Archives for posts with tag: subsea fabricators

There are a range of indicators that can be used to gauge activity in the subsea segment of the offshore industry, including the number of tree awards, the EPC/SURF contractor work backlog and subsea support vessel utilisation trends, for example. Another is the backlog of subsea trees on order at tree fabricators. So where is this indicator now and what might it suggest about the subsea sector generally?

For the full version of this article, please go to Offshore Intelligence Network.

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Over the course of the last 20 years, oil and gas companies have cultivated a vast metallic forest beneath the world’s oceans, consisting now of some 5,800 installed subsea trees. The growth of this artificial arboretum has supported an array of related offshore fabrication, installation and IMR industries. But how to assess the outlook for this complex sector? Well, one key metric is the subsea tree backlog…

Into The Woods

The tree ‘backlog’ is the ‘orderbook’ of subsea trees. It is constituted by trees ordered by oil companies from subsea fabricators that have not yet been installed. A tree itself is the tall array of valves that caps a well; unlike ‘dry’ trees, subsea or ‘wet’ trees are located on the seabed, rather than on fixed platforms or MOPUs. While fields can host various subsea structure types, trees are at the core of nearly all subsea developments. Hence, the backlog is a key proxy for subsea CAPEX and subsea construction vessel demand. The real boom for the subsea sector came in period of high oil prices after 2009, as innovation in the subsea sector facilitated deepwater frontier projects in West Africa, Brazil and the US GoM. The backlog grew from 647 units in Q3 2009 to a peak of 1,158 at start Q4 2014 – an increase of 79%. At this point a number of large projects utilising subsea trees had recently reached the EPC stage, including TEN (Ghana, $4.9bn, 36 trees), Egina (Nigeria, $15bn, 44 trees) and Buzios (Brazil, $2.6bn, 20 trees). The charter rate for a large (250t crane) MSV in the North Sea, meanwhile, stood at around $52-59,000/day.

Cut Down To Size

However, like other offshore sectors, the subsea sector has been adversely affected by weaker oil prices (and the paralysis at Petrobras). Initially the backlog provided a degree of insulation for fabricators and installation contractors. The backlog is eroding though, having fallen y-o-y in each of the last nine quarters by between 1% and 14%. As at start Q2 2016, it stood at 876 units, down 24% on the Q4 2013 peak. Installers have been working through the backlog while new awards have dwindled (only 59 trees have been contracted in 2016 as at start May) due to a dearth of project FIDs. True, the subsea sector has held up better than the rig or OSV sectors (in part due to IMR demand, not captured by the backlog size) but North Sea dayrates for a 250t MSV have fallen by 34% since Q2 2014, to $32-43,000/day at start May 2016.


New Spring?

Could things in subsea get as challenging as in the rig and OSV sectors? Perhaps, but that depends on the timing of the recovery in offshore project FIDs. Besides, the downturn is not all bad for subsea – in the long run. In order to reduce field development costs, companies are increasingly relying on subsea efficiency gains – Statoil’s subsea standardisation drive is a notable example of this. As costs at subsea projects fall, more such projects are likely to receive FIDs. New tree awards are expected to recover to around 300 per annum by the end of the decade.

So subsea seems to be becoming more challenged, as reflected in the falling subsea tree backlog. But subsea is likely to play a key part in the recovery too. The arrival of new awards, followed by a sustained increase in backlog, will be a good indicator of when the offshore market is out of the woods.

OIMT201605

SIW1098In 1961, the world’s first subsea completion was installed on a well in the Gulf of Mexico. Over the last 52 years the use of subsea trees has spread to the majority of offshore producing regions, with a total 4,851 trees installed by end-2012. Since 1990, the world has seen a growth in the number of deep water (>500m) tree installations. The use of subsea trees and developments appears set to revolutionise the offshore oil and gas industry, placing more focus on subsea fabricators.

Into the Deep End

The Graph of the Month shows the number of subsea trees installed per year from 1990 to 2016 (potential/under construction post-2013) and a breakdown of shallow versus deepwater installations. During 2011, the subsea tree demand hit a low point in the wake of 2008’s economic troubles. Since then however, the sector has seen a boom in tree installations, with expected future installations for 2014 up by 77% on 2013 and 2016 projected installations up a staggering 174% on 2013, with a total of 916 potential trees. Furthermore, the near future will demand more subsea trees with deep water, high pressure technologies, as shown by the increase in the share of trees in deep water of around 40 percentage points since 2000.

Subsea Honeypots

The region utilising the most subsea trees is NW Europe, with 1,638 active. The region’s ageing fields, containing smaller, marginal pay zones, mean that subsea trees and tie-backs provide a solution for continuing productivity in the North Sea. In Latin America, subsea trees are allowing for the development of wells in the ultra-deep water pre-salt plays of Brazil. The region has 919 active trees and accounts, along with West Africa, for many of the potential installations over 2013-2016. Subsea is not for everyone however: in the shallow Middle East, less than 40 trees are active, with wellhead platforms preferred.

Ready Yourselves

Given the extra subsea tree demand, how will the market cope? As previously highlighted, demand will have a bias, with many being required in the North Sea and Brazilian pre-salt areas. GE Oil & Gas have reportedly stepped up their UK manufacturing capacity for trees by circa 40%. However, with only 4 major subsea tree fabricators worldwide, supply may bottleneck in the coming years.

A boom in subsea tree demand will also affect the installation vessel markets. Traditionally, MODUs and other drilling vessels were used for tree installation. However, with the hike in rig costs (45% since end-2010 for jack-ups), installation contractors have been increasingly turning to installation by relatively cheaper MSVs. A total of 68 MSV vessels are on order, which despite accounting for 25% of the current fleet, may grow. There is also an additional 10% of the Dive and ROV Support fleet on order, a number which is likely to increase over the next 4 years.

So, Petrobras, Statoil and the supermajors are employing subsea technology increasingly frequently. Demand is growing for trees and associated infrastructure, along with installation units, promising a positive period for subsea fabricators.