Slim pickings

Steve Hamlen

January 1, 2017

There are slim pickings for fabricators in oil and gas sector, but as Steve Hamlen reports offshore wind fabrication has given firms some sustenance.

Dudgeon jacket. Photos from Sembmarine SLP. 

The offshore oil and gas construction industry is suffering along with the rest of the petroleum sector. It has been over two years since oil prices collapsed from a high of around US$112/bbl, in the summer of 2014, to less than $30/bbl at the start of 2015 and trending around $44/bbl through 2016.

While OPEC and Russia have just agreed to production cuts, helping to prop up prices at around the $50/bbl mark, the industry remains in a weakened state and wary of investment in new projects.

The lack of commitment to new projects and the infrastructure these require has seen a swathe of job cuts and even total company reorganizations – such as that announced by Heerema Fabrication Group in November – to weather the fierce storm.

However, the last few weeks has seen some talk of green shoots of recovery and there are indeed some silver linings offered by Statoil’s huge, multi-billion dollar Johan Sverdrup development project offshore Norway. Diversification into the renewables sector, especially wind, has also paid dividends for some contractors.

Sverdrup offers lifeline

Norwegian player Kvaerner has been somewhat shielded from the worst of the industry downturn thanks to the huge workload from the Johan Sverdrup development off Norway.

During Q3 2016, two jackets and the topside for Johan Sverdrup passed 20% completion, and “accumulated profit for these projects has been recognized.”

The Johan Sverdrup utility and living quarters topside project is “moving ahead according to planned progress,” said Kvaerner, adding that design engineering has passed 90% complete and construction is ongoing at eight sites in Norway, Sweden and Poland.

“The oil and gas market remains challenging, but Kvaerner is well prepared for a market with continued volatility,” said Jan Arve Haugan, president and CEO of Kvaerner. The firm expects a few projects in relevant segments to come up for contract award in 2016, 2017 and 2018.

“There are several signals of upcoming prospects, including floating production, storage and offloading vessels as well as unmanned wellhead platforms with tiebacks to existing infrastructure. The improvements over the last few years mean that Kvaerner can deliver such projects at a cost which is attractive even with oil prices at levels around $50/bbl.”

In early March 2016, Sembmarine SLP upended the jacket it is building for the Dudgeon Offshore Wind Farm. The operation was the first of its kind in the UK and involved jacking up the approximately 954-tonne jacket to 14m high using a Mega Jack 800 jacking system provided and operated by global heavy lift specialists ALE. The suction buckets were positioned under each of the jacket legs using SPMT trailers to maneuver them into place. The Mega Jack 800 then lowered the jacket and held it in place while the suction buckets were welded to the jacket. 

Encouraging projects forecast

In terms of new projects, there have been encouraging reports. A recent one by GlobalData forecast that a total of 32 oil and natural gas projects are expected to start operations in the North Sea by 2025.

Of these, the UK will be responsible for 22, while nine will be in Norway and one in Denmark. These key planned projects in the North Sea are expected to contribute 869,000 b/d of oil and 996.8 MMcm/d of gas by 2025.

Total capex for the projects could reach $78.2 billion, according to GlobalData, with $43.1 billion expected to be spent during 2016-2025. Norway is expected to lead the investment in region with $23.8 billion spending, of which GlobalData says $13.2 billion will be spent on Johan Sverdrup.

Globally, the consultancy reported that there are 200 key crude and natural gas projects slated for start-up by 2025, with the highest number offshore Brazil. According to GlobalData, an estimated capital expenditure of more than $800 billion is expected to be spent to bring these projects online, of which about 61% could be spent during 2016-2025.

However, this has not helped construction yards this year, nor is it likely to offer much respite in 2017.

Renewables lend support

The Culzean wellhead jacket sailaway from Heerema Fabrication Group (HFG), Vlissingen, in 2016. Photo from HFG. 

A positive note beyond petroleum has been the steady growth of renewables construction work, with many traditional oil and gas players diversifying into this field, especially wind, to help ensure their survival.

A prime example of playing both sides is Sembmarine SLP, which until August this year spent 18 months completing the Dudgeon Offshore Wind substation topside. The facility left the Sembmarine SLP Hamilton Dock 100% mechanically completed and 100% commissioned on 5 August 2016 to sail away to 32km off the coast of North Norfolk, England.

A team of 250 people worked on the Dudgeon topside and spent 850,000 hours on the project. The Statoil, Statkraft and Masdar-owned Dudgeon Offshore Wind Farm would have the capacity to power approximately 410,000 homes in the UK once operational.

Sembmarine SLP then turned its focus to the Culzean gas condensate field development project offshore the UK. Under the contract, Sembmarine SLP is building a power generation module, flare and bridges for Denmark’s Maersk Oil.

Culzean has a water depth of 90m (295ft) and is east of Aberdeen in the UK Central North Sea. “This work will take us all the way through to 2018,” said Paul Thomson, Sembmarine SLP’s managing director.

Meanwhile, Fife-based Burntisland Fabrications (BiFab) is another to benefit from the renewables sector, as it pushes ahead with work on the $127.2 million (£100 million) contract it landed in July this year from Seaway Heavy Lifting to supply 26 wind turbine jacket substructures for the 588MW Beatrice wind farm offshore Scotland.

The workload will be delivered in two campaigns: 10 of the jacket substructures will be ready for delivery in August 2017, with the remaining 16 are due to be completed and delivered in April 2018.

“The BiFab proposal for delivering the Beatrice project is based on utilizing a percentage of capacity at all three BiFab facilities at Arnish and Burntisland, with final assembly and loadout from the BiFab Methil facility,” BiFab said.

“The BiFab scope is based on 26 off structures. This is 22,500-tonne of steel fabrication, which is a major project award for the BiFab management team and workforce, giving the company a base load of work through to April 2018,” said John Robertson, BiFab managing director.

Beatrice is in the Outer Moray Firth on the northwestern point of the Smith Bank, around 13km off the Caithness coastline.

Restructuring and job losses

Not all yards are managing so well, with the Netherlands-based Heerema Fabrication Group (HFG) saying just last month that it planned a reorganization of the company to help it survive.

HFG Hartlepool in northeast England saw its last large project leave site back in April 2016 when the wellhead access deck sailed away for the Culzean field. During the same week, HFG’s Vlissingen yard in the Netherlands sent the wellhead jacket for Culzean on its way.

“As a result of the restructuring, an anticipated 450 of the existing 770 jobs in the company will be phased out,” HFG said, adding that the job losses affected the head office in Zwijndrecht (Netherlands), as well as the other HFG yards in the Netherlands (Vlissingen), the UK (Hartlepool) and Poland (Opole).

Then, on 6 December 2016, HFG signed a memorandum of understanding (MoU) with the UK’s Wood Group to jointly offer wellhead platforms “from design to installation, hook-up and commissioning” on the Norwegian Continental Shelf.

HFG said that the move would bring together Wood Group’s engineering expertise and HFG’s specialist services in the engineering and construction of large and complex structures for the offshore oil and gas, as well as energy-related industries.

The new partners hope the cost efficiencies offered will appeal to operators considering new platform field developments.

“This MoU positions us to provide innovative services to clients, through integrating Wood Group’s strong global engineering expertise and in-depth knowledge of the Norwegian sector with HFG’s broad experience and know-how for construction and installation in the North Sea offshore industry,” said Dave Stewart, CEO for Wood Group’s Asset Life Cycle Solutions business in the Eastern Hemisphere.

Meanwhile, OGN on Tyneside, northeast England, is “currently between contracts.”