Interview: Maersk Supply growing in Aberdeen despite expected company sale

Offshore support vessel operator Maersk Supply Service has seen its Aberdeen team grow in the past two years and is working at becoming more than just a vessel supplier.

To achieve this, the company in 2016 brought in Duncan Harris as UK Country Manager to head its Business Development Integrated Solutions division.

Offshore Energy Today has had a chat with Harris, to learn more about Maersk Supply Service’s UK operations, its offshore vessel fleet, growth in Aberdeen, the fact that the company’s been put up for sale by its parent firm Maersk, and more…

OET: Maersk Supply Service has grown its local team in Aberdeen from two to 29 people in the last two years. 

While workforce increase is a welcome news these days in the industry, what struck me is the number 2 rather 29. Isn’t it strange for an OSV company to have only two people in what has been described as the offshore energy capital of Europe?

Harris: The two people that we had weren’t acting in isolation. They were supported by 100 people in the Copenhagen office. The people in Aberdeen were doing primarily commercial business development, and of course safety as well.

So, I’m not sure how familiar you are with our set-up. The traditional business that we have is obviously anchor handling and to a much lesser extend PSVs as well. So, we run regularly at least a minimum of four vessels on the spot market.

These two individuals supported by the Lyngby office were running the activities in the spot (market) which was traditional anchor handling during rig moves. So, the growth is now that we have changed capabilities, that Maersk Supply Service is able to provide.

We are now able to undertake projects from start to finish‚ and provide a project management and engineering capabilities. And obviously, in doing that, that increases the number of people that we have and our footprint on the ground.

That’s is the reason that we’ve grown to thirty people. In respect of your comments regarding 2 people. It’s obviously just a local presence doing business development. When you understand the spot market it’s very much derived by broker requirements, so it’s not a hugely labor-intensive operation.

OET: So this means that, apart from the two employees mentioned, you still had workers working on those (spot) vessels, it’s just that the onshore part in Aberdeen consisted of two people working on contracts?

Harris: The business development and the salesforce and then local safety as well, so we had a local safety person on the ground as well, so he could undertake safety operations and make sure that Aberdeen was in compliance with our procedures, we still have access to 100 people in Copenhagen to provide support as well.

OET: What has changed so you need more workers on the ground?

Harris: The traditional business has been done by brokers and long-term contracts with our key clients primarily in Brazil and West Africa, but the UK market I’m responsible for has primarily been driven by brokers.

We’re branching out into building the construction vessels, and we have to think about how we operate those differently.

There isn’t really a spot market for the construction vessels, so the decision we’ve taken strategically is that we want to be able to operate them ourselves and in doing that we need to have project management capabilities and engineering capabilities.

I joined Maersk Supply Service in August 2016, after spending 11 years with Subsea 7 and 6 years with Technip before that. What I was brought in to do is to establish this part in the UK.

We’ve done that, and the downturn has actually been beneficial to Maersk Supply Service in that we have been able to recruit a number of exceptional individuals who were available in the market.

“The downturn has actually been beneficial to Maersk Supply Service in that we have been able to recruit a number of exceptional individuals who were available in the market.

And all of our team here in Aberdeen have got Tier 1 contracting experience whether it’s with Saipem, or Technip, or Subsea 7.

We’ve got a very good project management and engineering capability with people with a huge amount of track record in the industry.

That’s one positive that’s come from the downturn for us being in a growth phase at the moment is that we’ve been able to recruit some very high caliber individuals, and that’s been part of the success in landing the Culzean project.

We’re also undertaking an FPSO install in Africa, and we’ve just done a project in Brazil with a turret remediation.

People in Aberdeen have been happy to support that and, also, supporting in the tendering efforts as well. That’s really the rationale behind it. We’re continuing to look for growth opportunities and tendering a number of projects in the UK and further fields at the moment as well.

This is all about providing solutions to our customers’ problems, much in the same way as your Subsea 7 and Technip would do but on a much smaller scale.

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OET: While you’ve been active in the spot market, there is also a longer-term work in the UK. Can you talk about involvement in the Culzean development? 

Worth noting, Maersk Supply Service won work from Maersk Oil the operator of the field. Maersk Oil is now under Total.

First, can you tell us more about how you got the Culzean job in the first place, given that it came from your sister company? How does this work, is there some kind of a conflict of interest there? Did you have to bid and offer the lowest price, how does it work?

