Tiebacks by the numbers

With large-scale projects on hold, subsea tiebacks are accounting for 75-80% of sanctioned projects. Will it last? Elaine Maslin shares Wood Mackenzie’s view.

Statoil’s Bryding tieback layout. Images from Statoil.

The last 24 months has been about survival, cutting costs and deferring projects, with the goal of bringing down breakevens. Projects that in 2013 had US$80-85/bbl breakeven costs have been brought closer to $65/bbl, using synergies and going back to the drawing board, says James Hall a director at analyst firm Wood Mackenzie.

In fact, the firm has tracked a 40% drop in offshore capex spending since 2014, Hall told the Society of Underwater Technology’s (SUT) January Global Market Outlook briefing. But, much of the activity over the past two years is yet to filter through into final investment decisions (FID), with relatively few projects above 50 MMbbl sanctioned in 2016: just Utgard, Dvalin and Trestakk (tiebacks) in Norway, Zohr and Atoll in Egypt, and Greater Enfield in Australia (deepwater subsea tieback), plus KG-DWN (deepwater) off India, and Tangguh Phase 2 (two new platforms), off Indonesia.

In 2017, projects FIDs are expected to focus on greenfield developments in Brazil, East Africa and Russia. But, even with more FIDs in 2017, the benefit will take time to trickle down into the chain, except for those in front-end engineering roles, Hall suggests.

One area that has seen an increase in activity is subsea tiebacks, which could help prop up the subsea, umbilical, risers and flowlines (SURF) market in the short- to medium-term, with many operators opting for cheaper, near-term new production, instead of larger standalone projects.

Suppliers and contractors need the work. After a record high 547 subsea tree orders in 2013, just 66 had been ordered by the end of Q3 2016, Hall told the SUT event. The expectation is that by the time the numbers are fully in, the total for 2016 will be just 85 subsea tree orders, he says, outlining Wood Mackenzie research. Things will look better in 2017, at about 100 orders. But, it’s still a far cry from 2013 and the industry isn’t likely to see those figures again anytime soon, he says.

Statoil’s Utgard tieback, an artist’s visualization.

“The proportion of projects driven by tiebacks has increased and continues to increase,” however, he says, with 80% of subsea trees ordered destined for tiebacks in 2016 (compared to 52% in 2015, 62% in 2014, and 29% in 2013). But, that is expected to fall to 59% next year, then gradually drop to 51% by 2020. “Our expectation is that the new norm, resetting the former 400/year average, will be closer to 200-250 trees a year in the next 4-5 years (or 150-170 if you take the gloomy view). But, it only takes a couple of projects to bump up those numbers,” Hall says.

It is the oil majors – Shell, BP, ExxonMobil – driving most of the tieback activity, Hall says, plus Brazilian national oil firm Petrobras, which is supporting a high proportion of the short-term tieback activity. Other national oil firms, such as Eni and CNPC, are likely to join in as time goes on.

By region, the Middle East will see a small drop in tieback activity, at about -3%, as will Asia, at -8-10%, compared to an average global increase of about 16%, Hall says. Australasia will see the biggest increase, from about 46% of orders to 55%, according to Wood Mackenzie’s forecasts.

After a good start in 2017, with the award of Mad Dog 2 subsea production system to OneSubsea (ca. 30 trees), the next largest order is expected to come from Eni, with 20 subsea trees anticipated for the West and East hub project offshore Angola; followed by Premier Oil’s Sea Lion in the Falklands, at 14; Hess’ Tubular Bells in the Gulf of Mexico, at 10; Total’s Zinia (Pazflor Phase 2), at 9, and Rosa (Girri tie-in), at 8. Then, there’s Tullow’s Mahogany East (7), Hess’ Stampede (6), Anadarko’s Constellation (6), and BP’s Azeri (6).

The rise in tiebacks means a rise in SURF installation work, especially given a 35% increase in the average length of sanctioned tiebacks, expected in 2017. Some 75-80% of projects are being driven by tiebacks, Hall says. Indeed, tree awards in 2016 were 80% driven by tiebacks, he adds.

But, because of the lack of FID decisions in the past couple of years, that rise in SURF installation work may not come for some time yet, leaving contractors to rely on their ever-dwindling backlogs. “If we don’t see FIDs on some projects soon, that backlog will continue to suffer,” Hall warns.

Subsea firms shouldn’t put all their eggs in the subsea tieback basket either. By the end of the decade, subsea tiebacks are likely to drop to about 50% of new tree orders, Hall says.

“There are swathes of projects out there waiting final investment decision,” Hall says. “In our view, it’s a waiting game.”

Looking at production facilities in general, there could be 20 getting through FID in the next couple of years, based on a breakeven $60/bbl oil price. Most will be floating production facilities, Hall says. Southeast Asia will see many these, followed by the Middle East, where activity would be driven by brownfield developments, as well as East and South Africa, home to large gas projects.