US Gulf of Mexico fabrication yard locations.
Slightly more than 50 years ago, the first offshore steel piled platform was fabricated in Morgan City, Louisiana and erected within sight of shore, in less than 50 ft water depth. This basic structure contained minimal production equipment and, in lieu of quarters and storage capacity, had a tender tethered to it.
Seven years later, the first jackup drilling rig was christened for work in shallow water offshore Louisiana. Since that time, a total of more than 5,500 platforms have been installed in the US Gulf of Mexico. Today, more than 3,600 fixed structures are still in place in water depths up to 1,700 ft; floating structures have reached 4,800-ft water depths.
Not-too-distant schemes are being contemplated for water depths exceeding 10,000 ft. Offshore exploration and production activity, prevalent in every quadrant of the globe, is producing new challenges daily, testing the industry's design and construction ingenuity.
Throughout this half-century of technological progress, the fabrication industry along the U. S. Gulf Coast has been a principal contributor to the oil and gas industry advances and has expanded to handle the construction of structures and components destined for the world's major oil and gas producing regions.
The industry has grown significantly, despite numerous peaks and valleys that impact
exploration, drilling, and construction activity. Because of the enormity of the fabrication industry, a survey of US Gulf Coast fabrication facilities conducted by Mustang Engineering recently was limited to only those yards that fabricate fixed or floating offshore oil and gas facilities and related structures. The survey was further confined to those facilities having water frontage and direct access to the Gulf of Mexico. Without these parameters, the survey would have swelled to several hundred quality fabrication yards and shops providing components of all types to the US offshore oil and gas industry.
The fabrication industry on the US Gulf Coast has experienced growth parallel to that of the offshore industry itself. Fabricators have developed a relationship with operating and engineering companies. State-of-the-art design technology and innovations have flowed from engineering companies to fabricators seamlessly.
The fabrication corridor includes 1,000 miles of shoreline from the Texas/Mexico border on the western edge, to Alabama at the eastern boundary. Located along an extensive intracoastal waterway system, yet within access to the Gulf of Mexico, the industry hosts numerous specialized fabrication yards and facilities. For the most part, each yard has a specialty, whether it is the fabrication of separator or heater/treater skids, the construction of living quarters, the provision of hookup services, or the fabrication of jackets, decks and topside modules.
While there are large facilities capable of handling current and next-generation deepwater structures, few facilities have complete capabilities for all facets of such a project. Even the largest fabrication facilities rely on specialized yards, shops, and subcontractors for many of a project's components. According to the survey of 51 yards, nine have single piece fabrication capacity of more than 10,000 short tons and 12 indicate a capability to fabricate structures intended for water depths exceeding 1,000 ft.
Fabrication along the US Gulf Coast is easier than in other regions of the world. Mild weather permits year-round, uninterrupted work. Although much attention is focused on worker safety and training, regulatory requirements and certification-related documentation, especially for shallow water projects, are less demanding than elsewhere. The Intracoastal Waterway, which parallels the US coastline, allows flexibility of relatively low cost movement of structures and components among fabrications yards.
For example, completed facility packages or modular components can be towed from their construction yards along the Texas coast to yards in Louisiana for installation onto a deck section and the completion of interconnection piping (ICP) activities of the production facilities. As would be expected, there is a high level of construction management required for tight control over project details using this methodology.
Operators, as well as fabrication yards, rely heavily on experienced inspectors and construction engineers to ensure compliance with detailed project specifications and applicable industry codes.
Inventories of supplies and component parts are readily available for most projects, and vendors and their distribution network have long-standing business relationships with the fabrication yards and engineering design firms. Vendors are used as a project resource.
Relative to the world market, the number of employees in the majority of Gulf Coast yards is not very large. The Mustang survey showed only nine yards had a work force of more than 1,000. US Gulf Coast yards appear to operate efficiently with smaller work forces. When additional labor is required, the fabrication yards generally attract skilled workers, often from their areas of operation. Petrochemical, refining, and other industrial plants nearby often provide a supply of experienced craftsmen, willing to change jobs when they are in demand and when job opportunities are sufficiently attractive.
The health of the fabrication industry is almost exclusively tied to the wellbeing of the oil and gas industry, majors and independents alike. The Gulf of Mexico furnishes more than 15% of the US's oil requirements and in excess of 25% of the natural gas needed. Additionally, it is by far the US's most prolific source of natural gas potential.
After a high point in 1997, the upstream petroleum industry had a dismal performance the following year and a similar carryover into the first half of 1999. Oil prices dropped quickly and precipitously to about $13/bbl in early 1998. The impact was increased further as natural gas prices fell more than $1/Mcf from the prior year's high. Without economic incentives, the major offshore players dramatically reduced capital budgets.
Simultaneously, a wave of mergers and acquisitions left many of the traditional offshore participants focused on reorganization rather than on projects. Drilling contractors were left with new deepwater rigs on order but with little work. The cascading effect of reduced drilling ultimately trickled down to the fabrication segment and reduced overall fab yard utilization to under 50%.
