Global Supply/Demand Imbalances in the Offshore E&C...

Global Supply/Demand Imbalances in the Offshore E&C Sector: Implications on Expenditures, Scheduling and Production

Rice University - September 2008

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OML 11OML 13

OML 70OML 67

OML 72

OML 18

OML 99

OML 102OML 100OML 104

OPL 221

OPL 285

OPL 276

OPL 223

OPL 290

OPL 222

OML 55 OML 123

OML 126

OML112AOML 52

OPL 090

OML 54

OPL 295

OML 51

OML 114

OPL 452OPL 236

OPL 284

OML 68

OPL 268

OML 11

OML 17

0

50

100

200

400500

600

800

1000

0

0 0

0

0

0

0

0

0

0

0

Idama

Eku (OML 67)

Oso (OML 70)

Nda (OPL 90)

Omon (OML 70)

Utue (OML 67)

Etim (OML 67)

Inim (OML 67)

Mfem (OML 67)

Edop (OML 67)

Iyak (OML 67)

Unam (OML 67)

Adua (OML 70)

Ekpe (OML 70)

Ime (OML 100)

Inda (OML 55)

Yoho (OML 104)

Usari (OML 70)

Idoho (OML 68)

Isobo (OML 67)

Asasa (OML 67)

Asabo (OML 70)

Ofon (OML 102)

Afia (OML 100)

Inanga (OML 68)

Awawa (OML 104)

Odudu (OML 100)

Amenam (OML 99)

Ubit SW (OML 67)Ubit NE (OML 67)

Iyak SE (OML 67)

Asabo D (OML 70)Ekpe WW (OML 70)

Edikan (OML 100)

Enang (OML 67 & 70)

Opobo South (OML 11)

Okwori South (OPL 90)

Kalaekule (KC) (OML 72)

Akam (OML 123 Ex OPL 98)

Ukpam (OML 123 Ex OPL 98)

Cawthorne Channel (/Onshore)

Abana/Efiat (OML 114 Ex OPL 230)

Kpono West (OML 70) (Amenam Southeast) Esuk

Uwem

Uboho

Nkere

Ikong

Udeme

Ibiom

Okwari

Udiana

Mfonsio

Nsisong

Asasawi

EdidianaKQ (OML 72)KL (OML 72)

KD (OML 72)

MC (OML 67)

MH (OML 67)

Ata (OML 68)

MRR (OML 67)

Ufan (OPL 94)

Ebok (OML 67)

Ibom (OML 70)

Tung (OML 67)

Obui (OML 70)Tubu (OML 52)

Kugbe (OML 72)

Idiok (OML 67)

Erong (OML 70)

Etoro (OML 67)

Inuen (OML 67)

Okuk (OML 104)Aran (OML 104)

Ufeni (OML 67)

Ebwa (OPL 223)

Ikike (OML 99)

Okposo (OML 14)

Isonsi (OML 67)

Nsimbo (OML 70)

Etim S (OML 67)

Etim N (OML 67)

Sifon (OML 102)

Okoro (OML 112)

Koronama (OML 72)

Davy Bank (OML 14)

Usari East (OML 70)

Mbuotidem (OML 101)Setu East (OML 112)

Stubb Creek (OML 14)

KE (Kappa-3) (OML 72)

Ekanga North (OML 102)

Tom Shot Bank (OML 14)

KA (Ima East) (OPL 237)

Nkarika (OML 100/OML 102)

Qua Iboe

Bonny (Shell)Bonny (ExxonMobil)Bonny (NLNG Train 6)

Qua Iboe (Oso Extension)

Will Rowley – Director of Analytical Services

©Infield Systems Limited 2008, All rights reserved. Infieldlive.com

2

Infield – brief introduction

• Specialist provider of offshore energy data, analysis, information & due diligence globally– Macro, offshore, onshore, fields, platforms, pipelines, subsea, drilling, deepwater, rigs & vessels , yards,

plants, companies etc..

