Subsea business activity review 2013

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2013 SUBSEA BUSINESS ACTIVITY REVIEWISSUED JULY 2013

The voice of the UK Subsea industry

Table of Contents

Executive Summary ...............................................................................................................................................................................................3

1. Introduction ............................................................................................................................................................................................................4

2. Methodology Overview ..................................................................................................................................................................................5

3. Subsea Market ......................................................................................................................................................................................................63.1 Overview of the UK offshore Oil & Gas industry ..................................................................................................................... 63.2 The UK Subsea Market sector ........................................................................................................................................................ 73.2.1 Decommissioning ............................................................................................................................................................................ 73.2.2 Offshore Renewables ..................................................................................................................................................................... 83.3 Global Subsea Market ....................................................................................................................................................................... 83.4 Deepwater ........................................................................................................................................................................................... 83.5 Subsea Production ............................................................................................................................................................................. 93.6 Trees ...................................................................................................................................................................................................... 93.7 Pipelay ................................................................................................................................................................................................... 93.8 Geographic Regions .........................................................................................................................................................................103.8.1 Africa ................................................................................................................................................................................................103.8.2 Asia ...................................................................................................................................................................................................103.8.3 Australia ...........................................................................................................................................................................................103.8.4 Latin America .................................................................................................................................................................................103.8.5 North America ..............................................................................................................................................................................11

4. Survey Results ....................................................................................................................................................................................................124.1 Overview of UK Subsea Companies ...........................................................................................................................................124.2 Survey Participation .........................................................................................................................................................................134.3 Size of Companies ............................................................................................................................................................................154.4 Value of UK Subsea Supply Chain Output ..................................................................................................................................164.5 Exports .......................................................................................................................................................................................................................................................................194.6 Effect of Exchange Rates .................................................................................................................................................................214.7 Renewables Market ..........................................................................................................................................................................214.8 Number of Employees ....................................................................................................................................................................224.9 Comparison with Past Sector Reviews .......................................................................................................................................234.10 Future Growth and Trend ............................................................................................................................................................24

5. Key Performance Indicators .....................................................................................................................................................................265.1 Specialised Vessel Market ................................................................................................................................................................26 5.2 Market for Commercial Diving Services .....................................................................................................................................275.3 Market for ROV Services ...............................................................................................................................................................28

6. An overview of the Subsea Industry: Past, Present & Future ..........................................................................................31 6.1 Past ......................................................................................................................................................................................................316.2 Present ................................................................................................................................................................................................326.3 Future ..................................................................................................................................................................................................33

7 Conclusions and Findings........................................................................................................................................................... 34Appendix A: Survey Methology ........................................................................................................................................................ 35Identification of Subsea Companies ............................................................................................................................................... 35Questionnaire Design .......................................................................................................................................................................... 35Interviews ............................................................................................................................................................................................... 36Methodology for Valuing UK Subsea Supply Output ................................................................................................................. 36Disclaimer ............................................................................................................................................................................................... 38

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Executive Summary

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Overview

This is the fifth Subsea UK review of the oil and gas industry

subsea sector, reporting on manufacturing, services, employment

and exports.

Since 2010 the UK subsea sector market output has grown by

£3 billion to c£8.9 billion despite the general economic climate.

This trend is forecast to continue through 2015 then slow from 2016.

The offshore renewables market has also grown by 20% in this

period and will continue to do so until circa (c) 2018 whilst the

Round 3 windfarm installations take place.

UK Decommissioning annual expenditure has been growing

modestly and is forecast to increase steadily up to 2040. The

global subsea sector has also grown since 2010 and is forecast to

double again by 2017, equating to c15% CAGR. The majority of

expenditure will be on deepwater developments in West Africa,

Brazil and the Gulf of Mexico.

The UK subsea supply chain

The largest UK subsea supply chain sectors are Services at 26%,

Manufacturing at 25% and Consulting & Recruitment at 13%.

The Services sector primary role is providing offshore services

such as diving, ROV inspections, underwater construction,

installation, survey, etc. The Manufacturers include those

companies whose primary role is the manufacture of subsea

goods and technology. It should be noted here though, that

another category is Multidisciplinary who are large companies

having major divisions operating in more than one category

and some of these also have manufacturing capability by virtue

of acquisition or grouping with subsidiaries etc. Consulting &

Recruitment companies include those that provide engineering

design and project management consultancy and provision of

specialist personnel for subsea projects and applications.

• The total value of 2012 UK subsea output (sales to operators + exports) is £8.9b.

• UK exports of subsea goods and services makes up 49% of the sector’s total value of £4.3b.

• The review indicates companies are doing good business in the traditional European, African, North American, and Asian

markets and are optimistic also about the South American market for the future.

• Based on the review responses approximately 53,000 people are now employed in the UK subsea sector. Of the total,

services companies employ 48%, manufacturers 19% and multidisciplinary companies (those who provide both engineering & offshore services) 7%.

Industry Optimism

There is general optimism in the subsea sector. Some 43% of respondents forecast company growth of >20% PA over the next three years and 28% said 10%-20%.

When asked about exports, 50% of respondents forecast growth of >20% PA and 14% said 10% to 20% PA.

Introduction


Subsea UK has previously commissioned reviews in 2003, 2005, 2007 and 2010 to estimate the size of the subsea sector of the oil and gas industry in the UK, covering manufacturing, services, employment, and exports.

Each of the previous Reviews has followed the same rationale and where possible, identical methodology in order for each to be comparable on a like for like basis, thereby telling the “continuing story” of the development of the subsea sector.

The purpose of the 2013 Review was to:

• Quantify the UK subsea industry output in the last fiscal year, i.e. 2012,

• Qualify the relative importance of exports and renewables to the industry,

• Determine the contribution of different geographic regions of the UK to the sector’s performance,

• Identify the key export markets and growth trends, based on survey responses.

In the three years since the last review Subsea UK has become even more firmly established as the voice of the UK subsea

industry with more than 270 members, including all major contractors and operators.

Subsea UK has previously commissioned reviews in 2003, 2005, 2007 and 2010 to estimate the size of the subsea sector of the oil and gas industry in the UK.“ “

Methodology Overview

The subsea sector data presented in this review has been obtained from various public and private sources in the public domain including; The Department of Energy and Climate Change (DECC), Scottish Council for Development and Industry (SCDI), Scottish Enterprise (SE), Highlands and Island Enterprise (HIE), Crown Estates, Oil and Gas UK, the International Marine Contractors Association (IMCA), Douglas-Westwood, Infield Systems, Quest and others. This information was used to provide a setting for this report and also to act as a basis of confirmation of findings. However, the major findings and results of this study are independent of these third parties, as they are based entirely from information provided directly by companies within the industry or information that those companies reported in their Companies House 2012 filings.


For this Review, information on the UK subsea sector was gathered directly from companies involved in the business using a standardised survey, supplemented by interviews with personnel within these organisations and information available from Companies House.

First, a comprehensive list of those companies that offer subsea

goods and services to the offshore oil and gas and renewables industry was created. Companies that offer underwater services or technology solely to the defence, fisheries or oceanographic industries were excluded as being outside the scope of this study.

Over 750 companies were identified as being involved in the UK subsea sector and were approached about participating in this study either directly or via their parent corporation. Participants were asked to identify their total UK subsea-related turnover and exports, subsea-related turnover from renewables, and number of UK employees working on subsea

projects.

In addition, the survey gathered information about projected trends in business over the next three years, important export markets, and important suppliers of and customers for subsea equipment and services. This information was supplemented by conducting interviews with key companies in the industry.