Harris: Maersk Oil are partners in Culzean and so the original work scope was awarded to Subsea 7. And work scope that we’ve undertaken is the tow of the FSO, the pre-installation of moorings anchors and chains. Once the FSO comes to the site, we’ll hook up all the mooring system with our vessels.

All of those operations were undertaken under a Subsea 7 contract. But they were all third party vessels that Subsea 7 was using because it’s not their core tonnage.

We approached Maersk Oil and said it would be a better solution to go directly to anchor handling companies who specialize in this type of operations. They agreed and initiated a tendering process, we bid for the work, and we won it competitively.

Although as you say that perhaps with a sister company which is on paper true, because they have partners, we probably underwent more scrutiny, than we would’ve done if it was an everyday tendering situation.

We approached Maersk Oil and said it would be a better solution to go directly to anchor handling companies who specialize in this type of operations.

Because we had to justify to the partners that they weren’t just handing the money over internally, but that this was a fair and transparent bidding process and that we were, in fact, better and cheaper solution and a robust technical solution for the project.

Through that process, we negotiated the contract. Having spent 25 years negotiating contracts, Maersk Oil did us no favors internally but that’s where the market is.

We have a contract. The first phase of that was undertaken last year (2017).

We did boulder clearance for the chain lay down corridors and we undertook anchor installation installing all the mooring legs, lower sections and the anchors, which we pretensioned to over 800 hundred tons, which is a record in the North Sea.

This year we’re just preparing to collect the FSO from Singapore, and we’ll have a fleet of four vessels in the tow – three will be involved in the tow and one escort vessels through that route via Cape of Good Hope and up to the North Sea whereupon we’ll hook up the vessel with the mooring system.

OET: How long it’s going to take to tow the FSO from Singapore to the final location?

Harris: It’s going to be roughly 70 days.

OET: When is this going to happen, the tow? Can you provide a rough timeline?

Harris: We’re waiting for official notification under our contract from the Culzean operator. We expect to be in the North Sea by August.

OET: Given that Total is now the owner, or, has taken over Maersk Oil in March. Does this change anything for you or is this just work as usual under Culzean?

Harris: It’s early days for us, but the contract is the governing document between the two parties and if there are any changes to be made, then we will be notified through the contract.

Essentially, the work scope isn’t going to change, the timing isn’t going to change, the only thing that may change are some HSE changes through Total’s preferred HSE system, but it will only be minor semantics. the HSE standards of Maersk Oil and Total are both very high, and Maersk Supply Service complies with them very well. Generally, I don’t expect anything to impact the project at all.

OET: While Culzean is obviously a big part of the increase of Maersk Supply Service’s local workforce in the Aberdeen, this is not the only reason. There’s also the Janice decommissioning project?

Harris: That’s right. We’re undertaking the Janice, James, and Leadon fields decommissioning at the moment. We had a big campaign on that last year, and this year we’re working on the Leadon field and we’re preparing for a recovery of the bundle towheads.

These are around 300t offshore lifts, and this will be the first time that significant towheads of this size have been recovered.

OET: What are you going to be using for this operation?

Harris: This will involve our new I-Class vessels, the Stingrays, with a 400t offshore crane and 1,850m square back deck. We will do subsea cuts to the bundle, using a diamond wire, and we will recover the towheads to the deck and then take them to shore.

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Market coming back, but to what extent?

OET: I will get back to the Stingray. I would like to pick your brains on the outlook for the industry.

Maersk Supply Service in late 2017 said it expected the market outlook for the industry to remain subdued in the near-term and the midterm with OSV market challenge due to the low activity in the offshore industry. Since you’re responsible for the UK part of the operations I’d like to hear your thoughts, on the UK outlook.

Also worth noting, OGUK said recently capital investments were returning to the UKCS. A dozen of projects up for sanction expected this year; new players, there’s been a talk of the North Sea renaissance. Can you see this translating into more work for Maersk Supply Service, increase in revenues, and if yes, and how soon?

Harris: In the short term, for the next two quarters in the North Sea, we foresee “heating up” a bit. In the market generally, there’s a number of vessels that could potentially be available but a lot of them are cold stacked and the costs to take these out of stack are quite prohibitive, and none of the operators particularly want a vessel that’s been non-operational for a number of months.

