Graham Meil occupies a corner office at Acergy’s splendid new campus at Aberdeen’s Surf City. For anyone not familiar with Europe’s Energy Capital, this does not mean a view of the North Sea; rather the vista is rural as this complex is located several miles inland at Westhill, a dormitory community.
Meil returned to Aberdeen to take over the reins as Acergy UK’s MD just in time for the inauguration of the campus in November, 2008, after a spell overseas. Of course, with the UK in recession and oil prices bumping along at near basement level, it was hardly a good time to get back to Scotland.
But he was clearly happy with his lot when Energy paid a call to chew over current industry issues, based on the view that oil&gas fundamentals remain solid despite the oil price having been demolished since mid-2008.
Large chunks of international business are still being awarded. Acergy itself has just won an $825million contract for the development of the deepwater Gumusut-Kakap field, where Shell has awarded the main field contract to SapuraCrest business TL Offshore.
Acergy’s Malay business, which Meil ran prior to his return to the North Sea, will engineer, procure, transport and instal production facilities in 1,200m of water. Included is an oil export pipeline, catenary riser, flowlines, jumpers, steel catenary risers, pipe termination point and flowline structures.
Meanwhile, for Acergy and its peer group, the current North Sea year is busy – a legacy of the good times of 2007-08 especially.
The group’s November 2008 backlog was $2.5billion, versus $2.8billion a year earlier. Of this, about 20% is attributed to the Northern Europe and Canada business unit, of which Meil is also deputy regional VP.
Net operating revenues in 2008 for Northern Europe/Canada were $843.1million, while net operating income came in at $192million, according to the company’s 2008 results presentation.
Looking ahead, Meil says 2010 is soft, with capacity to fill, while 2011-12 could mark a return to busy times, so long as there is a convincing recovery in the oil price. Meantime, the bread and butter work of inspection, repair and maintenance must go on across the important North Sea market.
“The IRM market continues to be busy. Operators do still have to invest in protecting the integrity of current production. They don’t have any option; they have to continue.
“What is complementary to our business is that Acergy is busy elsewhere, too. We have ships that would normally be in the North Sea at this time in places like Brazil.
“We have some good North Sea work in hand and we have a high level of tendering at various stages of bid clarification pending award.
“Best case, we could still be pretty busy in 2010, perhaps keeping at 2009 levels. But if we’re unsuccessful in securing some of the large amount of uncommitted work that we believe should go ahead, then things will be quieter. What we’re currently bidding needs decisions soon, otherwise they (the operators) will miss the seasonal construction window. If customer confidence lifts with the prospect of $60-70 oil later this year, I think we’ll see construction work associated with that.
“This could perhaps mean kicking off in terms of engineering and planning and procurement through 2010, but operationally, in terms of keeping assets busy, the offshore construction phase would have to be 2011.
“So, looking ahead, medium to long-term fundamentals are strong, but short-term … 2010 … is unclear.”
The reality of 2009 is that there is some capacity, but this varies according to vessel class/market subset.
Meil: “We have reasonable to good availability for lower-end assets like survey ships. As for dive assets, we have some availability, but not a lot.
“We are also about to start a pipelay campaign for various projects, including Ormen Lange.”
The contract awarded in 2007 and worth $58million is for the installation of a MEG line and umbilical, and tie-in and commissioning of the MEG line, umbilical and flowlines in a water depth of 900m on the Ormen Lange Southern development.
Meil continues: “We don’t see any other pipelay work coming forward for 2009, so we have capacity available. There is a possibility that we will need to take our pipelay asset somewhere else … we’re looking at opportunities for Q3/Q4 this year.
“In 2010, there are lots of good pipelay jobs being bid, but nothing solid for the North Sea. Operationally, some of these contracts are more 2011-12, for which there’s already some visibility, subject to a return to reasonable confidence in the oil price. It’s $50-52 today, but where will it be in a month?
“There are plenty of good prospects in the UK sector and a similar number on the Norwegian side, where Statoil hasn’t been investing much this year, but maybe this means they’ll do more next year for 2011-12.”
It is clear listening to Meil that the North Sea is, and will remain, a core part of the company’s business for many years to come.
Moreover, the investment in the 17-acre Surf City campus and the wider international role designated to it visibly drives this home. It is not lip service and it would be all too easy for the Norwegian group to have concentrated this level of investment into Stavanger.
“We have 650 people here in Aberdeen and 450 in Stavanger running the North Sea business, also supporting the group elsewhere in the world. Indeed, global group support accounts for about 35% of the Aberdeen operation.
“It’s important for us to have a big presence in the North Sea and we’ll continue to do that, but only if there’s a good enough business for us to do so. But as projects elsewhere become active, assets used in the North Sea may well become involved … and already have been.”
Like its peers, Acergy has been investing in new tonnage, notably the Skandi Acergy, which made its successful debut in the Norwegian sector prior to doing some work offshore Brazil. Now it is bound for the North Sea and a further contract.
Meil describes it as “currently perhaps the most sophisticated SURF construction ship in the world”.
“It has done some great work already and is heading back for a busy season, largely on the Stavanger side and initially working on the Marathon-operated Volund development.”
Another new ship, which is due for delivery in 2009, is a purpose-designed and built dive-support vessel. Not many years ago, DSVs were being written off as no longer necessary to an increasingly robotised offshore industry. Mostly elderly, it seemed that this class of vessel was no longer needed. But today, a new generation is emerging.
Meanwhile, the company’s core Europe sector units are Acergy Osprey, which has been a workhorse in the North Sea for 20 years or more; Acergy Discovery, which is currently in Brazil, and Acergy Eagle.
Meil faces the same client issues as the rest of the supply chain – a mix of cash-rich petroleum majors being canny with their cash and beating up the supply chain by demanding lower prices; independents with big ambitions, but lacking in capital, and national oil companies with relentless programmes and state treasuries behind them in some cases.
On costs, Meil says: “The conversations today with customers is a different one than we had 12 months, or even six months, ago. Things have changed for them, and that impacts us directly.”
By the same token, within the supply chain itself is a cadre of premium subsea players such as Acergy, Saipem, Subsea 7 and Technip, but there are a lot more mid-rankers and small players with ambition, though a significant number could be snapped up in mergers and acquisitions.
“There are many new entrants and vessels appearing on the scene today … a bad time to make a start. The issue I see more there is about confidence to make them perform. Back office and engineering … that’s the enabling piece, particularly with more sophisticated assets.
“The issue is less about the ships and more about the ability of companies to run them efficiently, safely and profitably.”
A lot of the new ships investment has been by Norwegian ship owners aided by tax breaks. But the bottom has fallen out of the container/tanker/bulker markets, so “they’re currently having not such a good time”.
“We are in a downturn; we have gone from a booming market to something quite different very, very fast.
“Is this a blip and will there be an oil-price bounce-back, or is it something deeper? Is this a one or two-year thing? If it is, that’s entirely manageable. If it’s five years then it’s a different matter.
“Right now, we’re not thinking five years, but we have to be very cautious … look inwards a bit, make sure we’re healthy and look at our efficiency.
“Are we seeing signs of a recovery already? It’s too early to say. Things might be clearer towards the end of the year. It’s $50 today; by OTC in May, where will it be then?”
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