Total output of the UK subsea sector was calculated based on responses to the survey along with Companies House data for organisations that chose not to participate. A company’s contribution to UK output is considered to be equal to its sales directly to UK-based oil and gas operators or renewables companies plus its total subsea exports. Within-supply-chain sales to UK-based prime manufacturers or subsea contractors were discounted to eliminate double counting of sales revenues.Appendix A provides additional discussion on the methodology used to gather data and quantify subsea output.

Using this data, the sector’s output during the most recent complete fiscal year (2012) was quantified, including the relative importance of exports and renewables to the industry, and the contribution of different geographic regions of the UK to the industry’s performance. Key export markets and growth trends were identified based on survey responses.

Subsea Market


3.1 Overview of the UK offshore Oil & Gas industry

Whilst in the last three years the United Kingdom, along with many other countries, has suffered from low growth and near recession, the UK offshore Oil & Gas industry has seen a year on year increase in revenues since 2010. The 2011 capital expenditure (Capex) figure was some 40% up on 2010 at c£8.5 billion and in 2012 this increased again to c£11.5 billion with total expenditure on exploration, developments and operations being almost £17 billion (Westwood 2012-2016 The World’s Subsea Hardware Market Report).

Total UKCS expenditure over the five years 2012-16 is forecast to be c£90.5 billion with an annual average of £18 billion - predicted to peak at £19.7 billion in 2013 and then fall back to just under £16 billion in 2016. Of this, Capex will account for c£44 billion, peaking at £10.25 billion in 2013 then falling to £6.7 billion in 2016. Total Opex will be just over £36 billion, predicted to increase slowly from £6.9 billion in 2012 to £7.4 billion in 2016, despite forecast declines in oil and gas production. Exploration and appraisal expenditure is forecast to total £6.8 billion of the overall total but is expected to fall by about half over the five years. Decommissioning expenditure is forecast to increase steadily to £4.5 billion by 2017 and £10.3 billion by 2022.

In 2010 we reported the offshore industry was being adversely affected by the aftermath of the Macondo, Deepwater Horizon incident and to a degree that is still the case. However, we must wait until later this year and into 2014 to see what impact, if any,

the resulting enforced changes to the USA regulatory environment might have on the UKCS market.

The UK offshore renewable project requirements for offshore services continues to grow. For example, in 2011/12 total Capex on offshore wind was c£1.5 billion to install 774MW of generating capacity. Of this c£770 million related to subsea sector hardware (substructures & cables) and services. These figures will increase substantially until c2018 whilst the Round 3 windfarm installations take place.

The UK is currently leading in offshore wind with more projects installed, in construction and in planning than any other country in the world.

From this year the offshore expenditure on Marine renewable projects (wave & tidal) will also begin to ramp up as the UK TSB initiatives in this

area of technology start to show results with new developments.

UK offshore Oil & Gas industry has seen a year on year increase in revenues since 2010“

“

Subsea Market

3.2 The UK subsea market sector

The UK continental shelf energy market is one of the largest in the world yet it is also a region facing oil and gas production decline, dictating the need for additional expenditure on infrastructure, EOR technologies and exploration campaigns in order to sustain or enhance existing levels.

With a level of investor confidence returning following the UK Government and industry moves to establish a new longer term approach to the industry, some new 28 project proposals were submitted and given approval by DECC in 2012, double the number in 2011. Investment of £11.4 billion in 2012 (up from £8.5 billion in 2011) on new developments and improvements to existing assets and infrastructure was also the highest for more than 30 years and is forecast to rise to a record £13.4 billion this year. Examples of the new buoyancy and confidence in the industry are Statoil’s £4.3 billion Mariner project, the largest new offshore development in the UK in more than a decade. On completion in 2017 the field is expected to produce for 30 years, averaging c55,000 BOPD over the plateau period of 2017 to 2020 and GDF Suez £1.4 billion investment in the Cygnus gas development.Drilling activity also picked up pace during the period, with the number of wells being drilled in UKCS in 2013 forecast to be nearly double the 2010 figure and this trend continuing at least out to 2015.

The specialist vessels market is important, but is referred to in Section 5.

With increased expenditure the region has also seen greater competition, forcing its players to constantly look to acquisitions, mergers and/or partnering to keep or increase market share. This has happened at all levels in the supply chain e.g. Cameron & Schlumberger formed joint venture OneSubsea, and Subsea 7 and Acergy joined forces. New groupings included Reef Subsea, Acteon Group was grown by acquisitions and Forum Energy Technologies and Stork Technical Services were created by mergers.The outcome of this level of acquisitions, mergers and/or partnering is that comparing the 2010 Review with 2012 figures it would appear that the number of UKCS manufacturing companies had reduced and the numbers of Service organisations increased. However, the real picture is that because of the level of consolidations, mergers and acquisitions since 2010 there are now more large companies that include manufacturing and services in their portfolio.


3.2.1 Decommisioning

Forecast expenditure on decommissioning in the decade 2012 to 2021 is expected to be c£10.3 billion, rising to £28.7 billion by 2040.

In the shorter term, it is forecast some £4.5 billion will be spent on decommissioning 80 fields, 40 platforms and 177 pipelines between 2012 and 2017, split virtually 50/50 between UK Northern North Sea and Central & Southern North Sea, Norwegian North Sea and the Irish Sea.

At c£2 billion, the largest category of expenditure in this total is for well plugging and abandonment of 286 wells in the central and northern North Sea and 74 wells in the southern North Sea and east Irish Sea.

At just under £1 billion the next largest category of expenditure will be in the suspension live phase of a decommissioning project, the majority of which is operational costs associated with running facilities whilst decommissioning is taking place.

Some £800 million of the total is for the removal of topsides, jackets and subsea installations – a total of 170,000 tonnes of material. With the current limited number of heavy lift & transport assets and dismantling & processing companies in the UKCS, this will pose a significant challenge to the supply chain.

Subsea Market

3.2.2 Offshore renewables

The two areas of offshore renewables falling within the subsea sector are wind and marine (the latter encompassing wave and tidal) and the UK markets lead the world in both, with the UK wind sector gaining maturity. Over the period 2011/12, 18 offshore wind farms were installed comprising 540 wind turbines now delivering 517MW into the national grid.

Each of these wind farms required wind turbine generator (WTG) substructures and offshore substations to be installed and overall, some 960 kilometres of cable was laid on the seabed.

In the first three months of 2012/13, Greater Gabbard went operational, with its 140 turbines being fully commissioned in September 2013. At 504MW, this windfarm is almost equal to the total 2011/12 deployment figure (517MW). Apart from those projects actually commissioned in 2011/12, five more large offshore windfarms were under construction, London Array (630MW phase 1), Gwynt y Môr (576MW), Sheringham Shoal (317MW), Lincs (270MW) and Teeside (62MW). Total capital expenditure in 2011/12 on offshore wind was c£1.5 billion. The UK now has more projects installed, in planning and in construction, than any other country in the world.

The offshore marine energy sector (wave, tidal, and current generators) is also moving into the large scale demonstration phase, with

significant government grant funding awards made in 2013.


3.3 Global subsea market

Whilst the offshore oil and gas industry has been affected by the depressed global economy in many ways, the Subsea sector has seen capital expenditure steadily growing since the 2010 Review as operators face the dual challenge of sustaining their production levels in mature regions and exploiting the uncapped reserves in growth areas like West Africa, US Gulf of Mexico and Brazil.

The global industry saw an increase of 12% more subsea units installed in 2012 compared to 2011, with just less than 50% of these in the South Atlantic (West Africa & Latin America), 20% in Gulf of Mexico and the remainder in the North Sea. In total, operators are expected to invest more than US$19 billion in Capex for subsea production equipment during 2013, a figure that is likely to grow to US$33.3 billion by 2017.

