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Summary: The main takeaway from this year’s Offshore Support Journal Subsea Conference was that while there may be signs of life in the market, we’re a long way from a full recovery.
Laying out a heat map of the world’s most lucrative areas for subsea vessel work, Archer Knight executive director David Sheret saw that vessel activity and volume remain strongest in the areas that have traditionally been OSV hotbeds, including Northern Europe and the Gulf of Mexico.
“We have seen some form of recovery” in Europe, he said, noting that utilisation has grown. However, rates have not followed utilisation, which presents a challenging situation.
In the Gulf of Mexico, Mr Sheret says shale is “having an impact” on infrastructure development in the region, and that the Jones Act offers a significant barrier to international companies hoping to do business in the region.
Globally, the subsea vessel fleet stands at around 400, according to Mr Sheret’s figures, with nearly a quarter operating in Europe and over 30% split roughly evenly between the Gulf of Mexico and Southeast Asia.
While he sees traditional ‘hot spots’ as most likely candidates to be future ‘hot spots’ for vessel activity, he is careful to qualify the term: “I would say ‘slightly warm spot’.
“It is not going backwards, but I would say there are a challenge to operators [and] a challenge to rates.”
IHS Markit analyst Catherine MacFarlane, however, appeared to confirm many operators’ worst fears: “The short answer to the question ‘Is the subsea fleet recovery real?’ is, not really.”
Ms MacFarlane examined the current fleet, determining the number of vessels that have been retired, those under construction and those sold. Some 16 vessels retired in 2017 and the same number again in 2018, she said, while a total of 19 pipelayers have retired since 2010. Eight diving support vessels (DSVs) were retired in 2017-18; however, only five ROV support vessels have been retired during the course of the last nine years.
The subsea sector is seeing a high number of vessels under construction, with 58 vessels due for delivery in 2019, alone. And of the 71 vessels under construction as a whole for use in the sector, accommodation vessels account for more than any other vessel type (31).
The market for walk-to-work (W2W) vessels is particularly strong, and service operations vessels (SOVs) “look like the market to be in”, when strictly comparing utilisation rates against the rest of the sector, she said.
Ms MacFarlane’s data shows that 2018 had a historically high number of vessels sold (29), with the majority of those remaining in the markets they traditionally served. The data shows a growing trend for remotely-operated vehicle support vessels (ROVSVs) moving away from oil and gas and into offshore wind work, and utilisation and day rates for ROVSVs tell a similar story.
Looking at 2019 and beyond, Ms MacFarlane said: “This year, [overall utilisation for ROVSVs] is looking quite stable and hovering above 50% through 2023.”
DSVs do not fare so well in the short term, with a “huge oversupply of vessels” limiting utilisation below 50% through 2023.
On the whole, Ms MacFarlane expects utilisation to improve slowly, and day rates to make a “very slow recovery”.
“We are still very far away from those rates that we saw in 2013 and 2014,” Ms MacFarlane explained. “On a global scale, the recovery has been very slow and very painful for the subsea market.”
Wood Mackenzie’s director of upstream supply chain consulting Dr Wei Liu said that the upstream value chain can expect pain into early 2020 as a result of slowdowns in project sanctioning during 2015, 2016 and 2017.
He feels “cautiously optimistic” about longer-term prospects, especially when it comes to deepwater projects, noting “Deepwater is an integral part of the strategic development of the oil majors and national oil companies.”
While onshore unconventional production is due a couple more years of growth, it can be expected to plateau in the mid-2020s. Producers hoping to retain output levels through the next decade are looking to deepwater projects as a way to remedy this.
“The only thing that is preventing a massive jump in deepwater investment is the payback period for the investment,” said Dr Liu. “But they cannot delay this forever because of production concerns.”
"The nature of the subsea market is to have a very short cycle when compared with the [asset-heavy] offshore industry, nut we are not likely to see a return to the historic [capex] peaks [seen] in 2013 and 2014,” he said.
“More efficient project management has decreased capex in general, so we are looking at permanently lower market prospects for capex.”
Opportunities for OSVs in strong decommissioning market
“The [decommissioning] market is now one of reality not promise,” according to Maritime Strategies International director of offshore Gregory Brown.
“It is not just a North Sea issue but a global one, with a value of US$78Bn between 2018 and 2029,” he explained.
While the UK market contains the lion’s share of this opportunity (US$23.4Bn), other key areas include the US (US$11.7Bn), Norway (US$8.6Bn), Brazil (US$7.0Bn), Angola (US$4.7Bn), Nigeria (US$3.9Bn), Thailand (US$3.9Bn) and the Netherlands (US$3.1Bn).
The largest expenditure - at an estimated 49% of the cost - in a decommissioning project is the actual decommissioning of the well itself, rather than areas such as removal of topsides and subsea infrastructure and it is here that Mr Brown sees OSVs as being particularly valuable.
Reservoir abandonment, intermediate abandonment and wellhead capping are the three elements that make up this multistage process, with primary and secondary barriers required at the reservoir and hydrocarbon flow levels, removal of casing strings, and surface plugging all required in the North Sea during P&A.
Historically, these duties would be carried out by semisubmersible rigs, but the secondary surface plug, overhead removal of conductors and the removal of casing strings could be carried out by riserless well-intervention vessels (RWIVs).
While RWIVs are not suitable for all work, Mr Brown explained that “full P&A of a well is very much possible for low- and medium-complexity wells using a RWIV, typically in shallow waters.”
Alternative business models can help odds of survival in in changing market
In order to survive the downturn, Netherlands-based subsea services provider N-Sea opted to move to an alternative, “asset-light” business model.
N-Sea survey lead Hans van Peet explained the factors that led to this decision. The oversupply of assets that characterised much of the oil and gas industry was one, but a strong drive from oil and gas operators to move toward alternative and new ways of doing business also influenced the move.
This move has given N-Sea the flexibility to offer “fit-for-purpose solutions,” said Mr Van Peet. He explained that the company now owns two long-term assets: a dive support vessel, and a bespoke survey vessel, which allow it to service both the spot market and long-term commitments.
Another key element has been a willingness to team up with partners to provide innovative solutions, he added. One example of this is the combination of Force Technology Norway’s FiGS contactless sensor technology in conjunction with an N-Sea remotely-operated towed vehicle (ROTV) for cathodic protection surveys. This would traditionally be done with an ROV-mounted probe, Mr van Peet said, but by using an ROTV it was found a line could be surveyed in four to five months, an improvement of two or even three times an ROV’s survey speed.