As the current downturn continues to squeeze oil and gas companies’ budgets, causing many to wonder when or whether some high-dollar offshore projects will see their next breath, a bleak forecast has been unveiled for the subsea sector.

Cowen and Co. predicts the number of subsea tree awards will fall by 26% this year. If the outlook turns out to be true, it would be the third year in a row the industry has seen a drop in such awards.

“In 2016, total tree awards are expected to be 113, down 26% from 153 in 2015,” Cowen & Co. said in an industry overview released March 29. “This implies total awards will be down 79% from the cyclical high of 551 in 2013.”

The forecast comes as low commodity prices threaten profits amid a world awash in hydrocarbons that have unmatched demand. Today’s environment has delayed projects and postponed final investment decisions.

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However, several large projects that will need subsea trees are moving forward. These include:

  • The Eni-operated Coral project offshore Mozambique in the Rovuma Basin. Plans include six subsea wells and a floating FLNG facility. Phase 1 on the project targets 5 trillion cubic feet of gas.
  • The Shell-operated Vito project in the Gulf of Mexico’s Mississippi Canyon area. The floating production system development is expected to have a peak production of about 100,000 boe/d.
  • ExxonMobil’s Hebron project offshore Canada’s Newfoundland and Labrador in the Jeanne d’Arc Basin. The oil field is being developed using a stand-alone concrete gravity-based structure designed to withstand arctic conditions and store about 1.2 million barrels of oil. The Hebron Pool 3 Phase 1 subsea tieback project is in the Ben Nevis Formation.

These and other large projects, which require at least five subsea trees, are expected to account for 56, or about 50%, of this year’s subsea awards, Cowen & Co. said. That is down from 112 trees, or 73%, in 2015.

However, market conditions could get better next year.

“While 2017 is expected to show a 55% improvement to 175 subsea trees, we note that visibility is limited and low commodity prices may result in further project deferrals or cancellations,” analysts said.

Which companies land tree awards remains to be seen, but Cowen & Co. analysts believe subsea system-focused FMC Technologies (NYSE: FTI) and OneSubsea will clinch most.

Citing Douglas-Westwood and Quest Offshore Resources Inc. in its first-quarter 2016 overview, FMC pointed out that it had 39% of the total tree unit market share from 2011 to 2015. The company was followed by: Cameron at 24%; Aker, 18%; GE, 17%; and Dril-Quip, 2%.

However, Cowen & Co. pointed out in its report that OneSubea won most of the trees in 2015. The Cameron and Schlumberger company is expected to win 36% of the trees in 2016. Earlier this month BP Exploration (Delta) Ltd. and partner DEA (Deutsche Erdoel AG) awarded OneSubsea a subsea production systems contract for the West Nile Delta fields offshore Egypt. In addition to large-bore subsea trees, the scope of supply includes manifold, connection and controls systems, according to a OneSubsea news release.

“The large awards expected for OneSubsea are Eni’s Zohr Ph 1 (5 trees, Egypt) and Exxon’s Hebron (12 trees, Canada),” Cowen said. “Both FTI and OneSubsea are competing for Hess’ Equus (18 trees, Australia) project with no clear front runner. We assume nine trees each for FTI and OneSubsea.”

Velda Addison can be reached at vaddison@hartenergy.com.

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