23/03/2015 - 10:56

Adapting to oil and gas opportunities - SPECIAL REPORT

23/03/2015 - 10:56

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As the construction peak passes and the oil price slides, service providers to the energy industry are re-evaluating how they do business. See our special report to see how technology, marine logistics and equipment providers are adapting to the new climate, and read about changes in the industry's workforce.

Adapting to oil and gas opportunities - SPECIAL REPORT
Wheatstone: Civil site preparations at LNG plant. Photo: Chevron

As the construction peak passes and the oil price slides, service providers to the energy industry are re-evaluating how they do business. 

For more on our Oil & Gas Service Providers Feature, see our Special Report.

Chevron's February announcement that its Gorgon workforce had reached 8,000, as construction on the project reached 90 per cent complete, was perhaps the high water mark for employment on the state’s biggest natural gas development.

But with Australia’s most significant resources project preparing to pump natural gas, and others also moving towards production, many of the industry’s contractors are wondering what’s next.

Chevron’s annual spending on Gorgon and Wheatstone will fall from around $8 billion currently to less than $1 billion in 2017, chief executive John Watson told a recent meeting of security analysts in New York, while for other companies, oil prices less than half those of just a year ago might be enough to delay final investment decisions on big projects.

The state’s contractors, many of which have already been hit by the mining slowdown, are left with a stark choice – adapt or perish.

Many have responded by squeezing costs.

Earlier this month, London-listed Wood Group PSN did just that, announcing a salary freeze for its staff and a rate cut for contractors of up to 15 per cent.

Expenditure has also been cut at Monadelphous, which reduced staff by around 20 per cent in the 12 months to December 31, and WorleyParsons, which cut total expenses by about $400 million overall.

Deloitte national oil and gas leader Michael Lynn said the drop in oil prices would force project developers and contractors to focus on productivity sooner than they might have.

“There’s an immediate focus on cost,” Mr Lynn told Business News.

“Most of the projects outside of North West Shelf, Pluto and Darwin are in project phase.

“They’re committed funds with committed contracts.

“There’s a heightened sense of moving to new operating models probably faster than what was anticipated.”

He said the squeeze would work its way down the value chain, with companies in some sectors facing greater challenges than others.

Construction companies will be in a particular bind, with many projects already delayed and over budget, and precious few on the horizon in the foreseeable future, meaning competition for new work will be intense.

Perth-based Permacast can be counted among the recent winners, however, having announced it had won a tender of between $10 million and $20 million for supply of concrete trench units to Wheatstone.

Companies that can are moving along the supply chain to operations and maintenance work, particularly marine services companies, finding that diversity is better in the lower cost environment.

Former Business News Rising Star award winner Bhagwan Marine has established a new subsea division, while TAMS Group is introducing a new onshore supply base in Gingin.

Similarly, global giants such as GE Oil & Gas, FMC Technologies and OneSubsea have invested in facilities in Western Australia to manage the roll out of, and maintenance contracts for, their substantial technology and equipment stocks that are being set up in the state’s north-west.

The rise of floating LNG production is also set to drive debate in the sector, as questions remain how many jobs will be created in WA.

Others are looking eastward, including Monadelphous and Decmil, which have won contracts on the three Queensland LNG projects under construction.

In November, Decmil secured a $65 million contract for wellhead installation services at Queensland Curtis LNG, while Monadelphous won work on a pipeline compression facility at the Australia Pacific LNG project, also in Queensland.

Mr Lynn cautioned that many of the Queensland projects would be on similar construction and production timeframes as WA, although with very different provider requirements.

Other opportunities are opening up in the technology space, with Stochastic Simulation set to pitch its revolutionary integrated asset management and reservoir assurance software suite to the export market.

A recent report by analysts Wood Mackenzie predicted subdued LNG prices in the Asian market for the year ahead, below $US7 per million British thermal units.

“With over 100 million tonnes per annum of new supply expected to be operational by 2020, near-term recovery is unlikely,” the research consultancy said.

Mr Lynn agreed that industry forecasts suggested an extended period of depressed prices, with structural adjustment needed.

Nonetheless, Australia would be in a strong long-term position as demand growth in Asia outstrips demand growth globally, he said.

As the projects come online, WA firms will compete strongly for operations and maintenance work, driven in good part by the tyranny of distance, with only Darwin a competitor as a supply base for some operations.

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