• Used by every major offshore operator, global oilfield service company & significant financier

– Majors, NOCs, Manufacturers, Suppliers, Contractors, Engineers, Government

• Mixed discipline team of economists, statisticians, engineers, physicists, management, geologists & others

• Unique & proprietary databases & models of activity & infrastructure– Offshore Energy Database– OFFPEXTM Market Modelling & Forecasting System– EnergyGatewayTM GIS Mapping System– Supply/demand Matrix– Specialist Vessel Database– Contracts Database– Manufacturers/suppliers– Companies

• Peer-reviewed, bottom-up methodology with 22 years experience• Transparent & proven track record of accuracy – highest rating in industry

– Have supported >$36bn of investment, M&A, debt and equity financing in past 3yrs


3

Umbilical Termination

Assemblies (UTAs)

Subsea wells with subsea trees

Pipeline End Terminations

(PLETs)

Jumpers

Manifold

Template & wells

Pipeline End Manifold (PLEM)

Mid-water arch

All equipment to be secured to the

seabed

Riser base

Umbilical & control lines

Flowlines

Export risers

Risers

Semi-submersibleFloating Production

Storage Offtake (FPSO)

Tension Leg Platform (TLP)

Spar

Subsea

UmbilicalOther equipment found within developments includes;Subsea Processing, compression, pumps, pigging systems, High Integrity Pipeline Pressure Systems (HIPPS), Injection systems, Pigging Systems, Mud mats, Pipeline anchors, underwater tees, Buoy anchoring points, suction anchors etc

Tensioned tendons

Fixed platform

Topsides

Hull

©Infield Systems Ltd 2007 & FMC Technologies Inc - Comments & descriptions by Base graphics courtesy of

Jacket

Topsides with drilling rig

Piles

Manifold

Riser

Key market segmentsIn detail with >50 million data points

Fields – production, reserves, Operators & owners, Platforms – fixed & floating, Pipelines & risers, Subsea infrastructure, Development drilling, Control lines & umbilicals, Specialist offshore vessels.

Units, capex, historical, forecastsData, information, reporting


Project data in detail & supported by...

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#

#

#

#

#######

OML 11OML 13

OML 70OML 67

OML 72

OML 18

OML 99

OML 102OML 100OML 104

OPL 221

PL 285

OPL 276

OPL 223

OPL 290

OPL 222

OML 55 OML 123

OML 126

OML112AOML 52

OPL 090

OML 54

PL 295

OML 51

OML 114

OPL 452OPL 236

OPL 284

OML 68

268

OML 11

OML 17

0

50

100

200

400500

600

800

1000

0

0 0

0

0

0

0

0

0

0

0

Idama

Eku (OML 67)

Oso (OML 70)

Nda (OPL 90)

Omon (OML 70)

Utue (OML 67)

Etim (OML 67)

Inim (OML 67)

Mfem (OML 67)

Edop (OML 67)

Iyak (OML 67)

Unam (OML 67)

Adua (OML 70)

Ekpe (OML 70)

Ime (OML 100)

Inda (OML 55)

Yoho (OML 104)

Usari (OML 70)

Idoho (OML 68)

Isobo (OML 67)

Asasa (OML 67)

Asabo (OML 70)

Ofon (OML 102)

Afia (OML 100)

Inanga (OML 68)

Awawa (OML 104)

Odudu (OML 100)

Amenam (OML 99)

Ubit SW (OML 67)Ubit NE (OML 67)

Iyak SE (OML 67)

Asabo D (OML 70)Ekpe WW (OML 70)

Edikan (OML 100)

Enang (OML 67 & 70)

Opobo South (OML 11)

Okwori South (OPL 90)

Kalaekule (KC) (OML 72)

Akam (OML 123 Ex OPL 98)

Ukpam (OML 123 Ex OPL 98)

Cawthorne Channel (/Onshore)

Abana/Efiat (OML 114 Ex OPL 230)

Kpono West (OML 70) (Amenam Southeast) Esuk

Uwem

Uboho

Nkere

Ikong

Udeme

Ibiom

Okwari

Udiana

Mfonsio

Nsisong

Asasawi

EdidianaKQ (OML 72)KL (OML 72)

KD (OML 72)

MC (OML 67)

MH (OML 67)

Ata (OML 68)

MRR (OML 67)

Ufan (OPL 94)

Ebok (OML 67)

Ibom (OML 70)

Tung (OML 67)

Obui (OML 70)Tubu (OML 52)

Kugbe (OML 72)

Idiok (OML 67)

Erong (OML 70)

Etoro (OML 67)

Inuen (OML 67)

