Subsea contractors seem to be riding out the oil-price downturn and impacts of recession relatively well, judging from views garnered from two first-division players with quite a different approach to financing their future ambitions.
Both see a squally 2010, but with conditions set to improve as the year wears on, whereas 2011 is looking buoyant as major projects start coming through.
The North Sea remains as it has been for the past several years – valuable for pin money but with few really big contracts going around. International is quite a different picture, with hotspots such as West Africa and Brazil continuing to grow in stature.
Reflecting on the past year and outlook, Knut Boe, senior VP North Sea & Canada at Technip, said it was hard to describe the overall impact of the global stock markets crash and slump in oil prices from the July 2008 high of near $150 a barrel to close on $30 by early-2009. Armageddon it was not.
“I think that during the early part of this year (2009), we started to question ourselves as to whether our view of this period would come true in the end because the first half, and particularly in the North Sea, had been very, very slow with regard to contract awards,” Boe told Energy.
“We think we will come through this year securing the level of business we anticipated a year ago.”
Upshot is that 2009 has not been a brilliant year, but nor has it been a bad one. What about 2010?
“Looking into our crystal ball, we still think there will be a difficult market for the next six to eight months. But we do feel from what we can see of projects and prospects being contemplated that the market will pick up in the second half of next year.”
One of the characteristics of 2009 has been a return to cost-cutting, with BP leading the way in the North Sea. But Boe came across as being unfazed by this, or the rhetoric and protests in some quarters that margin cuts being sought were over the top.
“In our business (Technip), I don’t think it made much of a difference. I think what makes the difference is obviously the competitive pressure you have in the overall industry and, for sure, we see that prices have come down. With our own supply chain, we’ve been seeking to get prices down 15-20%.”
“I think there is one area where there is a saving potential … or cost-reduction potential … and that is by going back to the old, more efficient tendering process that formerly existed between contractors and clients. Today’s prolonged process is costing Technip and its competitors millions of dollars in additional costs.”
Reflecting on recent events, Robin Davies, VP business improvement at Subsea 7, said: “In mid-2008, with the oil price heading for $150, people were talking about $200-plus, and I seem to recall someone running a sweepstake on what it would be at the end of the year. I don’t think anyone got $40. Some pessimists were talking about $100.”
This was white-knuckle stuff for any company with a hefty investment programme, and especially one where debt plays a significant part in its strategy. Essentially, Subsea 7 fits that description, so the wild gyrations were of particular interest in the boardroom and among the workforce. Also, what was the potential impact on the groups, new-builds programme?
“We’re in a major investment programme … in the order of $1.2-1.4billion in terms of new vessels, which is great in terms of positioning us for the future,” said Davies.
“But that has committed us to a programme. We have two vessels coming out this year – the Seven Atlantic and Normand Subsea – and another vessel coming out next year, which is effectively a replacement for the Perseus, which we will no longer be chartering from Sealion. The Seven Pacific will be similar to the Seven Seas. We’ve obviously had to finance those builds, but there was greater availability of finance around a year ago than now.”
He told Energy that Subsea 7 has been able to raise the money it needs to underpin and complete that programme.
“From our perspective, that puts us in good stead in terms of covering our commitments into the future. I suspect that same story is repeated around the town (Aberdeen),” said Davies.
But while major financial and commodity swings present opportunities to those with war chest – whether balance sheet or a borrowing facility – Davies is clear about Subsea 7’s stance.
“We’re taking a bit of a breather, having had a significant build programme over the last four years.
“The fleet is in reasonably good shape and we’ve changed it from being North Sea-focused, as it was in 2002, to much more deepwater and international. We have 23 vessels, and half of those are very modern; a mix of chartered and owned. The board has a propensity to own rather than charter, but we have a mix of both as this gives us short to medium-term flexibility.
“We’ve positioned ourselves so we can especially operate and grow in Africa, the Gulf of Mexico and Brazil … very deep water.
“However, we’ve refreshed the North Sea fleet to some extent as we need to keep this part of our business vigorous as it still represents 40-45% of our overall turnover.”
Looking ahead, the Davies view is not a lot different to that of Knut Boe.
“I think we’re at the position of reasonable oil prices at a level that we were, in fact, comfortable with two years ago ($70-80). But we now have the situation where there’s a lag in terms of operators investing in new developments. However, there are indications that drilling activity is picking up. That’s a good sign for us.
“When might the market pick up again? I’d say about 2011. Next year’s still going to be tough for us; it’s very competitive out there; margins are slimmer.”
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