EIC report finds reasons for optimism in offshore Norway and UK sectors

Despite the mature status of the UK Continental Shelf (UKCS) and the Norwegian Continental Shelf (NCS), successful exploration drilling campaigns combined with redevelopment and enhanced recovery programmes means that more players than ever have converged on the North Sea in recent years, leading to renewed optimism about opportunities in the region. These are the findings from the Energy Industry Council (EIC)’s latest report into contracting activities offshore Norway and UK based on EICDataStream, the EIC’s global project database that tracks over 10 000 active and future projects worldwide.

According to EICDataStream, there are currently 271 projects proposed or under development on the UKCS and NCS, worth a total potential investment of US$ 262.3 billion.  Between January 2010 and July 2014 there were 482 major contracts (FEED, EPC and SURF) awarded on projects offshore UK and Norway: 203 EPC (Engineering, Procurement & Construction) contracts, 170 Subsea/SURF (Subsea, Umbilicals, Risers & Flowlines) contracts, and 109 FEED (Front End Engineering Design) contracts. Figure 1 illustrates a decline in the number of contracts awarded since 2011. Based on figures so far this year, the number of EPC contracts has suffered the most serious decline since 2012, followed by the number of Subsea/SURF contracts, while the number of FEED contracts awarded so far in 2014 is close to reaching 2013 figures.  

Despite the decline in contracting levels, a move to utilise existing infrastructure to tie-in marginal fields, enhanced production technologies, government intervention and a dramatic increase in exploration is likely to ensure healthy contracting levels for the foreseeable future.

Figure 1. Number of contract awards by year (Jan 2010-Jul 2014).

Taking a closer look at contracting levels offshore Norway and the UK, activity in Norway peaked in 2011 to 2012 and has entered fairly rapid decline since, with just six major contacts awarded in 2014 up until July. Activity in the UK also peaked in 2011, but has declined at a steadier rate, with 16 major contracts in 2014 up until July. In contrast to the UK where the government has introduced a number of tax allowances in the last few years, the Norwegian oil and gas industry is being impacted by the introduction of new tax rules in 2013, in addition to high costs. The increase has seen a number of operators delay developments to reconsider development concepts under the new tax regime, Statoil’s Snorre and Johan Castberg projects being two such examples.

Figure 2. Number of contract awards by year (Jan 2010-Jul 2014) – Norway.

Figure 3. Number of contract awards by year (Jan 2010-Jul 2014) – UK.

 “While both the UKCS and NCS have seen a decline in contract activity, this report shows that there are still reasons for optimism and that offshore UK and Norway will continue to see high levels of activity, “ said Neil Golding, Head of Oil & Gas at the EIC. 

He continues: “The focus on enhanced recovery, increase in tie-ins between marginal fields, the hoped for increase in exploration drilling, as well as the continued commitment to development from operators, such as Statoil, will provide key engines for growth over the next few years. However this can only be achieved with government support for the UK and Norwegian offshore industry.”

Operators

Figure 4 shows the top ten most active operators on the NCS in terms of the number of major contracts awarded across 337 developments between January 2010 and July 2014.

Figure 4. Top 10 most active operators (Jan 2010-Jul 2014) – Norway.

Statoil leads contracting activity on the NCS, awarding 144 major contracts across 37 developments. This is not surprising given that Statoil controls 70% of Norway’s oil and gas production, having secured its dominant position as the state-owned oil company before it was publicly listed in 2001.

Between Jan 10 and Jul 14, Statoil awarded a total of 61 EPC contracts, 27 FEED contracts and 56 Subsea/SURF contracts across three broad maritime areas, the Norwegian section of the North Sea, the Norwegian Sea and the Barents Sea. The majority of Statoil’s investments in this period can be characterised by three types of developments: major new field developments; the tie-in of satellite resources to existing fields via its fast-track programme; or the redevelopment of existing assets to increase production and extend their lifespan.

Heightened levels of exploration drilling in the 2009-2010 period led to the discovery of some major oil and gas finds, such as the Aasta Hansteen field, while technological advancement and significant appraisal activities have made fields discovered in the 1970s and 1980s, such as Gina Krog and Valemon, commercially viable to produce. Both of these factors have led to considerable levels of contracting activity since January 2010, with these four fields together accounting for 34 major contracts.