3.4 Deepwater

The offshore market conditions are also forcing operators to push their E&P efforts to deeper, more remote and harsher locations in order to tackle declining production. This has spurred the advancement of subsea technology and improved manufacturing techniques has lowered the cost associated with developing certain types of fields, enabling a number of smaller, previously uneconomical fields to be tied-back into existing infrastructure.

In their latest report, Douglas-Westwood forecast a global Capex of over $223 billion for 2013-2017 (double that spent in the preceding five year period), indicating that the global Subsea industry is set to grow at some 15% CAGR to 2017.

A large part of this Capex will be spent on deepwater developments in West Africa, Brazil and the Gulf of Mexico. In the first half of the period, highest spend is forecast for the African developments in Angola, Ghana and Nigeria, but in 2016/17 this will be overtaken by Petrobras investments in their Brazilian Campos and Santos fields.

The global industry saw an increase of 12% more subsea units installed in 2012 compared to 2011.“

“

Subsea Market

3.5 Subsea Production

Regarding production, advances in technology are increasingly being tested and deployed in response to the offshore industry’s demand for solutions to challenges, such as: deeper and harsher waters, sustaining production rates in mature developments, boosting flow rates in low pressure reservoirs, accommodating a larger number of fields tied back to host facilities and ensuring the energy and cost efficiency of a project. Possible projects that could benefit from the use of advanced seabed technologies include: the mature fields of the North Sea and the US GoM, where a large number of small developments are expected to be tied back to existing platforms in order to be commercially viable. West Africa will be one of the key regions for implementing subsea processing because of its already extensive deepwater production, significant oil reserves and most importantly the geographical distribution of its fields that require multiple wells being tied-back to one central processing facility.

3.6 Trees

Taking the annual tree market as a good indicator for the sector. 2012 saw the industry selling 416 new subsea tree (compared with 321 in 2011) with >320 of these brought on-stream (60 more than in 2011). This trend looks set to continue into 2013, with sales of >500 new subsea trees and up to 370 subsea tree installations, mainly driven by the West Africa, Brazil and the US GoM investments.

Well regarded forecasters are estimating that ultra-deep installations will account for some 25% of this market by 2016, with important developments including the pilot projects in the Brazilian Lara and Sapinhoa fields and a series of EWTs in Sapinhoa, Libra, Iara, Franco and Iguazu fields. The outlook shows a market total capacity of 690 trees, with increasing demand for subsea trees in Brazil and West Africa. Global subsea tree manufacturers’ utilisation rates are expected to increase to an average of 75% in the next three years, up from 49% in the 2009 - 2011 period.

3.6 Pipelay

In terms of subsea pipelay activity, the market saw no growth in “kilometres installed” in 2012. There was in fact a decrease in the large diameter pipelines laid, offset by an increase in small diameter pipe laid, driven in this respect by the North Sea which saw the highest level of activity with some 30% of the market, followed by Asia-Pacific with c25%. Whilst having a smaller share of the

overall global market the Middle East was the fastest growing area with its large scale projects like Upper Zakum (Abu Dhabi NOC - Exxon). Khafji (Saudi Aramco) and Qatar North Field Barzan (Qatar Petroleum). Strong development is expected in the Gulf of Mexico in 2013/14 due to a number of recent discoveries and in the Black Sea with commencement of the South Stream project. Forecasts for activity post 2013 in the Asia-Pacific area are also good, with a number of large projects already in the executive phase. These include Liwan in China and Gorgon in Australia, and Ichthys for which various packages were awarded in 2012. Infield Systems expects the largest proportion of deepwater investment to be directed towards pipeline installations; comprising 39% of total global deepwater expenditure. Latin America and Africa are expected to account for the greatest proportion of deepwater pipeline spend; whilst the single most capital intensive pipeline project is anticipated to be the Gazprom South Stream development at a water depth up to 2,200 metres, a project approved by Russia in December 2011.


3.8.2 Asia

Asia is also becoming increasingly important, being the fastest growing region in terms of energy demand, and the hub of the global LNG sector. The events in Fukushima, Japan, in 2011 have also served to increase the region’s dependency on natural gas. Operations in Asia are increasingly moving exploration and production into deeper waters in a bid to boost and sometimes reverse declining oil and gas production. As a result, Malaysia, Indonesia, India and China are becoming major subsea industry hot spots attracting a range of operators: from NOCs, CNOOC and ONGC, to IOCs Shell and Chevron and independent international companies like Murphy and Husky.

3.8.3 Australia

Australia is emerging as a major player in the global natural gas market due to the development of offshore natural gas and (onshore) coal bed methane (CBM) projects. Post 2013, a significant backlog of major projects is predicted to provide a boost to the sector. More than 50% of the forecast subsea market is expected to relate to subsea tiebacks, a good example being Chevron’s Gorgon area fields which are being tied back to large onshore LNG producing facilities.

3.8.4 Latin America

Latin America, particularly Brazil, has the potential to emerge as a major offshore energy frontier in the global oil market. Latin America and West Africa account for over half of subsea capital expenditure expected to be spent between 2013 and 2017. Petrobras has begun to reveal reserve estimates for its pre-salt finds that stand to significantly increase Brazil’s total estimated level of reserves. 38% of their projected subsea Capex will be needed to develop the pre-salt projects. They already dominate the subsea sector and are expected to account for 24% of global subsea Capex in the next five years developing their key projects Papa Terra, Lula and Franco.

Subsea Market

3.8 Geographic Regions

3.8.1 Africa

In Africa, oil companies such as Total, BP, ExxonMobil, Chevron and Eni will try to take advantage of the area’s ample resources to leverage against declining reserves from other mature areas. The highest investment levels and number of installations are forecast for 2017 driven by big projects like the Kaombo and Cabaca fields in Angola, and the Bonga Southwest and Nsiko projects in Nigeria (although the latter might be delayed as Nigeria continues to suffer from low investor confidence due to its lack of stable fiscal policies). Simultaneously, emerging countries such as Ghana, Congo-Brazzaville and Equatorial Guinea are expected to increase their presence in the subsea sector.


Subsea Market

3.8.5 North America

In 2010, the North American market was just beginning to emerge from a challenging period. The Macondo, Deepwater Horizon disaster had a significant impact and its repercussions will continue to affect the region for the foreseeable future, with a new regulatory environment being introduced to govern operator activities. In addition, the rise of the local Shale Gas market threatens to mix up the offshore market dynamics by diverting the operators’ attention onshore. However, North America is expected to see the highest Capex globally, with $254.3 billion, representing a share of 24.5% of the 2012 global total.

Compared to a global average Capex growth rate of 13.4%, North America is expected to witness a Capex growth of 15.7%. In the USA the shift from shallow water developments where production is in decline towards large oil and gas discoveries further offshore is well underway. The deepwater Gulf of Mexico is expected to host many new floating platform developments, combined with the tie-back of subsea satellite fields later on in the forecast period. The increase of unconventional oil and gas activities, especially the continuing exploitation of shale oil and gas sites and the development of Canadian oil sands are the major drivers for these investments.


Compared to a global average Capex growth rate of 13.4%, North America is expected to witness a Capex growth of 15.7%. “

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Survey Results


Provides a breakdown of subsea-related companies by their primary role in the supply chain. Categories used are as follows:

• Consulting: including engineering design and project management consultancies.• Manufacturing: primary role is manufacture of subsea goods and technology.• Multidisciplinary: primarily large companies that have major divisions operating in more than one of the above categories.• Operators: companies whose primary role is the exploration and production of oil and gas. • Others: companies that don’t fit any of the above categories (e.g. speciality insurance providers, HEIs, research establishments etc).• Recruitment: primary role is provision of specialised personnel for subsea projects and applications.• Renewables: companies specialising in manufacture, installation, commissioning, operations and maintenance of offshore renewables (e.g. wind, wave, tidal).• Supplier: providers of subsea technology and products manufactured by third parties.• Services: primary role is providing offshore subsea related services like specialist vessels, diving, remote intervention, survey, etc.• Training: primary role is providing training to personnel in the subsea industry.

