Concerns voiced about UK-based subsea industry

Decreasing activity and project delays off the UK are raising concerns in the country’s subsea industry.

By OGJ editors
HOUSTON, Nov. 12
-- Decreasing activity and project delays off the UK are raising concerns in the country’s subsea industry.

Mature oil and gas producing areas of the UK continental shelf have received new life from subsea developments tied back to existing platforms on older, usually larger fields.

The consequent development of subsea technology has given the UK a strong foothold in the international subsea industry, point out leaders of the industry groups Oil & Gas UK, London, and Subsea UK, Aberdeen.

But slowing UK activity has the leaders worried.

“The rooting of this high-performing industry in the UK is not guaranteed,” warns Malcolm Webb, OGUK chief executive. “If we are to anchor the subsea industry in this country and reap the rewards in terms of employment, exports, and technology development for decades to come, we must ensure that the domestic activity is sustained.”

His statement accompanied release of a Subsea UK report showing that the economic downturn has “shaken confidence in the sector” and raised “growing uncertainty across the supply chain.”

Alistair Birnie, Subsea UK chief executive, said earnings per share of drilling contractors, equipment manufacturers, subsea construction firms, and service companies “are holding up better than expected.” But he said the reason is largely past contract awards and a work backlog.

“The continuing delays on projects, a direct result of the downturn, and the impact of the North American slowdown are hitting the sector hard,” he said. “While tendering activity is higher, there is growing evidence of pressure on prices. There is potential for further day-rate erosion in drilling, reductions in revenues and margins, and subsequently employment across the sector.”

Positive signs for the UK industry include the growing importance of internationalization, Birnie said.

“Subsea companies who have been able to deliver services in addition to products, and value-adding activities that are relevant in the bad times as well as good, are proving to be winners,” he said, adding that firms with work spread across the globe are holding position.

“With the nature of oil and gas partnerships changing, companies who nurture relationships with national operating companies will continue to grow,” Birnie said.

Webb said sustaining subsea activity in the UK requires action by the government on taxation and regulation and by the industry on efficiency and cost-control.

“When the country emerges from recession, the tax rate will need to be reduced to reflect the fundamentals of this mature basin,” Webb said.

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