Guest Column: Offshore Vessels, the Market and the State of the Industry

In the recent past, international subsea and installation contractors have had to reduce their expectations of the offshore market. The activities of the oil companies are significant, but too many construction vessels have entered the subsea installation market, which creates an overcapacity. However, contractors with superior equipment and a very good engineering and project organisation are doing fairly well. The backlog in EPIC (engineering, procurement, fabrication, installation and commissioning) contracts is large, but these contracts have a high risk and lower margins. The complexity of subsea structures and the complex work involved cannot always be entirely overseen in the bid stage; the dependency on suppliers causes a high schedule risk, together with the considerable responsibilities and liabilities which oil companies impose on contractors in EPIC contracts.

Since the Macondo incident in the Gulf of Mexico, a number of large operators are attempting to force contractors to take the risk of consequential damages in their contracts, but contractors cannot responsibly bear the risks of consequential damages: the contractors cannot sufficiently price them in the competitive environment. Contractors do not make sufficient margins for bearing consequential damages and could go into liquidation on the consequences.

This brings us to errors in project execution, of which the consequence could be that the contractor gets claimed by the oil company client. Many experienced personnel in our industry have reached the retirement age, and one generation was ‘lost’ from our industry some 25 years ago due to the widespread decline in the offshore business. Much knowledge is presently disappearing, while the new generation, which has entered the offshore industry, still lacks experience. Legal people nowadays have a large influence on oil company policies and therefore installation contracts have become very legal. When oil company personnel lack experience, they are logically inclined to stick heavily to the contract and do not always choose problem-solving, common-sense solutions which only experienced oil company personnel can afford to go for. This makes the execution of offshore contracts more cumbersome, and prone to delays and cost increases for the contractors.

On a more positive note, the building of the single-lift platform installation/decommissioning and pipelay vessel Pieter Schelte is nearing completion in South Korea; in October she will leave for the Maasvlakte 2 of Rotterdam, where she is due to arrive at the end of this year. In the spring of 2015, the topsides lift system beams will be installed and tested on the bows of the vessel. In the summer the vessel is due to undertake her first project, the removal of the Talisman Yme platform in the North Sea. On one the hand it is worrying to see the entry of too much equipment in the market, leading to low prices; on the other hand it is thrilling to observe new technological developments in our fascinating industry.

Edward Heerema
President
Allseas