Figure 4.1.1

44%

9%

4%

6%

7%

5%

4%

4%

UK Subsea Companies by Region(Sample of 761 Companies)

East MidlandsEast of EnglandLondonNorth East ScotlandNorth East EnglandNorth West EnglandRest of ScotlandSouth East EnglandSouth West EnglandWalesWest MidlandsYorkshire

4.1 Overview of UK Subsea Companies

A total of 761 companies were identified throughout the UK as providing speciality goods or services directly related to subsea operations. The geographic distribution of these companies is shown in Figure 4.1.1 below. Although nearly 44% of these companies are located in North East Scotland, significant numbers are distributed throughout the UK. The exception is Northern Ireland where we were unable to identify any companies with significant subsea-related operations.

Scotland

North East Scotland

North East

North WestYorkshire

East Midlands

Wales

West Midlands

South EastSouth West

East of England

London

1%

5%

2%

9%

Figure 4.1.2

Services and Manufacturing companies comprise just over 50% of the companies in the UK subsea supply chain, with 26% and 25% of the market share respectfully. 41% of the Manufacturing companies are based in the North East Scotland, 10% and 13% are located in the North East England and North West England. For Services companies 49% are located in the North East Scotland with the second highest concentration of services companies being in the East of England with 10%.

Consulting and Recruitment companies comprise the third largest sector of the supply chain at 13%,

each with 23% and 54% located in North East Scotland and a small concentration in London (8% and 9%).

Survey Results


4.2 Survey Participation

A total of 103 responses were received from the online questionnaire, reflecting an overall response rate of 13.3%. Responses were received from companies located throughout the UK and across all roles in the supply chain and of all sizes. For those organisations that chose not to respond to the survey, the subsea-related turnover and exports of larger companies was estimated based on data contained in their Companies House filings supplemented by information reported in the press and on their website. Similarly, the turnover and exports of non-participating SMEs was estimated using averages and extrapolations of the data provided by participating SMEs.

Figures 4.2.1 and 4.2.2 below show the types of products and services the participants provide based on their survey responses. Most provide both services and equipment. However, 15% indicated that they exclusively manufacture equipment and 24% indicated that they exclusively provide services.

25%

13%2%

13%

26%

6%

3%

2%

10%

ConsultingManufacturingMultidisciplinaryOperatorOtherRecruitmentRenewablesServicesSupplierTraining

Core Business of UK Subsea Companies

Survey Results


Figure 4.2.1

Figure 4.2.2

Percent of Companies offering Subsea Services

Percent of Companies offering Subsea Services

Wellheads

Structures

Sensors and Instrumentation - Production

Process Equip

Mooring and Turret Systems / FPSO Equipment

Diving Systems andEquipment

Buoyancy and Flotation

0 2 4 6 8 10

Subsea Services Provided by Survey Participants

Perc

ent

of C

ompa

nies

offe

ring

Sub

sea

Serv

ices

02

46

810

1214

1618

Train

ing

Surv

ey

Repa

ir

Recr

uitm

ent

Oth

er

Inst

allat

ion

Insp

ectio

n

Des

ign

Com

miss

ioni

ng

Con

stru

ctio

n

Controls

LARS (e.g. winches, A-frames)

Pipelines (e.g. pipes, joints coatings, risers)

Robotics (e.g.. ROVS, AUVs, trenchers)

Sensors and Instrumentation - ROV, survey, etc

Subsea cables and connectors

12 14 16

Survey Results

4.3 Size of Companies

As shown in Figures 4.3.1 and 4.3.2 below, based on the responses of study participants, the UK subsea sector comprises a wide swathe of companies in terms of revenue. The median turnover from subsea-related operations companies across all respondents equal to £2.1 million per annum.


Figure 4.3.1 Figure 4.3.2

Some 20% of those who participated in this survey are primarily involved in the subsea sector, with subsea accounting for 90% to 100% of their total turnover, as shown in Figure 4.3.3. Subsea accounts for between 50% and 90% of total revenue in an additional 13.7% of companies.

Perc

ent

of C

ompa

nies

offe

ring

Sub

sea

Serv

ices

<£10

0k

£100

-499

k

£500

-999

k

£1m

-1.9

9m

£2m

-4.9

9m

£5m

-9.9

9m

£10m

-19m

£20m

-49m

£50m

-99m

£100

m-1

99m

>£20

0m

25

24

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20

19

18

17

16

15

14

13

12

11

10

9

8

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4

3

2

1

0

Percentage of Surveyed Companies in Turnover Categories

Perc

ent

of C

ompa

nies

offe

ring

Sub

sea

Serv

ices

<£10

0k

£100

-499

k

£500

-999

k

£1m

-1.9

9m

£2m

-4.9

9m

£5m

-9.9

9m

£10m

-19m

£20m

-49m

£50m

-99m

£100

m-1

99m

>£20

0m

25

24

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20

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16

15

14

13

12

11

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9

8

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2

1

0

Percentage of Companies by Subsea Turnover

Based on the results of this survey, supplemented by information from Companies House, the total value of UK subsea output (as represented by sales to operators plus exports) is £8.9 billion. As such, UK companies contribute approximately 45% of the £20 billion total value of the global subsea industry.

As can be seen in Figure 4.4.1, some 26% of the UK subsea industry companies produce 70% of the output of the UK subsea sector, mainly from sales directly to operators or exports. The figures also indicate that manufacturing companies only comprise approximately 25% of all subsea companies, generating just 14% of the output of the subsea sector. However, part of the explanation for this could be the consolidations of manufacturing companies into larger service companies over the past three years has resulted in a ‘false’ reduction in the number of pure manufacturers. Approximately 81% (64% in 2010) of the UK subsea sector’s output is generated from companies located in North East Scotland, as many of the prime contractors that sell directly to operators are based in this region (See Figure 4.4.2 overleaf). In contrast, companies such as engineering firms and manufacturers that support the UK subsea chain are based throughout the UK.Although North East Scotland is still the area of the county that generates the most total turnover in terms of within-supply-chain sales to UK-based prime contractors and manufacturers, there are significant contributions from many other regions of the country, particularly North East England, the rest of Scotland, South East England, East of England, and North West England.

Survey Results


Figure 4.3.3

16

4.4 Value of UK Subsea Supply Chain Output

ConsultingManufacturingMultidisciplinaryOtherRenewablesServicesSupplierTraining

UK Subsea Sector Output by Business Area - £8.9 Billion(In 2010 £5.9 Billion)

Perc

ent

of C

ompa

nies

who

Res

pond

ed

0%

1-9%

10-1

9%

20-2

9%

30-3

9%

40-4

9%

50-5

9%

60-6

9%

70-7

9%

80-8

9%

90-1

00%

24

23

22

21

20

19

18

17

16

15

14

13

12

11

10

9

8

7

6

5

4

3

2

1

0

Subsea Activity as a % of Total Revenue

70%

3% 2%

14%

7%

2%1%

Figure 4.4.1

1%

Survey Results

In total, participants identified 120 companies as being a major customer for, or a supplier of, subsea equipment and/or services. Of these companies, most are based in the UK and are included in this study. Participants identified as UK-based non-subsea companies and organisations (e.g. machine shops, suppliers and manufacturers of non-speciality equipment, MoD, universities, etc.), are noted for being important to their supply chain. Although these companies are not included in this study, it is important to note that the subsea sector has economic impacts on a diverse array of industries within the UK.