Okuk (OML 104)Aran (OML 104)

Ufeni (OML 67)

Ebwa (OPL 223)

Ikike (OML 99)

Okposo (OML 14)

Isonsi (OML 67)

Nsimbo (OML 70)

Etim S (OML 67)

Etim N (OML 67)

Sifon (OML 102)

Okoro (OML 112)

Koronama (OML 72)

Davy Bank (OML 14)

Usari East (OML 70)

Mbuotidem (OML 101)Setu East (OML 112)

Stubb Creek (OML 14)

KE (Kappa-3) (OML 72)

Ekanga North (OML 102)

Tom Shot Bank (OML 14)

KA (Ima East) (OPL 237)

Nkarika (OML 100/OML 102)

Qua Iboe

Bonny (Shell)Bonny (ExxonMobil)Bonny (NLNG Train 6)

Qua Iboe (Oso Extension)

Supported by

Suppliers

Construction yards

Fabrications yards

Shipyards

Steel mills

Pipe mills

Flexible pipe plants

Extensive Detail

Name

Type

Size

Material

Cost

Schedule

Operator

Contractor

Sub-contractors

Suppliers

Contracts

Sub-contracts

GIS Position

etc..

>65 million data points

Infield maintains

The only data driven and peer reviewed, bottom-up model of offshore demand & supply

Umbilical plants

Tree manufacturers

Engineering contractors

Project managers

Specialist construction/support vessels

MODUs

Critical supply/service items


Structure of presentation

• Brief industry overview– Diversity

• Fabrication/construction– Aspects of demand– Offshore & onshore– Supply/demand– Case studies

• Engineering– Aspects of demand– Offshore & onshore– Supply/demand

• Specialist Vessels• Implications

– Scheduling– Costs– Production

• Conclusion

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Industry Overview

6

Images from EnergyGateway

Offshore infrastructureFieldsPlatformsPipelinesSubsea wells


Key indicators

7

0

20,000

40,000

60,000

80,000

100,000

120,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$m 2

008

Dol

lars

Construction capex

IRM Opex

0

10,000

20,000

30,000

40,000

50,000

60,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$m 2

008

Dol

lars

IRM Opex

Shallow

Deep + Harsh

Deepwater driver

Shallow water followed by deepwater driver

Expenditure trends - up

Drilling activity - up

Including exploration, appraisal, development and work-over activity

0

500

1000

1500

2000

2500

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Num

ber o

f Wel

ls

West AfricaSouthern EuropeSouth East AsiaSouth & East AfricaNWECSNorth AmericaNorth AfricaMiddle EastLatin AmericaIndiaEastern EuropeEast AsiaAustralasia


Supporting assets & services increasing

8

0

50,000

100,000

150,000

200,000

250,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Effective supply days ‐ key specialist vessels by functionWell Intervention

MSV & DSV

Lay & PBT

CV

Specialist vessels increasing

0

100

200

300

400

500

600

700

800

900

1000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

MODUsSemisub

Jackup

Drillship

MODUs increasing significantly

But also expansion in key areas including;

• Construction/fabrication yards

• Rigid pipeline manufacturing

• Flexible pipeline manufacturing

• Umbilical manufacturing

• Subsea tree manufacturing

• Engineering and service/support personnel

However:

Still a wide range of supply constraints and development issues, all within a political and market context that is increasing in complexity


Key aspects

9

• Graphic shows discoveries by size of reserve and WD• Smaller discoveries• Deeper water is increasingly important• Discoveries further from host facilities

• Platforms will continue to be an important aspect of future developments

• Increasingly offshore O&G is an important source for our energy needs• The “low-hanging fruit” has been picked• Industry prides itself on record breaking developments (deeper, hotter,

greater pressure, further to host etc.)


Infrastructure Requirements -Focus on Floating Platforms

• Floating Market Forecast • Shows the growth of the demand for fabrication by region• Most regions showing growth in units & tonnage• Widespread Globalisation of technology• Growth plateaus as Supply Constrains and costs bite

10

Tonnage based on year of installation & deployment location


Infrastructure Requirements –Focus on Fixed Platforms

• Growth of the demand by region of installationDeclining solution?

