Despite many subsea oil developments regarded as sub-economic at below $50/bbl, the subsea industry has been urged to “get fi t” for $30/bbl oil. In the lower-for-longer price environment, subsea is seen as being particularly at risk because costs have soared. The sector is in danger of falling behind in the scramble to win new business.

The signs of a switch-off from subsea are emerging, and already Statoil, which has long been a champion of the subsea sector, has chosen an unmanned platform for its Oseberg Vestfl anken development. Statoil also is weighing the pros and cons of subsea installations vs. unmanned platforms for Phase 2 of the giant Johan Sverdrup development off Norway. It will all come down to cost.

The challenges facing the subsea industry were laid bare at the Subsea Expo in Aberdeen, where delegates were told that the cost of subsea developments have tripled over the past 10 years while subsea wells now take up to one-third longer to drill than they did 10 years ago.

CEO of Subsea UK Neil Gordon said, “We cannot keep hoping that the price, and therefore investment and activity, will pick up in a year or so. Transforming the way we work is crucial. A large dose of vision and courage from the leaders in our industry is needed to achieve the behavioral changes that will ensure we are profi table and sustainable at $30 [per barrel oil].

“Much greater collaboration will drive standardization and simplifi cation, which are key to getting the cost base down.”

Simplification is the new buzzword that the industry has added to the lexicon to join standardization and collaboration as antidotes for these challenging times.

Technip’s President and CEO Thierry Pilenko, who has seen a few ups and downs in his career, also called for simplification at the recent GE Oil & Gas annual meeting in Florence, Italy. He said, “This is probably the worst crisis that our industry has known in a generation and maybe more. Most indicators are showing it is probably worse than in 1986.

“Nobody has a crystal ball, but we know what we can do, and we know what we must do. We need to do something about costs, and we need to do it now.”

Cost cuts of 10% could be made fairly easily, he said, but in the short term contractors are being asked to make cuts as large as 30% to 50%, particularly for deepwater projects.

“We measure the amount of man-hours we spend engineering per piece of equipment such as compressors, and over the past 10 years we have gone from around 1,500 to 2,500 to 3,000,” he added.

Analyst Douglas-Westwood (DW), meanwhile, warned of a shock for the subsea market in 2016. DW believes that subsea installation activity is yet to bottom out, with current backlog disguising the reality of the industry. A decline of at least 15% is forecast in global subsea tree installations in 2016. DW said it is important to note that backlogs are falling rapidly; only a few projects were sanctioned in 2015—a bigger jolt could be yet to come.

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