Archives for posts with tag: the North Sea

The North Sea is home to a dispersed mass of steel and concrete, namely: 509 active fixed platforms with a combined weight exceeding 8 million tonnes; 1,440 subsea structures; 9,370 active wells and their completions; and over 45,000km of pipeline. Under the provisions of the OSPAR Convention, field operators will be obliged to decommission and clean all this up one day. And that day is approaching.

Diamonds And Rust

Decommissioning entails plugging wells, removing platform jackets, topsides and subsea structures, and, ultimately, complete site remediation. Oil companies in the North Sea are now having to contemplate this process at fields as recoverable reserves approach depletion. Since first oil in 1967, approximately 54.1bn bbls of oil have been produced in the area. However, production in 2015 is forecast to stand at just 2.86m bpd, compared to the 2000 peak of 5.9m bpd. The value of offshore field infrastructure consists in its ability to assist in the extraction of oil and gas; for the 47% of fixed platform tonnage installed on North Sea fields that began production more than 25 years ago, the point at which this is no longer the case is getting closer. But only 88 platforms in the area have been decommissioned so far, and for good reason.

Worth Fighting For

Decommissioning can be money and time-intensive. The decommissioning of the Brent facilities is expected to take ten years. Even small projects are expected to take two years and more than $300m in CAPEX. Hence, operators are trying to stave off decommissioning through enhanced oil recovery (EOR) to extend field life, or by tying new field developments to existing structures. For example, while the 12 wells on Heimdal are being abandoned, the platforms are being kept to process gas from Vale and other fields.

However, it is thought that in the current oil price environment, OPEX is encroaching on profits at a rising number of fields. Operators striving for fiscal discipline are between the hammer and the anvil: either run fields at a loss, or shut fields down and book the decommissioning costs.

Pain And Pleasure

This choice might be painful for oil companies but there is potential upside for many vessel owners. Drilling rigs and well intervention vessels will be needed to plug many of the wells. Crane vessels, self-elevating platforms and heavy lift vessels will be needed to remove and transport topsides and jackets (indeed, part of the rationale of the “Pioneering Spirit” is that it is one of very few units capable of lifting massive structures like the 42,500t topsides of the “Gullfaks A” gravity base platform). MSVs, DSVs and ROV Support vessels can be used to assist throughout decommissioning and will be especially important for removing subsea structures and for site remediation, when dredgers will also have a part to play. These various vessels will need to be assisted throughout the process by OSVs and utility support vessels.

Oil companies active in the North Sea might prefer not to charter all these vessels just to exit dead fields. But sooner or later (quite possibly sooner) they will have little choice. This could potentially benefit many different owners, with decommissioning becoming an important driver of North Sea vessel demand.

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The AHTS spot market in the North Sea is notable for the speed in which rates can shift, responding rapidly to supply and demand pressures. In 2014 alone the spot charter rate for an AHTS 18,000+ bhp fluctuated dramatically from a high of £170,165/day in August to a low of £5,819/day in the last week of the year.

Blame It On The Weatherman

Rig moves are the key AHTS demand driver in the North Sea. Pressures that affect the volume of these, along with the supply of units in the North Sea, dictate the number of available units, which in turn determine AHTS spot fixtures rates.

The largest peak in spot rates in the last three years occurred in August and September 2014. It was the result of a temporary removal of some North Sea units for work on exploration campaigns in the Russian Arctic. This caused a drop in the supply of vessels, that was eventually compounded by numerous rig moves, dropping availability and lifting spot rates.

Conversely, during December, a short three months after the September peak, AHTS spot rates in the region had fallen below £10,000/day for the first time since 2010. During the month, North West Europe was battered by a large weather depression resulting in strong winds and high seas, suspending many rig moves and forcing AHTSs to compete with PSVs for supply duty charters, bringing down the spot rates for both AHTSs and PSVs.

Rollercoaster

The price of Brent crude has fallen over 50% since June 2014 to below $50/barrel at the time of writing. As oil companies seek to rebalance their budgets in a new oil price world, exploration budgets have been cut. One of the ways in which drill rigs are utilised is the drilling of exploration and appraisal wells, demand for which has suffered in Q4 2014, negatively impacting AHTS demand in this period.

The drop in oil price has also damaged hope that exploration campaigns in expensive, harsh, Arctic environments will take place. Previously, these campaigns have taken vessels from the North Sea fleet, protecting the market from oversupply. Notably, Statoil has handed back three licenses offshore Greenland and announced that it will slow Arctic and Barents exploration to control CAPEX.

Oversupply in the North Sea can be demonstrated by the increase in the average number of vessels available. This rose steadily in 2012 and 2013, and by 39% in 2014 to an average of 13.1 vessels. This increase in supply has contributed to poorly performing spot rates in most of 2014, aside from the late summer spike. Increasing levels of supply and weaker demand indicators have forced some vessel owners to lay-up more ships in an effort to prevent oversupply impacting spot rates further, even laying-up units built as recently as 2014.

C’est La Vie

Clearly the volatile North Sea AHTS market is highly susceptible to short term demand pressures such as the weather and the whim of oil companies that dictate when rig moves occur. However, there are longer-term supply and demand forces at work, which although often obscured by dramatic short-term changes, can influence spot rates just as strongly.

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