April 2018

Offshore comeback means more people needed in subsea engineering

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Falling subsea engineering employee numbers have been the reality over the last four years. However, with the cost cuts E&P companies made during the downturn coupled with the recent increase in the price of oil, we see a number of offshore projects in the pipeline. This will require a significant amount of personnel to re-enter the subsea engineering industry. 

After suppliers had to cut over 300,000 jobs globally since the downturn in 2014, 2017 was the first time in three years when some segments of the oilfield service industry hired more than they were letting go. For instance, suppliers exposed to the shale industry saw a rapid run-up in their need for labor throughout 2017. Halliburton, one of the first service companies to take action, announced in April 2017 that they were hiring 2000 employees for their US pressure pumping and cementing business.

However, in the offshore industry, the activity uptick has been less prominent so far, thus, big hiring campaigns have yet to be announced. In fact, subsea-exposed companies experienced employee cuts of -10% in 2017 compared to 2016 – an overall headcount reduction of -32% from the peak in 2013. Subsea engineering personnel in some countries has fallen even further showing a -50 to 75% decline from the highs in 2013

This is about to change. After several years’ effort we finally see that offshore costs have come down enough to make offshore competitive in the market. The latest cost estimates on the Johan Castberg field development in the Barents Sea suggests a breakeven price of $31 per barrel which is remarkably competitive in the current market. Similar stories can be found across the offshore industry, driving growth in new offshore development projects. 

Norway alone approved nine PDOs (Plan for Development and Operation) in 2017 and another ten PDOs are expected from the country this year. The UK, which only had one PDO in 2017, is expected to confirm up to thirteen offshore commitments in 2018 whereas the US is likely to deliver a PDO on Thunder Horse Northwest expansion, Vito and Hadrian North. All this new activity is likely to cause a spree of subsea engineering activity. Going forward, we see an upside potential of 36% in total subsea awards towards 2020 compared to the awards in 2017. In the short term, we expect subsea engineers to work on new tie-back developments in Europe and Africa, whereas entering the 2020s we expect the subsea engineering market to be driven by FPSO developments in Brazil. South America alone has a potential market growth of 52% CAGR from 2018 to 2020.

One cost-saving effort contributing to the promising outlook for the offshore market is to include suppliers at an earlier stage of a field’s development, enabling the engineering teams to deliver more mature solutions. This is also an effect of the alliance structure that has emerged in the offshore market in recent years. It reduces cost and risk for the operators’ but transfers more responsibility and work to the subsea engineering suppliers. Keeping in mind that personnel at subsea engineering companies have been reduced to ten-year lows, there is a risk of capacity shortage. McDermott solved some of the engineering constraints by joining forces with CB&I, but that will not solve the general engineering headcount squeeze in the subsea market. Others have started to hire; Aker Solutions recently announced that they will employ 100 people in Norway (across multiple disciplines) while OneSubsea is looking for graduate-level employees.

Others, even though they are acknowledging the capacity shortage, are still holding back. One reason is the fear of having to go through a new round of downsizing. Some claim that they have been able to keep people with key competences and experience during redundancy rounds, which likely has increased the efficiency and reduced the need for labor volume.

Regardless of efficiency gains, there is an increase in subsea activity that requires more working hours to be put down in this field. Some companies have acknowledged it, and started to hire. Others believe that the workload challenges can be omitted by efficiency gains like having more experienced workers on their payroll. Another solution could be to implement a higher degree of sharing and re-use of development concepts across the industry to tackle the amount of work in their backlog.