There is a possibility that the market could get quite overheated but – during the summer in the sector and the anchor handling, but we expect that to die down toward the end of the good weather window in Q3-Q4 in the North Sea and will probably subdue again when the rigs come back off station.

In the longer term, the sanctioning of projects is looking to pick up particularly in Norway, you see a lot of announcements from Tier1 contractors and Subsea 7 and Technip. There are some opportunities for some of the smaller companies like Maersk Supply Service to support them and some of their operations, and we welcome that as good news. The UK, in general, tends to follow a wee bit behind Norway.

As for revenues, you understand yourself that when you see a project being sanctioned then there’s usually a 12-18 months design phase and then a procurement phase as well. While a project can be sanctioned in 2018, the offshore part of work may not happen until 2019, or 2020 so we are still a bit cautious.

Yes, we see signs of the market coming back but to what extent? But, every piece of news that you get with a contract award and another project sanction is welcomed.

ROV earning more than OSV?

OET: Dayrates? Any improvement, with the oil prices rising? What has the company been doing to increase the margins?

Harris: The oversupply in the market is affecting the dayrates quite significantly. It’s worrying when you can see a vessel going out with an ROV on it, and you can get 3x as much for the ROV as you can for the vessel. There’s something clearly not right in the market.

As long as the oversupply continues, there’s very little we can do to leverage the rates upwardly. It’s only going to be a factor of basic economics of supply and demand. If all the rig moves happen at the same time, then demand increases, and the rates go up. We focus very hard on trying to reduce costs to maintain profitability, and that has been a struggle in the past.

In 2016, there was a large redundancy program, and Maersk Supply Service was among the first to announce a fleet divestment program, and we have actively been the market leaders in reducing our older tonnage and reducing the oversupply in the market.

I personally feel there still needs to be more of that going on before the rates will return to anything that’s significant.

I don’t think they’ll ever return to where they were in 2014 at the peak of the market. If they do it’s kind of an indication that the market is back to a position where it’s out of control and projects, then go back to into that cycle of being uneconomic and operators just putting the breaks on and stopping the sanctions again.

We have to be mindful of the maturity of the basin we’re operating in. Not to make an uncompetitive environment or a place where it’s difficult for our customers to do business. We need to make sure that we can maintain our sales pipeline and back to our costumes, to ensure that their projects can come to fruition.

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OET: Fleet divestment – Maersk Supply Service in December 2016, said it would sell 20 vessels due to oversupply in the market. Is the target still 20 vessels, has this increased? 

Harris: The number of vessels in the divestment program hasn’t increased. If opportunities arise then we will still consider vessels that are within our portfolio, but certainly, our plan is still to consider and actively divest tonnage that is old and is becoming obsolete.

As vessels go, we’re still welcoming new vessels into the fleet, so we have a 10 vessel newbuild program. It’s continually changing as some move in, some move-out but overall the net effect is that we’ll be around 40-45 vessels by the end of the program.

The last vessel that we have coming in will be in 2019 by the end of the first half. That will be the delivery of our ten new vessels. With the divestment program, the timeline for that is a bit less clear, because there’s a number of issues behind that, it takes time, about responsibly recycling and making sure to place the vessel to places we’re happy with.

OET: You don’t want to make those vessels competitors to Maersk Supply Service. You’ve sold some of them to a company that’s converting OSVs to offshore mobile power plants?

Harris: It’s interesting what some of these people have done with the vessels. When we sell them, we make sure there’s no chance of them coming back to compete with us, otherwise, there’s absolutely no point in selling them.

About the power generation, I find it personally very interesting project. A company in Turkey has taken one of the vessels to a remote coastal village and put a lot of electricity generators on the back of the vessel, using it to provide power to a number of homes.

It’s good to see there’s some use of the tonnage at the end of the day but we’re glad it’s not in the oil and gas, competing with is.

OET: Maersk Supply Service is divesting its old tonnage but is also taking in new Starfish and Stingrays. Can you share more on the programs, how many of them are (going to be) working in the UK?

Harris: The Starfish are the anchor handlers and there’s six of them being built in the Kleven yard in Norway. We’ve currently got three operational. Two of them have been working in the UK and have now gone on the charter in Australia with Quadrant.

