High Level of Subsea Content in the Norwegian Project Portfolio

Is there a promising future for the subsea industry? According to Rystad Energy, planned projects in the Norwegian North Sea, the Norwegian Sea and the Barents Sea will to a large extent be implemented with subsea solutions.

As the subsea industry is preparing for the next wave of projects in the Norwegian North Sea, the Norwegian Sea and the Barents Sea we have asked Erik Holm Reiso at Rystad Energy to look in to their project cube to prepare us for what we can expect of subsea content.

The answers are promising in terms of subsea content, but the magnitude of the next upturn is still uncertain.

62 Per cent Subsea Content

- Rystad Energy has advanced models for forecasting offshore developments Erik Holm Reiso explains. - We combine knowledge about known development solutions, e.g. at Johan Castberg where we know there will be an FPSO and subsea wells, with models that “guess” the development solution based on heuristics. For instance, if a discovery is made at “subsea depth” (150 meters or more) close to an existing platform that has capacity to receive more volumes, it is a subsea tie-back candidate, says Reiso. He continues - Currently the subsea share of Norwegian production is just above 50 per cent and it is expected to decrease slightly towards 2030 due to the introduction of large volumes from steel platform developments, especially Johan Sverdrup. However, in terms of resources, 62 per cent of the Norwegian project backlog will be subsea developments.

120 New Subsea Wells

We then asked Reiso the following question; Looking at all known and communicated projects over the 2017-2019 timeframe, how many subsea wells are we talking about, and what does this mean in terms of percentage compared to all wells? - We believe that in Norway, about 120 new subsea wells will be completed, which is around 45 per cent of the total number of production and injection wells to be drilled by moveable rigs over this timeframe (excluding wells drilled from fixed units at platforms), says Reiso and he continues by claiming that as much as 75 of these new wells are in fields already producing, such as Troll Oil and Gullfaks South. Of the remaining wells, 75 per cent are in fields that have been approved for development and the rest rely on a development decision by the operators.

Shorter Contract Cycles

Another question we asked Reiso was; How do you foresee the timeline for ramping up new projects in the coming years? – During the downturn subsea tie-back projects have been subject to revision, re-conceptualization and re-tendering with competing suppliers working on how to develop the fields at the lowest cost possible. When the operator then receives the official go-ahead from the authorities to develop, they turn around and set the contracts right away to the supplier with the most beneficial solution. This contrasts with how things were before when it could take several months from sanctioning to contract award. We have in fact gone from a situation where the supply chain was severely constrained with limited immediate capacity to take on new projects, to a situation where the suppliers have much less load. The danger is that as activity picks up, the supply chain will once more come under strong pressure to ramp up fast enough, answers Reiso.

The largest Upcoming Subsea Projects

We went on to asking if Reiso could name a handful of the largest subsea projects planned in Norway the coming years, and their sensitivity to break-even oil price. Reiso breaks it down for us - There are as many as 25 potential new subsea tie-backs to be approved 2017-2019 in addition to two FPSO developments (Johan Castberg and Wisting) which also holds significant subsea scope. This list of 25 tie-backs includes the likes of Snorre Expansion, Bauge, Pil&Bue, Snadd Phase 1, etc. Break-evens range from 27 to 79 USD/bbl with 8 of the 25 estimated to be above 50 USD/bbl – these are in other words not commercial at current oil price levels, Reiso says.

Statoil

Our final question for Reiso is; Statoil has recently announced that they have managed to reduce their average break-even price for their future project portfolio in Norway down to 27 USD/bbl. How does this compare to Rystad Energy’s analysis of the whole industry’s ongoing efforts to reduce cost and increase recovery rates? - We see a similar picture but we question whether operators take sufficiently into account the effect of cost inflation going forward. We believe Statoil when they say that average break-even for the non-sanctioned portfolio has dropped from 70 USD/bbl in 2013 to 27 in 2017, but as projects proceed into the development stages we think costs will start to rise again, leading to overruns as the likely result, and a higher “realised break-even” after the project has been completed. This does not mean, however, that the projects will not be valuable to develop, Reiso concludes.