By mid-1999, oil prices had climbed steadily to $18/bbl and, at the time of this writing, were hovering above $24/bbl as OPEC continued to control output levels. While many operator company third quarter 1999 capital budgets were revised upwards, the impact on the drilling fleet has been marginal when compared with the third quarter of 1998. Bidding activity has increased for the Gulf Coast fabrication industry, yet project awards have still not materialized to any large degree.
In the meantime, the fab yards are experiencing another round of survival training. To cope with the current level of activity, Gulf Coast fabrication facilities are pursuing related options. Many are providing maintenance, renovations, and surveys to rigs stacked by drilling contractors who are anticipating a turnaround in early 2000.
Other yards are fabricating non-oil and gas industry work such as barges and other marine vessels. In all cases, they are endeavoring to keep yard utilization at a point that will allow them to maintain equipment and retain skilled personnel who will be key to their success when the turnaround comes.
Participants in the Mustang survey were asked for an assessment of a near-term economic turnaround in the fabrication business. The majority of those responding felt that mid-2000 was a reasonable time frame in which there would be a marked increase in activity. The respondents also recognized that, in order for the fabrication segment of the industry to flourish, it will have to participate in trends that have materialized with economic and technological changes. Some of these trends include the following:
As energy consumption has increased, the oil and gas industry has anwered the call by having to "go deep" for new finds. The technology to discover and produce those resources, only a fantasy a few years ago, is now a reality. The deeper finds not only require a substantially greater financial investment by operating companies, but also requires an entire foundation of entrepreneurs who take on additional risk for turning these complex designs into income producing offshore structures.
As technology has advanced, allowing for subsea completions and subsequent production, the trend toward developing deepwater areas with massive reserves has expanded enormously. The trend has brought to the fabrication yard a multitude of new systems and challenges requiring risk, skill, size and ingenuity. Conventional fixed platforms are generally only economically feasible to 1,000-1,200-ft water depths. Compliant towers are now being designed for use to about 2,800 ft depths. For greater depths, standard tension leg platforms (TLP) and mini-TLPs can be used to 4,500-500 ft depths. Greater water depths require even larger floating structures such as deep draft caisson vessels (DDCV) or SPARs that can be used in depths to approximately 7,500 ft. Subsea tie-backs are also becoming more common as technology progresses, allowing wells to be produced by a nearby existing platform. Floating production, storage, and offloading (FPSO) vessels, while not currently used in the Gulf of Mexico, also have capability in deepwater. For many fabrication yards, these new technologies and floating structures represent a more precise, higher risk, and significantly larger project than they have had in the past, with a complexity requiring added involvement from engineering firms, vendors, and component specialists.
Engineering firm alliances
Fabrication companies are being challenged by these new technologies and, as the industry turns around, there will be an additional pressure for quick turnaround in providing structures to be completed and shipped on fast-track schedules for early production. Engineering companies, in addition to providing skills in design innovation and technology, structural and facilities engineering and construction management, have the capability to act as a conduit for providing past project experience from their "lessons learned" and continuity for the streamlining of an entire project.
They can assist the fabrication yard and operating company management with procurement assistance, inspection and expediting services. It is often in the best interest of the fabrication yard to work with engineering companies on joint
proposals for new projects, offering a package that is more competitive on the world market. Engineering firms can additionally assist operating companies in managing a project to assure its continuity and adherence to schedule.
As the search for hydrocarbons has moved into deeper waters, so too have offshore Southeast Asia, West Africa, Brazil, the North Sea, Gulf of Mexico, and other worldwide drilling areas created new opportunities. It has been proven that the Gulf Coast fabrication methodology is transferable to virtually any of the world's major drilling regions. With peaks and valleys in the US oil and gas industry activity, it is imperative for the Gulf Coast yards to compete for international work.
Similarly, other international regions have experienced transformations impacting the fabrication yards that have served them for decades. An example is the slowing of development work in the North Sea as discovery field size has dwindled. This situation has sharply reduced the need for the traditional giant platforms of the 1970s and 1980s, and has forced fabricators in that region to be more competitive in other regions of opportunity, including the US Gulf of Mexico. Decreased activity in Southeast Asia has prompted increased competitiveness from fabrication yards in the Far East.
US Gulf Coast fabrication yards have long claimed the smallest client budget overruns in the industry. In large part, this claim is due to the available infrastructure and resources. When drawings and equipment are finally available, these yards say they can react quickly in a flexible, fluid manner.
In light of enormous structural and technological changes, the Gulf Coast fabrication industry finds itself at a crossroads. By focusing solely on "status quo," these fabricators can most likely survive in an industry of roller coaster swings, but will miss significant opportunities for growth.
Hopefully, fabricators can retool and retrain to take advantage of a movement into deepwater where larger and more complex structures are involved. In addition, the fabrication industry must pursue global opportunities and meet international competition, seek alliances with engineering firms to offer complete packages of services, and preserve key employees that will be need for the coming turnaround.
Mike Hunt manages Mustang Engineering's Construction Management department and has 20 years experience in the oil and gas industry.
Lenny Gary is in business development for Mustang Engineering and specializes in inspection and construction engineering. He has 20 years experience in the industry.