• Still significant amount of shallow water plays• Subsea and fixed platforms can be complementary solutions not

alternatives• Tie back deepwater fields to platforms on the shelf

– E.g. Pluto (Aus) and Mexilhao (Bra)

11

Tonnage based on year of installation & deployment location


Global S&D assessments - offshore

• Assessment shows current fabrication capability. Expansions are taking place but not quantified (ongoing work)

• Only showing our assessment of fabrication of topsides and jackets/hulls• In a perfectly efficient market there should be no capacity constraint• However, regional views are significantly different

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0100,000200,000300,000400,000500,000600,000700,000800,000900,000

1,000,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Tonn

age

Fixed Jackets ‐ Demand Floating Hulls ‐ Demand Topsides ‐ Demand


Regional Capacity – selected capabilities

• Graphic shows the fabrication capacity of all regions by sector • Yard assessment made by capability/size, work history, current backlog and

potential throughput• No surprises – however remain plenty of challenges• Growing geographical spread of demand/increasing local content

requirements

13


14

0

100,000

200,000

300,000

400,000

500,000

600,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Tonn

age

Fixed Jackets ‐ Demand Fixed Jackets ‐ Supply HighFixed Jackets ‐ Supply Medium Fixed Jackets ‐ Supply Low

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Tonn

age

Floating Hulls ‐ Demand Floating Hulls ‐ Supply High

Floating Hulls ‐ Supply Medium Floating Hulls ‐ Supply Low

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Tonn

age

Topsides ‐ Demand Topsides ‐ Supply High

Topsides ‐ Supply Medium Topsides ‐ Supply Low

Demand and supply – global by sector

All above view of low supply case

With topsides exceeding high case

Demand growth by volume is already stretching global capacity, but volume alone is not the only issue....


Local Content (LC) Requirements

• Almost all countries face some levels of protectionism whether in the form of import tax or stringent LC requirements

Why is local content important?• As Offshore industry expands globally more countries try and piggy-back

economic growth through legislation (capital: both technical and human)• However, LC impacts on project sanction and delivery

15

Why Good? Why Bad?Develop local industry Market distortionUse O&G industry to drive economic growth InefficientTransfer of knowledge & expertise Creates artificial S&D

picture


Regional Case Studies – West Africa

• Tonnage (y-axis) reflects the installation profile of demand rather than actual tonnage profile thus the ‘lumpy’ profile

• Arrows reflect indicative growing LC requirements - up to 70% in Nigeria• As LC increases the balance between supply and demand increases locally

16

Growing disparity between regional demand and supply

Note – supply level


Regional Case Studies – Latin America

• Supply difficult to assess with Mexican capacity and large Brazilian yards – Supply reflects effective capability (both high and low case shown)

• Demand should expect to increase with Pre-salt developments – Currently rigs but platforms to come

• Local content requirements high – disparity with demand and supply –source internationally.

• Brazil has a poor track record in terms of delivering fabrication - both on-time and on-budget- specifically FPSO conversions

• Growing demand will put pressure on supply chain and logistical networks

17

Demand could explode through Pre-Salt discoveries


Implications

18

Geographic diversity & incompatibility of demand and available local resources = increased schedule challenges & increased costs

Supply

Demand


Engineering – model complexity

19


Offshore engineering demand

20

‐

10

20

30

40

50

60

70

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Man

hour

s (M

illio

ns)

West Africa

Southern Europe

South East Asia

South & East Africa

NWECS

North America

North Africa

Middle East

Latin America

India

Eastern Europe

East Asia

Australasia

Units of fields, platforms, pipelines, control lines, subsea, taken from main Infield model

Manhours based on unit differentials including size, type, materials, complexityall cross-checked & calibrated against known and identified contracts

Includes – Concept, FEED, detailed & project management

As with construction/fabrication – growth in demand is robust


Engineering detail

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0

10

20

30

40

50

60

70

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Man

hour

s (M

illio

ns)

Detailed

FEED

PreFEED

0

10

20

30

40

50

60

70

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Man

hour

s (M

illio

ns)

Subsea Completions

Single Point Moorings

Floating

Fixed

Pipelines

Control Lines

Underlying increase in both FEED & Detailed engineering manpower

Demand driven by activity across every sector


22

‐

10

20

30

40

50

60

70

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Man

hour

s (M

illio

ns)

DemandTotal

Supply Total

Excluding any potential further expansion (if possible) our current assessment suggests that the offshore industry has little to no spare engineering capacity and has more work coming its way

Efficiency gains may ease some pressures but..... How much more can the industry do and what are the implications....

