North Sea constructors braced for new period of uncertainty

Esso's Balder floating production unit arriving last summer at UIE yard in Glasgow. UIE is one of several British yards which has adapted its facilities in response to the growing demand for FPSOs in the North Sea.

Europe's fabrication yards are in an awkward situation. Even when order books are full, few emerge in real credit. In northern Europe, the yards have raised profits through alliance or risk-reward arrangements, only to see them diluted through cost-cutting crusades such as Crine (UK) or Norsok (Norway). As yards cut costs, producing companies reap the benefits.

Despite the constant pressures, few of these facilities have folded in recent times. But there are awkward times ahead, caused by a new set of threats:

• Steep drilling rates in the North Sea, as elsewhere, are offsetting the gains derived from the cost-cutting initiatives. This may persuade some of the majors in particular to switch to other areas of the world where offshore development costs are less punitive
• Norway's new coalition government has raised eyebrows by threatening to pull back Norwegian oilfield development in the next century.
• For environmental reasons of its own in the UK, the Labor government reacted to an SOS from English coal mines by putting the brake on new gas-fired power stations.
• Demand for gas platforms has been the salvation of certain UK yards in recent times. A review of the offshore taxation regime also is under way which could increase government revenue from oil and gas activity at the expense of oil industry commitment to Britain.

Whether these changes will come about is questionable. Labor is committed to reducing UK greenhouse emissions 20% by 2010, which seems hard to achieve through upping coal-fired power. In Norway, the nation's overwhelming reliance on the oil and gas industry for its high standard of living may sweep aside the intentions of the minority government.

A table in this report from London-based field analysts ScanBoss shows that most of the yards in Norway have solid orders through 1999 or even 2000, due to the upsurge in large Norwegian field developments. UK North Sea activity remains high too, but the average development is much smaller, leading to construction contracts of much shorter duration. As a result, several UK yards face "house empty" signs from this summer onwards.

Downsizing

Until the industry finds a way to harness the stranded gas off western Britain, new giant-size platforms are not expected. Several mid-range installations could go out to tender this year; however, for projects such as Texaco's Captain Phase II, Amoco's planned Appleton/Halley area hub, British Gas' Moray Firth discoveries, and possibly BP's Clair.

The bigger yards with higher overheads will hope to snap up this work, and also will compete with the mid-size yards for the next wave of unmanned/compression platforms planned for the southern gas basin. Richer pickings will be headed by British Gas' multi-platform Easington Catchment Area scheme.

A few facilities remain out-and-out jacket specialists, but the majority are now equipped to handle fast-track FPSO fit-outs. The number of new FPSOs may be curtailed, however, especially with two older facilities approaching availability as their fields wind down, such as Agip's Balmoral and Talisman's Blenheim. Talisman acquired this declining field recently from Arco, but there are suggestions that

its floater, the Petrojarl 1, may already be earmarked for Fina's Otter development, due onstream in 1999.

Some of the better-placed yards in the scramble for FPSO topsides could be those sites acquired by Norwegian companies. The most successful in volume terms has been

Aker McNulty in South Shields, which has Kerr-McGee's Janice, Conoco's Banff and Enterprise's Pierce all booked in the coming months. This heady period is causing the company to almost quadruple its workforce from 400 in early 1997 to 1,500 this year.

Kv?rner Oil and Gas on Teesside picked up the major fabrication job, for Amerada Hess/Shell's Bittern floater, but also benefited from the work overload in Norway when it was awarded Esso Norge's Jotun drilling module.

The most far-thinking yard in Britain may be Harland and Wolff in Belfast, where the current workload includes upgrading of two Dolphin semisubmersibles and the design of one or two deepwater DP drillships for Global Marine. A full construction contract is expected by December. The yard is also promoting the Fobox, a new design for a drilling, production and storage vessel able to work in waters down to 3,000 meters deep.

One of the positive trends for Britain's fabrication industry is the quickfire shuffling of acreage. Some of the majors are trading blocks containing marginal oil discoveries in return for a position in more voluminous gas acreage. The takers are often North American companies, anxious to speed up the development process. They prefer their oil out of the ground.

Among the recent transactions which could galvanize slow-moving projects:

• Bow Valley Energy and Morrison Middlefield Resources bought British Gas' 27.5% interest in Block 22/2a, containing the 1986 20 million bbl Chestnut discovery, and an identical stake in a similar size reserve just to the south. Although the fields lie just 5 km from Chevron's Alba Field, operator Premier is thought to favor a standalone FPSO.
• Last October, Burlington Resources bought numerous British Gas interests in the Irish Sea for $157 million. These include seven undeveloped gas discoveries containing estimated reserves of over 700 bcf - the five-field ORivers' cluster, which are high in hydrogen sulfide, and the sweeter gas of the Dalton and Millon fields. Existing production complexes are handily nearby, such as Centrica's Morecambe North and BHP's Liverpool Bay. Millon could be tied back initially to Morecambe North this year, followed by a second phase involving a dedicated platform.
• The Beryl Field consortium of Mobil, Amerada Hess, Enterprise, and OMV recently bought Conoco UK's entire assets in Quadrant 9. These include the Buckland, Sorby, and Maclure oil discoveries, the first two of which may be tied back subsea to the Beryl platform facilities. Maclure could be developed as a satellite of Gryphon Alpha, prolonging the life of that field's FPSO, but an alternate host could be BP's Harding platform 10 km away.

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