Between Jan 10 and Jul 14, Statoil awarded thirteen major contracts on the Aasta Hansteen project including 8 FEED, 4 EPC and 1 Subsea/SURF and five major contracts on the Johan Sverdrup project including 4 FEED and 1 EPC. Located far from established infrastructure in the harsh deep waters of the Northern Norwegian Sea, Aasta Hansteen will be important in facilitating further developments in the region. In the North Sea, eight major contracts were also awarded on the Gina Krog development (including 4 FEED, 4 EPC), discovered in 1974, and eight major contracts were awarded on the Valemon project (including 2 FEED, 5 EPC, and 1 Subsea/SURF), discovered in 1985.

Statoil’s fast-track programme is made up of a total of 12 projects, consisting of discoveries made close to existing fields, which Statoil aims to bring onstream within 30 months. The developments are based on a set of standardised subsea equipment and well design to help drive down costs utilising frame agreements. Statoil placed contracts on nine fast-track projects in the Jan 10-Jul 14 period – Fram H-Nord, Hyme, Oseberg Delta II, Skuld, Stjerne, Svalin, Vigdis North East, Visund Nord and Visund South – which accounted for a total of 32 major contracts (10 EPC, 22 Subsea/SURF).

The redevelopment of existing fields in production, including EOR programmes and tie-ins of satellite fields, is critical to maintaining oil output from the mature NCS region. As such, utilising spare production capacity via marginal fields and improving recovery from large fields has been a principal area of work for Statoil, placing major contracts for a sizeable 15 projects in the Jan 10-Jul 14 period.

EOR work on the NCS typically involves the installation of compression equipment to lift the remaining reserves in mature fields that have gone into decline, for example, the groundbreaking Asgard Subsea Compression project and the Gullfaks 2030 project, on which the operator has awarded a total of 21 major contracts (1 FEED, 12 EPC, 8 Subsea/SURF). Other recent projects include Ormen Lange, Smorbukk, Njord, Kristin, Snorre A&B and Tordis.

Other redevelopment work at the Gullfaks field includes the tie-in of satellite fields to utilise existing infrastructure. The Rimfaks and Skinfaks project is currently under way to bring into production a total estimated 60 MMboe using the long-serving Gullfaks A platform. In September 2013, a Subsea/SURF contract was awarded to FMC Technologies to provide the subsea hardware for the project, which has since been completed.

Although on a much smaller scale, Statoil has been joined in the top ten by a number of international oil companies who play a more prominent role on the UKCS including ConocoPhillips, Total, Shell and BG Group who have awarded a total of 6 FEED, 26 EPC and 17 Subsea/SURF contracts between them. ConocoPhillips has made significant investments into redevelopment and decommissioning projects at its giant Eldfisk and Ekofisk fields, awarding 10 EPC and 4 Subsea/SURF contracts across these developments.

The other international companies are also largely involved with redevelopment work, apart from Shell who is progressing its greenfield Martin Linge HPHT field development (2 FEED, 5 EPC, 1 Subsea/SURF), originally discovered in 1975.

On the UKCS, BP has led contracting activity in recent years awarding 35 major contracts across seven North Sea developments. In total BP has awarded 4 FEED contracts, 16 EPC contracts and 15 SURF contracts, over half (20) of which are associated with expansion projects. BP’s main area of investment is the UK Atlantic Margin, home to both the Schiehallion and the Clair Heavy Oil Field (Phase 2) expansion projects, where the operator has awarded a total of 17 major contracts.

Figure 5. Top 10 most active operators (Jan 2010-Jul 2014) – UK.

BP is joined in the top ten by ConocoPhillips, Chevron, Total, GDF Suez and Statoil, who together account for 58 major contracts awarded. These operators are accountable for contract awards on the majority of high-capital investments on the UKCS, including heavy oil field developments in the Northern North Sea and new projects in the frontier region West of Shetland.

Second to BP is Nexen, a previously independent oil company that was acquired by Chinese national oil company CNOOC for US$ 18 billion in February 2013. Nexen awarded 19 major contracts across four developments, including 4 FEED contracts, 9 EPC contracts and 6 Subsea/SURF contracts in the Central North Sea. Nexen’s main area of investment has been the Golden Eagle Area Development (Golden Eagle, Pink and Hobby oil fields), for which the company has placed 12 major contracts (4 FEED, 7 EPC, and 1 Subsea/SURF) since January 2010.

