The Europe and Canada head of one of the world’s top subsea contractors believes the offshore industry will successfully weather the credit-crunch storm as oil fundamentals are in its favour, even though global demand for this critical commodity is plummeting.
Knut Boe, Technip’s senior VP in Aberdeen, told Energy that, at least from the subsea perspective, 2009 still looked decent, 2010 and 2011 could prove rocky but that, from 2012, the outlook “would be good”.
He said that Technip, for one, was holding a firm course, was cash rich and would complete its current major investment programme in new ships as originally planned.
Recalling the oil price slump of 10 years ago, Boe said: “I think the biggest difference from last time is that, today, prices are based on supply-and-demand fundamentals.
“Having said that, there will be a challenging period. But it seems like the main driver for this crisis is not the economics of field development, though there are fields based on oil prices higher than what we see today. The bigger problem is financing and the impact it has on projects.
“What I cannot believe is that this crisis can last for long. The system has to come back into some kind of equilibrium, though financing will probably be more expensive.
“You will pay more for risk and it will be more expensive to bring projects forward, so that will have an impact on oil company profitability, but I cannot see that we can remain in a situation where the system doesn’t work … at least not for long.”
On Technip’s own current position, Boe said: “We’re fortunate in that we are cash rich. Today, we have around 1.5billion euros (now £1.5billion) in cash, which is quite a significant amount. That means we are in a very healthy position with regard to the credit crunch.
“We have a lot of investment committed … under construction or decided and these will happen. We will continue … we’re not going into any kind of disaster mode and stop projects.
“We’re in a situation where we’re able to carry this investment, though I’m not sure that is the case for everyone in the industry today.
“I’m certain there will be vessels coming into our industry that will have problems in their execution. We’ve seen some yards going bankrupt already; we see others struggling.
“But we’ve (Technip) experienced no issues; we’re taking one more vessel coming out in February, which is the Skandi Arctic, which is a top-of-the-line dive support vessel aimed primarily at the Norwegian market.
“We have a flexible pipelay vessel for Brazil that is coming towards the end of 2010.
“We’ll put them into operation as planned … and we can finance them.”
On the state of the market and the claim that non-Opec investment was flagging even before the global financial crisis, Boe said: “We cannot see that clearly yet on the SURF (subsea, umbilical, riser and flowline) market. We map this market continuously; the few casualties we have seen on the project side so far have not been major.
“Having said that, we fully expect something of a larger scale will happen. But it should be remembered that the subsea markets of ’07 and ’08 have been fantastic years, so there is scope to handle a lower market without significant impact.”
Of the heightened possibility that companies might be forced into mergers to enable their survival, Boe said Technip’s current plan was to stay out of that arena, preserve cash and get on with its work.
“Having said that, there may be consolidation. We saw it was close with Acergy and Subsea 7; there could be other deals out there that we can’t see. But to me, it’s not obvious that they will happen at the high end of subsea.”
Boe said there might be some consolidation lower down the supply chain.
“A lot of companies are highly leveraged and some need to be consolidated because they lack the skills or organisation to run these assets in that market. It would surprise me if it doesn’t happen.”
But he admitted there was no accounting for how oil majors, especially, might behave in terms of attempting to drive down prices – force re-negotiation of contracts even.
“Less than a decade ago, a lot of the bigger players were close to bankruptcy and we have been an industry that has always been very dominated by our clients, the oil companies.
“They have shown remarkable ability to push down prices and make it painful for the contractors. You can do that by selecting companies that are not up to the standard and put pressure on the market and push the price down and so have a negative impact on the market.
“That, I hope, is a lesson learned … that they can only do that sort of thing to a limited extent. Competition is healthy, but abusive competition is not that healthy if you drain the industry. That’s where we were less than 10 years ago. It is important not to go too far that way. It should not be forgotten that oil companies are dependent on companies like Technip being able to develop technology, people and project execution capability.”