And we have the third one working within the UK at the moment. The fourth one is going to be delivered by the end of May. And she will commence work in the UK. We’ll have two of the M-class Starfish work in the UK, and then by 1h of 2019, the other two will be delivered.

We haven’t got any firm plans for them at the moment but there’s certainly a lot of interest for them in both the UK and in Australia. So, we’ll see where they end up. Brazil is also a market we’re interested in, but we are actively seeking opportunities for the last two at the moment.

As far as the Stingray vessels go, they’ve come out of the Cosco yard in China, We’re very happy with them. Maersk as a company is very used to building vessels in China. The build quality we have has been very, very good. 9.5 million man-hours without a LTI during the construction. We’ve been very pleased with how that turned out.

These vessels are a bit of a break from the traditional anchor handling vessels that Maersk Supply Service have, so we’ve kind of branched into bigger and more construction-oriented vessel.

The first one of these has already been working for McDermott, Maersk Installer in India and the fourth one that has been delivered is committed to a long-term contract in Mexico for Blue Marine Group. We’re actively bidding a number of opportunities for the other three when they come out as well.

There is a huge amount of interest in these new vessels that we have. Nobody else is committing to new tonnage.

There is a huge amount of interest in these new vessels that we have. Nobody else is committing to new tonnage. We were probably the last people to commit to the brand-new tonnage of a significant nature, so until the market picks up and there’s a horizon on sustained return on capital investment then nobody else is likely to be speculatively committing to vessels.

These are likely to be the newest vessels that people are going to have access to for the next three-four-five years. And while some of the vessels in our peer group have been around a long time, by the time you get to projects kicking off in the next four to five years, these other vessels that we’re competing with are going to be quite aged.

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OET: You’ve mentioned some regions that Maersk Supply Service is interested in such as Mexico and Brazil. Can you comment on those markets, given that Mexican energy sector has just opened itself to foreign investments, and that the operators are really getting forward to getting acreage there?

Harris: Mexico is new for oil and gas but not new for Maersk company. We’ve been operating in Mexico for a number of years, and Maersk Supply Service has been there a number of times over last 20-30 years, but we’ve never established a full-time presence there. We foresee a number of opportunities there. There’s a lot of interest. But as with any emerging area, it’s not particularly easy.

The government and the country themselves need to ensure that they have the correct regulatory and taxation, and a functional framework in place to sustain an industry when they start opening up to other operators.

We see a number of opportunities there, but it might be a bit of a slow burn. Certainly, Maersk Supply Service and Maersk Group have got a huge amount of experience of going into new emerging areas and setting up businesses and being very successful in those areas.

In respect of Brazil, we’ve been in Brazil for thirty years. We’re one of the most established companies there. Before the downturn, we had one of the biggest fleets of anchor handlers in the market.

In the longer term, there’s a huge amount of decommissioning potential in Brazil as well that they haven’t even begun to talk about, so we expect to be in Brazil for a number of years to come yet.

OET: There’s something important that you’ve mentioned about Brazil. New contracts will come at reduced dayrates. How will this affect the suppliers? Or are you accepting the new reality that dayrates will never return to the pre-downturn levels?

Harris: It’s really a factor when the contracts were committed to. Obviously, they’re not all committed to at the same time.

We’re probably coming to the end of the good times in many places around the world, but the good news about that is whilst we have been working in these contracts, then the rest of the organization has been able to become more cost-effective and implement a number of cost reduction measures throughout the organization.
We are set up now as an organization to operate at lower cost environment.

Up for sale

OET: Maersk, your parent company, has put up its energy business, including Maersk Supply Service, up for sale. Does this change anything for you, in the way you operate? Are you in some way preparing to be sold, because Maersk said it was going to work to find a ‘solution’ for Maersk Supply Service by the end of the year. What does this mean for you?

Harris: There’s no change at all for us. We continue as ‘business as usual.’ Any decisions about the future of the company will be made by the Maersk energy division. I will find out like the rest of us in due course. But the message we’ve had from the top is: “Keep on doing what you’re doing, make sure that everybody is working safely, and the solution will be provided to us.”

OET: Does it affect your confidence in any way?

Harris: It certainly doesn’t change anything for us. We’re still a company that’s providing solutions and project management with assets and we will always try to deliver the best value and safest operations possible to our customers…

Interview conducted by Bartolomej Tomic, Editor, Offshore Energy Today