Figure 4.4.2

Much of the output of the UK supply chain is generated by a small number of prime contractors and manufacturers. The 36 largest companies along with their subsidiaries produce 70% of total subsea turnover within the UK and 77% of the sector’s output. In contrast, the remaining 655 companies (primarily SMEs) produce 30% of total UK subsea turnover and only 23% of the sector’s output, although they still play a vital role in supporting the UK subsea supply chain.

Much of the output of the UK supply chain is generated by a small number of prime contractors and manufacturers. “

“81%

3%

2%

3%1%

2%5%

1%

UK Subsea Sector Output by Region - Total £8.9 Billion(£5.9 Billion in 2010)

2%

East of EnglandLondonNorth East ScotlandNorth East EnglandNorth West EnglandRest of ScotlandSouth East EnglandSouth West EnglandYorkshire

Table 4.4.1 below lists the companies that were most often identified by survey participants as being one of their primary customers for or suppliers of subsea equipment and/or services:

Survey Results


Table 4.4.1 - Major Customers and Suppliers ofSubsea Equipment & Services

Customer / Supplier % of Responses

Subsea 7 15%

Technip 12%

BP 9%

Shell 8%

FMC Technologies 6%

Aker Solutions 5%

Bibby Offshore 5%

Cameron 5%

GE Oil & Gas 5%

Statoil 5%

Talisman 4%

Total 3%

Oceaneering 3%

BAE Systems 2%

BIFAB 2%

Chevron 2%

Conoco Phillips 2%

Expro 2%

Halliburton 2%

Helix Well Ops 2%

Other 1%

18

Survey Results


Figure 4.5.2

As shown in Figure 4.5.2 below, the current geographic market for UK subsea exports identified by the most survey respondents as being important to their business is Europe, with major secondary markets in Africa, North America, and Asia. When companies were asked to identify the geographic markets they are targeting for growth in the future, the most common response was South America (i.e., Brazil), followed closely by Asia and North America. The responses also suggest that companies are optimistic about growth in the traditional European and African markets.

Figure 4.5.1

4.5 Exports

UK exports of subsea goods and services total £4.3 billion or 49% of the sector’s total value. Engineering and manufacturing companies generate 25.1% of these exports, while service providers generate 26% and companies involved in multiple disciplines (e.g., large companies that both manufacture goods and provide services) generate 3%. As shown in Figure 4.5.1, 70% of exports are generated from North East Scotland, but several other areas of the country, especially East England (9%), North East of England (5%) and Rest of Scotland (also 5%), also generate significant subsea exports.

UK Subsea Exports by Region - Total £4.3 Billion(£3.3 Billion in 2010)

Export Markets Identified By Survey ResultsSize of Export Market 2013 = £4.3 Billion) Size of Export Market 2010 = £3.3 Billion)

Euro

pe

Russ

ia/

Cas

pian

Afric

a

Mid

dle

East

Asia

Aust

ralia

Nor

th

Amer

ica

Sout

h Am

erica

Arct

ic

Perc

ent

of C

ompa

nies

Iden

tifyi

ng a

s Top

3 E

xpor

t M

arke

t

East of EnglandLondonNorth East ScotlandNorth East EnglandNorth West EnglandRest of ScotlandSouth East EnglandSouth West EnglandWest MidlandsYorkshire

70%

5%1%

9%

1%

1%

1%

4%

3%

5%

Survey Results


If responses are weighted based on the total exports of the companies that identified them (see Figure 4.5.3), South America is now identified as the most important current market followed by Asia and Europe. Going forward (see Figure 4.5.4), Asia is the most important region in terms of total export growth, followed by Europe, South America and North America.

Figure 4.5.3

Figure 4.5.4

Euro

pe

Russ

ia /

Cas

pian

Afric

a

Mid

dle

East

Asia

Aust

ralia

Nor

th

Amer

ica

Sout

h Am

erica

Arct

ic

Most Important Current Export Markets Identified by Survey Participants

Size of Export Market 2013 = £4.3 Billion (Size of Export Market 2010 = £3.3 Billion)

Euro

pe

Russ

ia /

Cas

pian

Afric

a

Mid

dle

East

Asia

Aust

ralia

Nor

th

Amer

ica

Sout

h Am

erica

Arct

ic

Export Markets Targeted by Survey Participants for Expansion. Weighted by Size of Company

Size of Export Market 2013 = £4.3 Billion. Size of Export Market 2010 = £3.3 Billion)

Valu

e of

Exp

orts

(In

crem

ents

of 1

0 m

illio

n)

Futu

re V

alue

of E

xpor

ts (

Incr

emen

ts o

f 10

mill

ion)

Survey Results


4.6 Effect of Exchange Rates

Effect of Exchange Rates - in the 2010 report the differences in exchange rates, particularly with respect to the British Pound and the U.S. dollar were noted, taking into account nominal growth in the size of the UK subsea sector. The dollar was worth on average £0.641 in 2009 compared to £0.544 in 2006. Therefore a company that maintained constant foreign sales of $10,000 per year during this period would have seen the value of these exports increase from £5,440 to £6,410 solely due to differences in exchange rates rather than any increase in actual sales. However, the average value of the dollar in 2012 was £0.640 and therefore the exchange rate effect has little impact on the overall numbers.

4.7 Renewables Market

Based on the responses to this survey, the renewables market is not currently a significant driver of the UK subsea industry. As shown in Figure 4.7.1, 39% of respondents do not provide any goods or services to renewables, while renewables account for between 1 and 9% of total subsea turnover of an additional 28% of respondents. Only 6% of companies that participated rely on the renewable market for more than half of their subsea-related turnover.

Figure 4.7.1

Perc

ent

of C

ompa

nies

Who

Res

pond

ed

0%

1-9%

10-1

9%

20-2

9%

30-3

9%

40-4

9%

50-5

9%

60-6

9%

70-7

9%

80-8

9%

90-1

00%

40

38

36

34

32

30

28

26

24

22

20

18

16

14

12

10

8

6

4

2

0

Renewable as % of Total Subsea Revenue

Survey Results


4.8 Number of Employees

Survey responses supplemented by publically available data indicate that the total combined subsea-related turnover from UK companies in support of renewables is approximately £770 million, or slightly less than 8% of total turnover from subsea-related activities. Almost 50% of this turnover comes from North East Scotland, with North East England and the North West England accounting for an additional 8% and 7%, respectively (see Figure 4.7.2).

Figure 4.7.2

From the survey results and interviews with industry we know that more than 53,000 PAYE and non-PAYE employees are directly employed in the UK subsea sector and this number does not include those people who work for the suppliers and service companies to the subsea industry sector or those whose employment is generated by ancillary economic activity that results from subsea employees spending their earnings in the general UK economy. We can conservatively estimate that these will add at minimum a further 25%, making, the total number of jobs generated from the UK subsea sector at least 66,250.

Figure 4.8.1, shows that services companies employ 48% of the total subsea workforce, with an additional 19% in the manufacturing sector, and 7% in the multidisciplinary companies providing both engineering and offshore services. More than half of the employees in the subsea sector are based in North East Scotland, with others spread throughout the country (as illustrated in Figure 4.8.2).