Talisman Energy (Sinopec), along with independents Ithaca Energy, Enquest and Premier Oil have awarded 47 major contracts in the Central North Sea, including work on some large-scale greenfield projects and redevelopment projects. These include Premier Oil’s recently approved Catcher, Varadero, Burgman and Bonneville project to produce up to 50 000 bbl/d from the four discoveries, which will be tied back to a newly commissioned FPSO. Premier Oil and its partners have awarded a total of 1 FEED, 4 EPC and 1 Subsea/SURF contract on this project since the beginning of 2014.

Statoil has a major presence on the UKCS as well as the NCS, awarding a total of 10 major contracts. All of Statoil’s major contract awards have been made on the Mariner and Bressay heavy oil fields in the Northern North Sea. Mariner is the largest single offshore UK development for more than a decade, representing an estimated US$ 7 billion in investment.

Contractors

Figure 6 shows the most successful contractors on the UKCS and NCS between 2010 and 2014 based on number of contracts with Aker Solutions (51) and Technip (50) leading the way followed by Subsea 7 (40).

On the UKCS, Technip leads the field with 25 secured contracts followed by Subsea 7 with 21 (see figure 7), but on the NCS it is Aker Solutions with a commanding lead with 40 contracts and Technip substantially behind on 25 (see figure 8). 

Figure 6. Top contractors on UKCS and NCS based on number of contracts awarded, 2010-2014.

Figure 7. Top contractors on UKCS based on number of contracts awarded, 2010-2014.

Figure 8. Top contractors on NCS based on number of contracts awarded, 2010-2014.

Figure 9 illustrates how these contracts are shared out among operators with the close relationship that both Aker Solutions and Technip has with Statoil responsible for many of their contract wins.  As of now, Aker Solutions has secured 24 contracts with Statoil, Technip 14 and FMC Technologies 17. Aker Solutions and Technip, however, have secured contracts with other NCS and UKCS operators whereas FMC Technologies is more dependent on Statoil, explaining why Aker Solutions and Technip are substantially ahead in terms of the total number of contracts across the UKCS and NCS. Other close operator-contractor partnerships worth noting from figure 9 include the number of contracts Subsea 7 has secured with Statoil (13), and the number of contracts Nexans and Agility Group (8 each) have secured with BP.

When breaking the figures up according to EPC, FEED and Subsea/SURF contracts, Technip leads the way in EPC and Subsea/SURF contracts and Aker Solutions in FEED contracts (see figures 10 to 12). Other players worth noting here is Wood Group who is the second most successful FEED contractor with 10 major contracts and FMC Technologies who is just behind Technip in terms of the number of Subsea/SURF contracts with 25 projects – many of them with Statoil.

Figure 9. Operators and who they have awarded contracts to, 2010-2014.

Figure 10. Top EPC contractors on UKCS & NCS based on number of contracts awarded, 2010-2014.

Figure 11. Top FEED contractors on UKCS & NCS based on number of contracts awarded, 2010-2014.

Figure 12. Top subsea/SURF contractors on UKCS & NCS based on number of contracts awarded, 2010-2014.

In terms of number of contracts being awarded, however, the trajectory has been downward since 2011 with only just over 20 contracts awarded in 2014 to date, as figure 1 has already illustrated.

Conclusion

Neil Golding, Head of Oil & Gas at the EIC, concludes: “In the UK and Norway, we have seen a reduction in the number of major contract awards placed during the last 12 months. For both countries, the rise in contracting costs across the North Sea has played a major role in the slowdown of activity, while the progress of new developments in Norway has also been strongly affected by an increase in taxes put forward by the Norwegian Government in 2013.”

He continues: “Although no development has to date been cancelled in either of these provinces, there have been a number of delays and postponements to projects as operators return to concept plans and review the economics of developments. However, the introduction of tax allowances in the UK and an increase in discoveries made offshore Norway during 2013–14 will hopefully have a positive impact on contracting activity in the near future.“

Note: all images courtesy of EICDataStream.

Written by the EIC, edited for web by Cecilia Rehn

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/22082014/eic-report-finds-reasons-for-optimism-in-offshore-norway-and-uk-sectors/