With annual growth expected at an average 10% over the next five years, the subsea market is hoping for a windfall
After years of being in the doldrums, the subsea market is forecast to become one of the strongest sectors in the offshore oil and gas market, with projected annual growth of 10% over the next five years, according to energy research firm Rystad Energy.
Rystad Energy projects that the subsea market will be a top performing oilfield service (OFS) segment in the years ahead. This is quite a turnaround for a sector that saw purchases for subsea equipment and subsea umbilicals, risers and flowlines (SURF) fall from record highs in 2014 to record lows in 2018.
From 2018 to 2023, purchases of subsea equipment such as subsea wellheads, subsea trees, manifolds and control modules are expected to grow by as much as 12% year-on-year. The market for SURF – namely procurement and installation of umbilicals, risers and flowlines, as well as installation of subsea equipment – follows close behind subsea equipment, with an expected 11% yearly growth, says Rystad Energy.
With international oil companies (IOCs) focused on optimising production of their existing subsea wells, Houston-based Helix Energy Solutions Group expects long-term demand for its well intervention services to be driven by increased demand for subsea tree installations. After activity levels fell to only 240 subsea trees installed globally in 2017 – the lowest level since the turn of the century – Rystad Energy expects that over 350 subsea trees will be installed per year by 2021.
Based on its forecasts for both subsea trees and SURF lines, Rystad Energy expects more installations and deeper installations. Purchases for shallow-water subsea equipment (0 to 500 m water depth) had bottomed out in 2017, and subsequently began increasing from that point. Spend on deepwater subsea equipment (500 to 1,500 m) began improving in 2018, and Rystad Energy expects ultra-deepwater subsea equipment (equal to or more than 1,500 m) to begin increasing this year.
“For suppliers the downturn has been challenging, putting margins under pressure,” says Rystad Energy. It points out that low-margin projects awarded during 2015 and onwards are currently being executed, causing margins for subsea players to continue to decrease during 2018. Margins in 2018 dropped by one percentage point on a year-on-year average.
“Just 240 subsea trees were installed globally in 2017; over 350 will be installed per year by 2021”
However, the picture for the market is brightening. After 15 consecutive quarters of year-on-year declining revenues for subsea suppliers, Q4 2108 showed blended quarterly revenue growth at 9% year-on-year, according to Rystad Energy data.
Subsea well intervention revenues for Helix Energy jumped in 2018 by 38% compared with 2017.
Historically, says Helix Energy, drilling rigs were used for subsea well intervention to troubleshoot or enhance production, shift sleeves, log wells or perform recompletions. The company feels, however, that its well intervention vessels are able to provide similar services as drilling rigs at far lower costs. “Competitive advantages of our vessels are derived from their lower operating costs, together with an ability to mobilise quickly and to maximise operational time by performing a broad range of tasks related to intervention, construction, inspection, repair and maintenance. These services provide a cost advantage in the development and management of subsea reservoirs. We expect demand for our services to increase, due to potential efficiency gains from our specialised intervention assets and equipment.”
In Brasil, Helix Energy charted Siem Helix 1 and Siem Helix 2 from Norway’s Siem Offshore to support its well intervention work for state-owned oil company Petrobras. In a full year of operations, Siem Helix 1 and Siem Helix 2 achieved 97% and 94% utilisation, respectively, during 2018, as compared to 96% and 53% utilisation, respectively, during 2017.
Another vessel that Helix Energy will be looking to secure a contract for this year is its newbuild well intervention vessel Q7000, under construction at Jurong Shipyard in Singapore. Q7000 is a dynamic positioning class 3-capable well intervention vessel that has a 150-tonne capacity active heave compensation crane, with two work-class remotely operated vehicles and other specialised equipment.
Subsea spend to increase
As a result of the downturn in the subsea market, Helix Energy deferred the delivery of Q7000 by two years, but must accept the vessel by 31 December 2019. It was contractually committed to reimburse the shipyard for its costs in connection with the deferment of the Q7000’s delivery beyond 2017. As a result, the total capital investment in the vessel will be more than US$515M.
Luxembourg-based Subsea 7 was able to secure a contract from Norway’s Equinor for the provision of subsea inspection, repair and maintenance (IRM) services on the Norwegian Continental Shelf (NCS). Starting this year, Subsea 7 will provide IMR services for Equinor’s 560 subsea wells on the NCS. The contract involves the provision of a Life of Field (LoF) support vessel for five years, with options for extensions.
Last year for the contract Subsea 7 converted its LoF vessel Seven Viking to hybrid-battery power and shoreside power ahead of the contract, which is valued at between US$150M-300M. This dual-power capability will enable Seven Viking to reduce its fuel consumption by approximately 12%.
In discussing the company’s fiscal year 2018 results, Subsea 7 chief executive Jean Cahuzac points out that “Subsea 7 delivered good operational and financial results in 2018, despite the challenge of delivering projects awarded at lower prices during the downturn.”
Subsea 7’s fiscal year 2018 revenue was US$4.1Bn, 2% higher than 2017. Healthier SURF activity was partially responsible for both increased company revenues and overall higher fleet utilisation levels, which rose from 61% in 2017 to 70% in 2018.
The pipelay support vessels on long-term contracts offshore Brasil maintained high levels of utilisation.
In announcing TechnipFMC’s Q4 2018 results, chief executive Doug Pferdehirt said the company anticipates “an acceleration in subsea services growth, driven by both internal investment and increased market activity.” However, TehnipFMC reported that its vessel utilisation rate for Q4 2018 was 62%, down from 69% in Q3 and 65% in Q2.
In April, Paris-based TechnipFMC was awarded an integrated engineering, procurement, construction and installation (EPCI) contract from Neptune Energy for the Duva and Gjøa P1 projects, located in the Norwegian sector of the North Sea at a water depth of 375 m.
The contract covers the delivery and installation of subsea equipment including umbilicals, rigid flowlines and subsea production system.
TechnipFMC president Arnaud Piéton says: “These new EPCI awards by Neptune Energy are the first call offs from our recently signed Subsea Alliance Agreement, which is based on early engagement and more collaboration and transparency between operator and contractor.”
During the next five years, Rystad Energy expects that subsea spend for ultra-deepwater projects will increase at a much higher rate than shallow and deepwater projects. Norway and the UK are leading the way when it comes to the installation of subsea trees. Growth in the western European countries is expected to continue until 2021, at which point the Americas are predicted to take the lead with an expected floating production storage and offloading (FPSO) boom in Brasil, as well as the continued development of the Stabroek block in Guyana. The Americas have recently dominated ultra-deepwater installations, and Rystad Energy sees this lead strengthening in the years to come.