UK subsea sector looks to increase global market share

Meg Chesshyre

March 21, 2013

Subsea UK CEO Neil Gordon (top right) and Apache North Sea project manager Mark Richardson (bottom right)

In his opening address, Subsea UK CEO Neil Gordon said that the global subsea market was set to double from £20 to 40 billion over the next fi ve years. The big challenge for Subsea UK and for the subsea UK industry was how to retain one-third of that market and grow its global share.

He identifi ed four global subsea hubs: the UK/European one; US/Gulf of Mexico; Brazil and the South Americas; then Malaysia, Singapore, Australasia and Australia. He pointed out that in countries like Brazil, Norway and the US had very strong government supported schemes investing in their technology. He called for similar support in the UK to help develop technology and to compete on an international level.

In Brazil there was an R&D tax incentive scheme where 1% of gross revenues from oil and gas went into a fund for research and development, with 50% being spent on education and 50% on technology. That fund has grown dramatically. “I think up until 2012 it accumulated £362 million, and by 2020 it is going to accumulate £6 billion.” BG, for example, had located its centre of technology globally in Brazil. In the US, about $30 million is invested annually on technology development and in Norway about $14.5 million.

On the UKCS, the main focus was looking at maximizing oil recovery, which currently averaged 40%, compared with over 50% in Norway. Another challenge is the UK’s ageing infra-structure. Integrity management, looking after the systems, was becoming a big focus for the future.

Significant growth

A survey of Subsea UK members, announced at the conference, revealed that 100% of fi rms are predicting signifi cant growth in the next 12 months. Almost half expect to grow by 30% and a third by more than 50%. Almost 90% of those surveyed saw turnover and profi ts rise in 2012 with over half reporting growth of 20% and a fi fth reporting more than 50% growth.

The key drivers for growth were identified as a sustained high oil price, an increase in global demand and the introduction of new technology and innovation which are leading to more developments becoming viable. The fastest growing segments in subsea are inspection, repair and maintenance, integrity and reliability, decommissioning and offshore wind.

Gordon commented: “Subsea continues to be the unrecognised jewel in the crown of British industry. The sector is one of, if not the, fastest growing in the country and these fi ndings will come as no surprise to the oil & gas industry as whole. Several respondents anticipate growing by over 75% in 2013 and many of our small, entrepreneurial companies focused on niche products and services are set to double or treble in size.” The biggest challenge facing the sector is recruiting and retaining skilled people with 88% citing this as their foremost constraint. Other challenges reported by 15% or more respondents were access to fi nance and working capital in particular, fi nding suitable premises, controlling costs and managing growth.

The main international markets for UK subsea companies are Norway, Brazil, US, Southeast Asia, Australia, West Africa, and the Middle East. Respondents were asked to rank their overseas markets in order of priority. Norway came out top with 25% of those surveyed indicating it was their fi rst focus over the next few years, followed by the US (24%) and then Brazil (20%). Less than 12% said that the UK North Sea was a priority.

“This underlines the increasing importance of overseas markets,” added Gordon. “Well over 50% of UK subsea output is already exported and that is set to increase.”

Apache’s success story

Apache’s success story on the UKCS was spelt out at the conference by Apache North Sea project group manager, Mark Richardson. He said that when Apache bought the property from BP in 2003, remaining reserves were put at 140 million bbl. Since then Apache has produced 200 million bbl with another 130 million bbl still to go.

Apache has spent about $3.5 billion upgrading the facility, drilling around 122 new wells, and the Bacchus subsea tie-back. A new satellite platform is being installed at Forties Alpha. The topsides go in this May, the same year that, under the original decline curve, Forties was due to be decommissioned. Operational efficiency has increased from around 65-70% to the high 90s. Lifting costs are running at around $10-$11/bbl, compared with an industry norm of around $18, and up to the high $20s for partneroperated fields.

A couple of years ago Apache acquired the Beryl area fields. “We see an opportunity to develop that field further and to do another Forties in terms of increasing production and extending field life”, noted Richardson. A project to develop Beryl has just been set up and he can already see two big opportunities, which will either be large subsea tie-backs or new platforms on both the Beryl East flank and in the Nevis area – potentially a Beryl Charlie and a Beryl Delta.

