WATCHING THE WORLD DAVY'S DOWNFALL

With Roger Vielvoye from London For small and even medium sized contracting companies large turnkey contracts have always carried an element of risk. Just how large that risk can be was demonstrated by Davy Corp., London. It is being sold as the result of a disastrous-and still not finished-conversion of a semisubmersible drilling rig to a floating production unit for the marginal Emerald oil field in the U.K. North Sea.

July 1, 1991

3 min read

For small and even medium sized contracting companies large turnkey contracts have always carried an element of risk.

Just how large that risk can be was demonstrated by Davy Corp., London. It is being sold as the result of a disastrous-and still not finished-conversion of a semisubmersible drilling rig to a floating production unit for the marginal Emerald oil field in the U.K. North Sea.

WHAT HAPPENED

Davy saw the Emerald contract, taken in the difficult years after the crude oil price collapse of 1986, as the key to becoming a major force in the offshore contracting business where it had always been a peripheral player.

Instead, the work lost at least P-1 14 million ($185 million) and forced Davy to admit it could not stay in business in its present form. It is one of the oldest independent contracting organizations in Britain, with interests in metals and chemical engineering, cranes, and handling systems

A breakup of the company appeared to be in the cards, but Trafalgar House plc, a British engineering and construction group, has arrived on the scene with a bid for the entire Davy group, which is being recommended by the Davy board.

Other companies had shown interest in parts of Davy. The German Mannesmann group's offer for Davy's metals division still stands, and it is not clear what action will be taken by Spie Batignolles, the French engineering group that acquired 15% of Davy 15 months ago.

Davy's first steps into rig conversion were in partnership with Sweden's Gotaverken Arendal (GVA), which has considerable experience in design and construction of semisubmersibles.

GVA drew up the first specification for work on the Ali Baba semisubmersible for Midland & Scottish Resources but withdrew in May 1989. Davy went ahead with the contract but rapidly found that the work was more complex and expensive than at first envisaged.

At the root of the problem was the fixed price contract. Midland & Scottish had negotiated a deal without a deposit or progress payments. Davy will not get paid until the unit is floated out to the field, probably in October, more than 1 year behind schedule.

Work started in Davy's Dundee yard in Scotland. But the staff had no experience in this type of project and was reluctant to provide round-the-clock shifts needed to complete the job on schedule. Eventually Davy had to move the partly converted unit to an experienced rig conversion yard at Invergordon, Scotland, where it is being completed.

During the course of the contract, design changes were made partly to meet the safety requirements that would emerge as a result of the Piper Alpha platform disaster. Davy went to law claiming that Midland & Scottish had changed the specifications, but the courts did not agree.

EMERALD IDLE

Meanwhile, Sovereign Oil & Gas plc, Emerald operator, is still without the floater it needs to begin production from the field in Block 2/1Oa in the Shetlands basin. Seven production wells and four injectors are complete and fully tested, and all flow lines are in place.

A tanker has been converted into floating storage unit and is ready to be installed.