Yesterday I posted five predictions that would drive SEMS in 2014. There was a lot of interest so I am pulling out the crystal ball again to look at five trends for this year. Note: a trend is a prediction that you are pretty sure might happen, but you don’t want to bet the ranch on.
So here they are:
- Operators continue to exit the Gulf of Mexico – Under SEMS a number of small operators either sold off their assets or P&A’d their properties. Some of that is the usual churn that always happens on the shelf, but you get the sense that something else is going on. Some operators have always treated properties like an ATM – take out money when they can and put money in when they have to. Some operators have held onto projects that are near the end of their life-span, delaying decommissioning until prices justify wringing out the last few drops of hydrocarbons. The compliance costs of SEMS add a new layer of risk and disrupt the economic model. When BSEE started SEMS, it said there were 130 operators offshore. In November it said there were 84. A potential reduction in operators of 45% doesn’t make any sense, but clearly there has been a reduction. And remember operators are taking out around 10 structures on the shelf for every new one they put in.
- Operators pare down their contractor lists – We are hearing from some pretty big operators that they want to scale back on the numbers of contractors they are using, maybe dramatically. We have heard it before, but this time it has two new drivers.
- Evaluating contractors under SEMS costs money. The more contractors you evaluate. the more it costs. The economies of scale mean it costs about as much to evaluate a small contractor as it does a medium contractor. So, fewer contractors means cheaper SEMS.
- Don’t forget that the point of evaluating contractors is to weed out the unsafe players. As operators determine who “gets” SEMS and who doesn’t, it is only natural that they will lean on the ones that do.
- Larger contractors manage subcontractors more closely – See above. Just because operators cut back on the number of contractors on their vendor lists, doesn’t mean they no longer need those services. Larger contractors will absorb a lot of that internally, but there will also be a push for them to take a firmer hand in evaluating their subs. Some of it will shift costs from operators to large contractors. Some of it will shift liability. Honestly, some of it is just the offshore pecking order.
- Safety culture takes hold – OK, is this a trend or just a wish? A lot of operators and contractors have very healthy safety cultures, but that is by no means universal. The push from BSEE in 2013 was to extend that safety culture throughout the industry. We may see operators take up that call with their contractors this year for a key reason. In several of the industry’s incidents over the last year or so, operators were blamed for not having enough oversight of their facilities and the contractors who work for them. A contractor with a strong safety culture may still make mistakes, but they don’t have to be under the customer’s thumb all the time. A company with a weak safety culture has to be watched constantly. Who would you rather have work for you?
- BAST – In 2013, BSEE release a proposal for the use of Best Available and Safest Technology (BAST) in the development and use of offshore equipment. BAST would require a life-cycle analysis of critical equipment, with a goal to maintain and replace that equipment before it fails. Sounds good, but that is a very complex and controversial area, like predicting when your car will bite the dust. The comment period closed last month and you can read the full record here. What the final rule looks like is anyone’s guess, but the chances are it will mean a lot of equipment will need to be replaced over the next few years and that becomes yet another trend that affects which operators stay in the Gulf and who they use as contractors.
Oh, and one more thing – the Saints surprise the world by going on to the Superbowl! Too far out on a limb?