If there are no engineers to work on this extra then further delays and cost overruns are likely, plus

Production targets are likely to be missed


Onshore

23

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

2019

Eng.

Man

hour

s (0

00s)

Eng. Years

LNG LiquefactionExpansion New

0500,000

1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,000

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

2019

Eng.

Man

hour

s (0

00s)

Eng. Years

LNG RegasificationExpansion New

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

1947

1951

1955

1959

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

2011

2015

2019

Eng.

Man

hour

s (0

00s)

Eng. Years

Gas processingExpansion New

New developments & upgrades driving volume increases in engineering demand

Refinery upgrades & GTL also pushing demand

Whilst some offshore engineers are actively targeting downstream as a potential resource, there is little resource to be had


Specialist vessels

24

0

50,000

100,000

150,000

200,000

250,000

300,000

0

50,000

100,000

150,000

200,000

250,000

300,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Subsea vesselsAssumed Future Orders ‐ Supply Days

Known Newbuild ‐ Supply Days

Existing Fleet ‐ Supply Days

Vessel demand days

Assessment based on main vessel groups including crane/lift, lay, MSV/DSV, construction support and accommodation

Normal market elasticity takes account of slight imbalances but...

Current demand forecasts really stretch even the expanded fleet capacity

Vessel market effectively full past 2 years and forecast to remain so for next two years

And, regional and some sector differentials (such as deepwater) mean that there are expected shortages in some key markets – more delays on schedules and increased costs


Conclusions

• Fabrication remains tight• Regional distortions of the market mean that global S&D can not balance• Local Content creates artificial demand – these requirements are growing• High prices and no competitive market forces mean that efficiency remains

poor• Continuing project delays• Perpetual tightness in effective supply?• High project costs remain and demand for infrastructure is stunted • Engineering complexity is increasing• Engineering manpower shows little spare capacity• Further problems to come

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Final comment

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Concerns over fabrication/construction supply/demand have been growing, particularly in the past three years as the market has tightened but...

Concerns over engineering resources have been flagged for more than the 15 years of my experience and our work just confirms what many have said for years.

The oil & gas industry has a great track record of doing more with less but we may be closer to the limit than many think and any limit on further expansion of capacity and capability will impact wider society....


27

Sources & Contact info

Will Rowley, Director of Analytical [email protected]+44 (0) 207 423 5000

Main Office - LondonSuite 502, 1 Alie Street, London E1 8DE, UK

Finance office – Bristol, UKUS office – Houston, Texas

Sources:Offshore Energy DatabaseOFFPEX Market Modelling & Forecasting SystemEnergyGateway GIS Mapping System


Disclaimers

28

The information contained in this document is believed to be accurate, but no representation or warranty, express or implied, ismade by Infield Systems Limited as to the completeness, accuracy or fairness of any information contained in it, and we do not accept any responsibility in relation to such information whether fact, opinion or conclusion that the reader may draw. The views expressed are those of the individual contributors and do not represent those of the publishers.

Some of the statements contained in this document are forward-looking statements. Forward looking statements include but are not limited to, statements concerning estimates of recoverable hydrocarbons, expected hydrocarbon prices, expected costs, numbers of development units, statements relating to the continued advancement of the industry’s projects and other statements which are not historical facts. When used in this document, and in other published information of the Company, the words such as "could," "estimate," "expect," "intend," "may," "potential," "should," and similar expressions are forward-looking statements. Although the Company believes that its expectations reflected in the forward-looking statements are reasonable, such statements involve risk and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors could cause actual results to differ from these forward-looking statements including the potential for the industry’s projects to experience technical or mechanical problems or changes in financial decisions, geological conditions in the reservoir may not result in a commercial level of oil and gas production, changes in product prices and other risks not anticipated by the Company. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties.

Copyright Infield Systems Limited 2008. Data, charts, images and information contained within this document are protected by international copyright and as such may not be copied, reproduced, transmitted or utilised in any form or format without the express written permission of Infield Systems Limited.

Global Supply/Demand Imbalances in the Offshore E&C...

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