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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Offshore Rig Builders Face New Reality

Last week Total announced that it was deploying the first offshore robots at a North Sea platform to test them as maintenance tools. Earlier, Shell inked a contract with an engineering firm to find ways of extending the life of its Leman Alpha offshore platform. Borr Drilling said this month that its $232.5-million acquisition of sector player Paragon Offshore should be completed by the end of April.

What these three stories have in common is their goal: cost reduction. Cost reduction has become a leitmotif in the oil industry after 2014 and there is one segment that is feeling the pinch particularly strongly: offshore drillers and platform builders. As oil and gas producers tighten spending and look for smaller, less capital-intensive projects, rig builders and operators are finding themselves forced to undergo their own transformation.

In a recent story, Reuters’ Nerijus Adomaitis wrote about the deployment of the giant Aasta Hansteen platform built by Kvaerner for Statoil, noting that it will likely be the last of its kind as Statoil—like its peers—turns to smaller, cheaper, more flexible rigs and seeks to extend the lives of existing ones.

That’s bad news for Kvaerner, Aker Solutions, and their sector players, because rig-building is the biggest revenue source for the offshore industry. The news is not as bad as it would have been if rig-building was the only revenue source for the industry. Just two months ago, Kvaerner landed a contract with Statoil for the construction of the topside for the Norwegian company’s FPSO installation at the giant Johan Castberg field. The money is not the same, but this is how it’s going to be from now on.

In a report released last Thursday, Wood Mackenzie analysts said the oil and gas industry is increasingly favoring brownfield projects and expansion projects—betting on more subsea tie-ins instead of tapping new fields. The reason for this shift in approach is still the same: frugality and the search for quicker returns. The difference from previous boom-and-bust cycles is that this time there is a very good chance that spending will not rebound to previous levels as renewable alternatives start breathing down the oil industry’s neck. Related: Permian Bottleneck Could Impact Global Oil Markets

So, what’s a platform builder to do? Leaving aside platform life extension and the construction of other offshore facilities, decommissioning is one market niche that will expand in the coming years in the North Sea. The 2016 decommissioning report of Oil and Gas UK estimated that between that year and 2025, the decommissioning market will represent a US$24.8-billion (17.6-billion pound) opportunity.

Besides decommissioning, maintenance and building smaller platforms, there is always the renewables industry. Kvaerner and local peer Aker Solutions are both already active in renewables: wind power more specifically. A third sector player, Subsea 7, is also increasing its activity in wind power installations.

Wind makes sense for offshore field service and equipment providers. They have the expertise and the experience in making offshore installations, and they just need to apply it to wind mills instead of platforms. The “just” might be harder than it seems, but not too hard, judging by the shift. Offshore service providers will survive, transforming along with the industry that has been their only source of income until now.

By Irina Slav for Oilprice.com

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  • jack ma on April 10 2018 said:
    That is one view. Another view is that they will be busier than 2014 as this petro dollar war has left a massive oil shortage in its wake to the tune of 1.3 trillion dollars OF UNDER-INVETMENT in new reserves since petro dollar exports turned negative in 2014. Buy the drillers now if you do not want to waste the crisis. IMHO

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