.73Bn to US$1.22Bn compared to the second quarter of 2017, and onshore/offshore revenues saw a decline of 26% - from US$1.81Bn to US$1.34Bn - its orders exceeded revenues across all segments. Total inbound orders rose to US$4.2Bn, the highest quarterly order figure the company has experienced to date, while this was the second quarter in which orders exceeded revenues.
Looking ahead, the company’s backlog shows steady growth year-on-year and Mr Pferdehirt is bullish about the company’s market position, due to a “rapidly emerging trend towards subsea project integration”.
“This approach represents a significant departure from ‘business as usual’, where distinct project scopes are bid independently,” he said. “As the only single-source provider with all these capabilities, we remain uniquely positioned to lead this market evolution.”
However, while it may be true that TechnipFMC is currently the only subsea operator to offer fully integrated solutions, it may have a competitor by the end of the year, if Subsea 7’s joint venture with Schlumberger stays on track.
On the same day it disclosed its second-quarter results, TechnipFMC also announced it had won a subsea installation contract for Chevron Australia, to work on the Gorgon Stage Two development offshore Western Australia. Operating in water depths ranging from 250 m to 1,340 m, TechnipFMC has been contracted to cover project management and engineering, transportation, installation and pre-commissioning of umbilicals, flying leads and manifolds. It also covers fabrication, transportation, installation and testing of rigid spools.