Services companies employ 48% of the total subsea workforce, with an additional 19% in the manufacturing sector.“

“Subsea-Related Turnover from Renewables by Region Size of Market in 2013 = £7.7 Million (Size of Market in 2010 = £4.2 Million)

50%


7%

6%

5%

7%

1%

4%

3%

1%

5%

3%

8%

Survey Results


4.9 Comparisons with Past Sector Reviews

Subsea UK has previously undertaken reviews of the UK subsea market in 2003, 2005, and 2007 (reflecting fiscal years 2002, 2004, and 2006), the results of which are shown in Figure 4.9.1. Based on these numbers, UK subsea sector output increased by £3 billon during the past three years, or roughly 25% (£1 billion) per year. The sector has grown substantially despite the continuing economic uncertainty. The growth in the UK subsea sector can be seen to have come virtually equally from exports and UKCS sales.

Figure 4.8.1

Figure 4.8.2

4%

19%

7%

48%

3%

17%

2%

UK Subsea Sector Workforce by Region Total Employees = 53,000 (40,000 in 2010)

Subsea Workforce by Business AreaTotal Employees = 53,000 (40,000 in 2010)

ConsultingManufacturingMultidisciplinaryOperatorOtherRecruitmentServices


36281

2175

1278

1360

221

3378

834

8642549

3349

305

890

Survey Results


Figure 4.9.1

4.10 Future Growth and Trends

In general, participants in this study expressed optimism regarding the performance of the UK subsea sector in the next three years (see Figure 4.10.1). Almost half (43%) of respondents suggest that they

expect to see growth in their subsea turnover in excess of 20% during this period, with an additional 28% and 1% forecasting increases of 10%-20% and <10% respectively. 28% of companies forecast no change in their subsea turnover, while no company forecasts a decrease in their subsea revenue in the near future. Based on these responses, total UK subsea turnover is expected to increase by at least £2.2 billion (39%) over the next three years as can be seen from the chart above (Figure 4.9.1).

2006

2009

2012

2015

3

0

UK Subsea Sector OutputTotal Employees = 53,000 (40,000 in 2010)

UK Sales to Operators ExportsProjected Growth by more than 0% of respondents

6

9

12

15

Billi

on (

£)

Survey Results


Respondents were unanimously positive about

future increases to their subsea turnover from

exports, with 50% forecasting growth in excess of

20% and 14% anticipating 10 to 20% increase. No

respondents forecast a decrease in their subsea

exports. According to this data, the UK’s exports

of subsea-related goods and services will increase

by some £0.73 billion per year, over the next three

years.

Figure 4.10.1

Many companies expect to have small to significant

increases in their subsea turnover from renewables

in the next three years (see Figure 4.10.3). 43%

foresee growth between 10 and 20%. 57% of

companies predict no growth from renewables.

Figure 4.10.2

Extrapolation of survey responses results in an

estimate of at least £381 million in increased

UKCS subsea related sales (15%) in just

offshore wind over the next three years making

the 2016 subsea related forecast to £1.2 billion.

Figure 4.10.3

50%

57%

43%

43%

35%

1%

14%

28%

1%

28%

Subsea Turnover Forecast for Next Three Years

Export Revenue Forecast for Next Three Years

Renewable Revenue for Next Three Years

>20% Increase10-20% Increase<10% ChangeNo Change



Key Performance Indicators


This section examines key performance indicators for the subsea industry, including the markets for specialised vessels,

commercial diving services, and ROV services. Day rates for support vessels are heavily dependent on demand for subsea

projects, while demands for diving and ROV services are indicators of industry performance in shallow and deep water markets

respectively.

5.1 Specialised Vessel Market

The UKCS specialist vessels market has firmed since 2010 and looks likely to undergo significant changes in the next one to two

years. In the definition “specialist vessels” we include; Offshore Construction Vessel (OCV), Offshore Subsea Construction Vessel

(OSCV), Diving Support Vessel (DSV), ROV Support Vessel (ROVSV), Anchor Handling Tug Supply Vessel (AHTS) and Platform

Supply Vessel (PSV).

The favourable development of offshore market drivers over 2010/11 initially triggered the needs. In the UK in 2012, orders

were placed for six new specialist vessels and in 2013 (to date) a further 10 have been ordered. An interesting point to note is

that in the past, specialist vessels have primarily been ordered, then owned (or long term chartered) and operated by the tier

one contractors such as Subsea 7, Technip, Acergy etc. However, just this year, it has become apparent that c45% of these

new-builds have been ordered speculatively by traditional vessel owners who have indicated they may continue to operate the

boats themselves.

The trend is also for ever larger cranes to be fitted. 10 years ago a big DSV would have a 160 tonne capacity crane but the latest

OSVCs will have 600 tonne cranes. The “second tier” contractors are also challenging the top tier by investing in vessels, good

examples being Harkand, Bibby, Reef, Stork and Ocean Installer. For those specialist vessels being ordered with diving capability,

and at time of writing there are currently 12 serious saturation diver tenders out in the market, their delivery times will not be

limited by the capacity of the building yard, but by that of Divex and Drass the two remaining global suppliers of high specification

saturation diving systems after Draeger quit the market.

Day rates for support vessels are heavily

dependent on demand for subsea projects“

“


5.2 Market for Commercial Diving Services

Commercial diving services in support of oil and gas and offshore renewables projects are an important subset of subsea activities.

The International Marine Contractors Association (IMCA) publishes annual diving and ROV personnel statistics for the North Sea

area (Denmark, the Netherlands, Norway and the UK). Although the figures represent only a ‘snapshot’, they are highly indicative

when looking at trends and other factors.

In 2009 the statistics were extended to cover the entire world, as a useful indicator for trends in the offshore diving industry. This

is now the third year in which IMC have taken this world-wide approach and it is now possible to see changes over time since

2009. Between 2010 and 2011 there has been a significant increase in saturation diving operations, whereas air diving has declined

over the same period. Since 2009 there have been increased numbers of all personnel involved in diving operations, with two

notable exceptions: numbers of air divers have fallen, and numbers of “other support personnel” have fallen sharply.

Regionally, the following trends can now be seen:

• Asia-Pacific Overall diving activity continues to decline and has halved since 2009.• Europe & Africa region Diving activity continues to grow year on year; there were fewer tenders working in 2011 than in 2009.• Central & North America region Diving activity has been lower since 2009; saturation diving numbers continue to grow.• Middle East & India Diving activity has remained broadly similar since 2009; whilst there are significant numbers of saturation divers at work in the Middle East & India, the vast majority are air divers.• South America Diving activity showed a sharp increase in 2010 over 2009, but this has not continued in 2011.



Figure 5.2.1 - World-wide diving activity 2009-2011 by Region

5.3 Market for ROV Services

There has been a steady increase since 2009

in ROV activities supporting construction,

drill support and cable laying activities,

but ROV based inspection activities have

decreased. It’s interesting to note that whilst

cable laying is a relatively small part of the

overall use of ROVs, this activity has more

than doubled since 2009, probably due to

offshore windfarm installation projects. The

table below and class definition following

shows the classes of remotely operated

vehicle involved in world-wide ROV

operations.

Data courtesy of IMCA


Date Class I Class II Class III Class IV Class V Total

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Feb-12

Aug-12

42

43

32

32

36

40

32

35

105

89

68

79

41

53

71

91

439

453

425

462

394

440

490

509

9

3

3

4

2

3

1

3

0

0

0

0

0

0

1

2

596

587

528

577

473

536

595

640

World-wide Diving Activity 2009 - 2011 By Region

May 2009 July 2009 Sep 2009 May 2010 July 2010 Sep 2010 May 2011 July 2011 Sep 2011

• Class I Observation ROVs

• Class II Observation ROVs with Payload Option

• Class III Work-class Vehicles

• Class IV Towed and Bottom-Crawling Vehicles

• Class V Prototype or Development Vehicles

The following tables overleaf illustrate the types of ROV and number of personnel engaged in the industry globally between February 2009 to August 2012.