He said that Apache had set a target for growth for the North Sea of between 6% and 7% annually over the next three years. Apache was looking to explore greenfield opportunities as well as tie-back to its host platforms, and had acquired more licenses than any other operator in the 27th UK licensing round.

He said that Apache had a very flat structure with 5500 employees worldwide, yet it produces 800,000b/d, about one-third of BP’s production. “We are very small and flat, and we like to keep that accountability, responsibility and decision making down to the grass roots, to the people that understand the risk and understand the opportunities.”

He acknowledged that the industry faced a problem with a small talent pool leading to crazy remuneration in some areas. One solution was to look outside the industry to areas such as the military, who are losing highly qualified and capable technicians, leaders, and managers. Apache itself was in the process of taking on 14 ex-military personnel for training as production technicians.

Richardson also stressed the importance of local content. “We need to be spending money with UK companies. Don’t look to China and the Far East and other regions of the globe. Look locally first as to where you can procure things.” Apache is just putting in a satellite jacket which it had built in Newcastle. “We revamped and revitalised the yard, took a company that was in administration. We worked it through and actually we’ve got a major development employing 1200 people and 75% of the spend of that project has been straight into the UK.”

New group launch

A new subsea oil and gas group, Harkand, chaired by oil & gas industry veteran Tom Ehret, was launched at Subsea 2013. Following investment by Oaktree Capital Management in Iremis, Integrated Subsea Services (ISS) and its sister company Andrews Survey last year, the three names have merged to form one group focused on the fastgrowing subsea inspection, repair and maintenance (IRM) market. The new group has an ambition to grow to be the number one global IRM contractor with a turnover of $1 billion and a fl eet of 20 vessels in the next fi ve years. There are plans for major acquisitions to expand the global footprint very specifi cally in the near future, and for further investment in vessels.

The group will combine proven survey, inspection, repair, and maintenance services with the Iremis fl eet of multi-purpose diving support vessels, ROV and air diving support vessels, and ISS’s fl eet of 23 remotely operated vehicles and teams of ROV operators, surveyors, and divers. The vessel fleet includes the new state-of-theart multi-purpose diving support vessels Harkand Atlantis (pictured left) and Harkand Da Vinci. The group’s name, Harkand, comes from medieval Arabic literature where it is the name of one of the seven seas.

Nicolas Mouté is CEO of the Harkand Group. International operations are headed by Harkand Iremis MD Patrick Chapalain and European operations are headed by Harkand ISS MD David Kerr.

Oaktree purchased Gulmar Offshore, rebranded as Iremis, last year. Its assets included two new DSVs, the Atlantis and the Da Vinci, built in Korea. Atlantis worked for Petrobras initially. This was followed by an investment in ISS and its subsidiary Andrew Survey. Oaktree then had both the vessels and all the services – diving, ROV, engineering project management, survey services, and inspection management. The Harkand Atlantis has now relocated to the North Sea and has an IRM program with Taqa this summer. Harkand Da Vinci is currently in West Africa and will shortly relocate for a new work program.

Harkand ISS has secured the Relume and Loch Roag ROVSVs on long-term charters to support its expansion in the subsea IRM market. The DP2 multi-purpose vessels will both be equipped with a Triton XLX heavy-duty work class ROV and an inspection class Mohican vehicle. They will also have full survey suites on board and optional air diving spreads. Both vessels have been chartered by ISS previously.

From its bases in Aberdeen, Dubai, Singapore, and Perth, the group is already carrying out work in the North Sea, Brazil, West Africa, India, Russia and the Caspian, Australia, Vietnam, and the Gulf of Mexico.

Harkand ISS managing director, David Kerr, commented: “The important thing is that we understand what our client really needs, and to go that little bit further in delivering that service, to give a competitive edge. What differentiates us from the competition is really being client focussed.” He said that IRM was all about cost maintenance, using technology to save money. IRM had a hugely important role to play in the maintenance of the North Sea’s ageing infrastructure, thus enabling the development of the remaining reserves as subsea tiebacks.

The client would be able to choose the most cost effective solution out of a full range of solutions. For instance, the recent use of smaller platform-based ROVs with special equipment on board had saved money on member inspection. OE