A sustained low oil price environment has led to a large number of delayed maintenance activities as offshore operators continue to look to reduce costs wherever possible, but that is now expected to change.
The offshore maintenance, modifications and operations (MMO) market experienced a substantial fall of 22 percent in total expenditure between 2014 and 2015, and an additional five percent decline is projected by the end of 2016. This is a result of the postponement of non-critical work which otherwise would have been sanctioned in a $100 oil period, says Douglas-Westwood analyst Marina Ivanova.
“Whilst efforts to reduce bottom line figures have paid off and continue to be in play, exploration and production operators must acknowledge the inevitable threshold levels of MMO that are required in the prevention of lost-time incidents. Therefore, Douglas-Westwood anticipates a recovery in MMO expenditure to 2021 as operators address maintenance backlogs that can no longer be postponed.”
Global Total Offshore MMO Expenditure 2012-2021
As a function of this backlog and the growing age and degradation of existing asset infrastructure, the market is forecast to witness expenditure increasing from $81 billion in 2017 to $95 billion in 2021 for the world’s global offshore platform population of approximately 8,700 fixed and floating assets.
This forecast expenditure will be comprised of asset services (60 percent), which focuses on the repair and maintenance of structural, mechanical and electrical systems on platforms, asset integrity (14 percent), people-driven services focusing on efficiencies and processes, support services (six percent) which is the provision of manpower services supporting the needs of onboard personnel and modifications (20 percent).
Among all these sub-services, modification spending is forecast to experience the most significant improvement through to 2021, as a function of the increasing number of platforms globally due for upgrades and operators turning their attention to previously postponed modification work scopes, says Ivanova.
Regionally, Asia’s historical share of 22 percent of total expenditure is anticipated to grow to 24 percent by 2021, due to an increase in fabric maintenance demand, whilst North America’s share is projected to experience a contraction from 23 percent historically to 20 percent over the forecast, associated with a reduced appetite for value-added maintenance services.
In the current commodity price environment, there is significant pricing pressure and a push for MMO service providers to assume more risk and liabilities, says Ivanova. Duty holder contracts are being downgraded to simpler operation and maintenance contracts and in some instances exploration and production companies are now bypassing tier 1 players to achieve better value directly from tier 2 contractors.
This has led to increased tender activity in the marketplace. “Whilst this has resulted in heavy pricing pressures for many supply chain players, the flipside is that this provides