Feb

09

Aug

09

Feb

10

Aug

10

Feb

11

Aug

11

Feb

12

Aug

12

120

100

80

60

40

20

0

Technical Breakdown of ROV types in use, 2009-2012

Class IClass IIClass IIIClass IVClass V

140

180

160

200

240

220

260

300

280

320

360

340

380

420

400

440

480

460

500

540

520

560

580

Feb

09

Aug

09

Feb

10

Aug

10

Feb

11

Aug

11

Feb

12

Aug

12

200

100

0

Technical breakdown of personnel statistics, 2010-2012

InspectionDrill SupportConstructionCable-lay

300

500

400

600

800

700

900

1100

1000

1200

1300

1500

1400

1600

1700

1800

1900

2000


An Overview of the Subsea Industry - Past, Present & Future

6.1 Past

• If we define “The Past” as being 2010 and before, we can safely quote from the conclusions of the last Subsea UK Industry Review (2010) when describing “The Past” state of the industry.

• By 2009 the sector had increased its total sales to £5.9 billion from £4.3 billion in 2006 and so had 31% of the total world market then.

• We said the growth was primarily driven by exports increasing from £2.2 billion in 2006 to £3.3 billion in 2009 and that Europe, North America and Africa were the largest export markets, but South America, and Brazil in particular, would become increasingly important with exports growing by at least 20% by 2012.

• We reported that the UKCS domestic market for subsea goods and services was viable and strong, with sales to UK-based operators rising from £2.1 billion in 2006 to £2.6 billion in 2009.

• 760 UK companies were active in the subsea sector.

• 63% of the UK subsea sector companies were generating less than £5 million total turnover each.

• 6% of the UK subsea sector companies were each generating more than £100 million.

• Median turnover in the sector was £2.2 million PA.

• 40,000 people were directly employed in the UK subsea sector.

• Nearly 50% of all subsea companies in the UK were based in Scotland (>38% within North East Scotland).

• The offshore renewables sector is not a significant driver of the subsea industry, accounting for £420 million, or less than 6% of total UK subsea-related output. Over the next three years, companies expect to experience a net 10% increase in their sales to renewables. This growth estimate is less than the expected overall growth for the industry and suggests that the relative importance of renewables to subsea will not increase in the next three years and that offshore oil and gas will remain the primary drivers of the industry.

Global Subsea Market Total global market size: £18.9b

UK Subsea Output Total UK subsea output £5.9b UK subsea output as percent of global market 31% Growth in UK subsea output: 2006-2009 £1.4b Projected increase in combined UK subsea turnover in next three years 20% (actual 50%)

UK Subsea Exports Total UK subsea exports £3.3b Real growth in UK subsea exports: 2006-2009 £0.75b Major current export markets Europe North America Africa Export markets targeted for growth South America Africa North America

Projected increase in UK subsea exports in next three years £0.6b

Subsea Turnover from Renewables Total UK subsea turnover from renewables £0.42b Total subsea sector work force 40,000



6.2 Present

• For direct comparison, the “Present” state of the subsea industry is described below - as informed with the data from this Review;

• The 2012 subsea market for products and services is strong and growing. Since the last Review revenues have grown from £5.9 billion in 2009 to £8.9 billion in 2012 equating to 45% of the total world market.

• Exports from the UK have increased from £3.3 billion in 2009 to £4.3 billion in 2012 and the respondents to our survey forecast this would increase a further 30% by 2015. The main export markets are Europe, North America, Africa and Brazil.

• The UKCS domestic market for subsea goods and services has again strengthened substantially in the past two years with sales to UK-based operators up from £2.6 billion in 2009 to £4.5 billion in 2012. In addition, our survey participants expect their turnover from subsea operations to also grow on average by 30% over the next three years.

• 800 UK companies active in the UK subsea sector, with SMEs making up the largest percentage.

• 55% of the UK subsea sector companies now generate <£5 million turnover per annum from subsea operations.

• 7.2% generate more than £100 million per annum each.

• Median turnover in the sector is £2.6 million.

• 53,000 people are now directly employed by the sector.

• Nearly 50% of all subsea companies in the UK are based in Scotland (<44% within North East Scotland).

• The subsea elements of the offshore renewables sector was worth £770 Million in 2012, c7.6% of subsea output. As the construction phases of the Round 3 offshore wind farms come into play we can expect substantial growth in subsea activity, but it is also the case that the offshore wind industry is developing specialist vessels to satisfy the majority of the demand, as it has found offshore oil and gas construction support vessels operate on a different and unsustainable cost base.

Global Subsea Market Total global market size: £20b

UK Subsea Output Total UK subsea output: £8.9b UK subsea output as percent of global market: 45% Growth in UK subsea output: 2006-2009: £3b (50%) Projected increase in combined UK subsea turnover in next three years: 30%

UK Subsea Exports Total UK subsea exports: £4.3b Real growth in UK subsea exports: 2006-2009: £1b Major current export markets: Europe Africa North America Export markets targeted for growth: South America Asia North America

Projected increase in UK subsea exports in next three years: £1.6b

Subsea Turnover from Renewables Total UK subsea turnover from renewables: £0.77b Total subsea sector work force: 53,000



“

“

Revenues up from £5.9 billion in 2009 to £8.9 billion in

2012 equating to 45% of the total world market.

6.2 Future It is very clear that the UK and worldwide subsea sectors of the oil & gas industry has a very promising future, with deep water

developments at the heart of this optimism. Between 2007 and 2012 some 481 deepwater discoveries were made and these

account for more than 50% of the worlds conventional new reserves of 170 Bboe. Whilst oil is the dominant hydrocarbon type at

this time, it is likely to be overtaken by gas in the next year or two as the massive deposits discovered in the eastern hemisphere

are brought into production.

Only 7% of current worldwide conventional production comes from deepwater reserves (the balance being onshore 60% and

offshore 33%) and only 38% of all known deepwater reserves are in production, so the opportunity for expansion is enormous as

new technologies, approaches and process are applied.

More than 60% of the discovered deepwater reserves are being appraised and if these were brought on-stream, it is estimated

production could double to approximately 6Bboe by 2020.

The main challenges of deep water developments are cost due to their technological complexity and the time from discovery

to starting production, which is typically five to eight years. This makes exploration very expensive, but despite this some 500

deepwater & ultra-deepwater wells were drilled in 2011, the highest one year figure ever, keeping the worldwide deepwater drill

rig fleet at 98% utilisation.

Subsea processing is becoming an ever more acceptable and cost effective option as production is opened up in deeper waters

offshore. There are now more than 30 systems installed across all of the major offshore oil & gas regions in the world, with North

Sea and Brazilian operators and their suppliers showing the way, although the Gulf of Mexico and West Africa is also embracing

the approach successfully. With operational successes proving that subsea processing can enhance overall recovery rates and

make marginal fields economically viable there is a bright future ahead for the supply chains innovative and risk taking technology

developers and deliverers.

The future for the UK subsea industry is bright because to match and feed the pace of deepwater and ultra-deepwater

development the supply chain has in it most, if not all, of the elements required to compete globally; world class tier 1 & 2

multidiscipline contractors, other specialist vessel operators, technology developers & suppliers across all disciplines and an

experienced workforce.

33


Conclusions and Findings

Conclusion

Despite continuing global economic gloom, the subsea industry in the UK. has continued to experience good growth since our last

Review in 2010, with revenues up from £5.9 billion in 2009 to £8.9 billion in 2012 equating to 45% of the total world market.

Exports from the UK have increased from £3.3 billion in 2009 to £4.3 billion in 2012 and the respondents to our survey forecast

this would increase a further 30% by 2015. The main export markets are Europe, North America, Africa and Brazil

The UKCS domestic market for subsea goods and services has strengthened substantially in the past two years with sales to UK-

based operators up from £2.6 billion in 2009 to £4.5 billion in 2012 and our survey participants expecting their turnover from

subsea operations to also grow on average by 30% over the next three years.

There are now more than 800 companies active in the UK subsea sector, with SMEs making up the largest percentage. Of the total

number, 7.2% generate more than £100 million P.A. each and 55% generate less than £5 million, with the median turnover being

£2.6 million. Some 53,000 people are now directly employed by the sector (up from 40,000 in 2010) and interestingly, nearly 50%

of all the companies are based in Scotland, (with 44% of these in North East Scotland). The growth seen in the sector has not just

been in Scotland however, it includes those companies in the traditional industrial centres of North East England, North West

England, East of England and South East England who provide goods and services into the UK subsea supply chain.

The offshore market conditions are forcing operators to push their E&P efforts to deeper, more remote and harsher locations

to increase production and this move into deeper waters is creating massive opportunities for the subsea sector. Forecast global

Capex is >$223 billion for 2013-2017 (double that of 2008-2013), indicating that the global subsea industry is set to grow at some

15% CAGR up to 2017.

A large part of this Capex will be spent on deepwater developments in West Africa, Brazil and the Gulf of Mexico. In the first

half of the period, highest spend is forecast for the African developments in Angola, Ghana and Nigeria, but in 2016/17 this will be

overtaken by Petrobras investments in their Brazilian Campos and Santos fields.

Finally, the offshore renewables sector of the subsea industry has grown at a rate of 20% PA since 2010 (double that forecast),

accounting for £770 million in 2012 and is expected to grow by >30% PA over the next three years.

“

“

Exports from the UK have increased from

£3.3 billion in 2009 to £4.3 billion in 2012

34


APPENDIX A: Survey Methodology

Identification of Subsea Companies

The first step of this study was to create a comprehensive list of companies that are active throughout the UK subsea supply chain. Sources used include the following:

• Current and former members of Subsea UK;

• Current UK Oil & Gas members;

• Current members of the Hydrographic Society;

• UK companies listed at www.offshore-technology.com;

• UK companies listed at www.subsea.org; and.

• Trade publications and directories for offshore oil & gas and renewables.

A review of each company’s website was conducted to determine its position (if any) in the UK subsea supply chain, as well as basic information such as geographical location and contact details. Additional subsea companies were identified through supplemental web searches, experience of Subsea UK staff, and companies identified by study participants as suppliers or customers for subsea equipment and/or services.

In total, over 800 companies were identified as providing services or equipment for subsea-related operations. Of these, 665 were asked to participate directly in this study. Questionnaire Design

Information on the size and status of the UK subsea sector was collected using a “bottom-up” approach of asking companies to provide data pertaining to their operations. To facilitate this data collection effort, a short standardised questionnaire was administered using www.surveymonkey.com. The survey was designed to take approximately 10 minutes to complete by someone with knowledge of a company’s subsea-related operations. Questions included were based on the surveys conducted on behalf of Subsea UK in previous years mainly to ensure like for like answers but with certain additions to capture the emerging importance of the renewables sector and to better reflect the array of subsea equipment and services on offer.

The final questionnaire was designed to quantify:

• UK revenue from total operations, subsea-related operations, offshore renewables, and subsea-related exports;

• General forecasts for revenue growth;

• The major current and future export markets for subsea goods and services;

• Number of UK employees supporting the subsea industry;

• Equipment and services provided by individual companies;

• Major customers and suppliers of subsea goods and services.

Emails with links to the online questionnaire were sent to each of the companies invited to participate in the study. Wherever possible, these emails were directed to senior management within the company, such as the managing director or commercial director, or at least to specific contacts. Only when no other email contacts were available were links sent to general company contact emails. Each company also received at least two follow-up emails encouraging them to participate in the study.

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Interviews

To encourage participation in the main survey, the online questionnaire was designed to be as short as possible. As result, it was not able to offer much detail about specific trends and challenges within the subsea industry. To provide this information, senior management within many of the largest UK subsea companies, including prime contractors and operators, were approached to conduct a personal interview with Subsea UK.

Methodology for Valuing UK Subsea Supply Output

Based on the responses to the online questionnaire, estimates of the total UK revenue from subsea-related operations, exports, and offshore renewables for each participating company were calculated as follows:

UK Subsea Revenue (£) [Total UK Revenue] x [% of UK Revenue that is from Subsea Operations]UK Subsea Exports (£) [UK Subsea Revenue] x [% of UK-based Revenue from Subsea Operations that is from Exports]UK Subsea Renewable Revenue (£) [UK Subsea Revenue] x [% of UK-based Revenue from Subsea Operations that is from Offshore Renewables]

Because the standardised survey format required respondents to choose from a set of default percentage ranges, the mid-point of each percentage range was used for these calculations (e.g., a company that checked the 50-59% box was assumed to have subsea related revenue equal to 55% of its total revenue).

As shown in Figure A.4.1, the total output value of the UK subsea industry can not be calculated simply by adding the subsea related revenue from each subsea company, as this approach would result in double counting of products and services within the supply chain. Instead, the output of the subsea industry is generated from two types of sales:

• Sales directly to oil and gas operators or offshore renewable companies, domestically or abroad.• Exports to non-UK based contractors or manufacturers within the subsea supply chain.

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Figure A.4.1 – Model of Subsea Supply ChainTherefore, the output of the UK subsea industry is calculated as follows:

Output (£) = [% sales to Operators] x [UK Subsea Domestic Revenue] + [UK Subsea Exports]

Where:UK Subsea Domestic Revenue (£) = [UK Subsea Revenue] – [UK Subsea Exports]

The percent of each company’s sales that are to operators is estimated based on the fraction of the top five customers for the company’s subsea equipment and services that are operators, as listed on the response to the questionnaire. This approach may misestimate a company’s sales to operators if its top five customers represent only a small fraction of its total revenues. Similarly, the approach may misestimate a company’s output by assigning equal value to all of the top five customers. For example, if a company’s top customer is an operator followed by four prime contractors, then this approach estimates that 20% of the company’s revenues are supply-chain output, which may not be true if the sales to the operator are disproportionately higher than to the other major customers. However, given a large enough sample size, such errors are likely to balance out across all companies and result in a fairly accurate estimate of the total output of the industry.

To supplement the data gathered through the online survey, data from Companies House filings and companies’ most recent annual reports was used to estimate the UK subsea output generated by companies that chose not to participate in this study.

Domestic or Foreign Operator(Oil & Gas or Renewables Company)

UK-Based PrimeContractor

Foreign Provider of Subsea Equipmentand/or Services

UK Provider of SubseaEquipment and/or

Services

Value-added Value-added

Value-addedExcluded to preventdouble counting

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Disclaimer

The conclusions contained in this report are the results of the exercise of our best professional judgment, based on publically available information and confidential materials provided to us by third parties. Use of this report by any third party for whatever purpose should not, and does not, absolve such third party from using due diligence in verifying the report’s contents.

Any use which a third party makes of this document, or any reliance on it, or decisions to be made based on it, are solely the responsibility of such third party. Subsea UK accepts no duty of care or liability of any kind whatsoever to any such third party, and accepts no responsibility for damages, if any, suffered by any third party as a result of decisions made, or not made, or actions taken, or not taken, based on this document.

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Documents

Subsea business activity review 2013