Odd Arne Sjåtil
Partner & Managing Director
The Challenges and Opportunities as Subsea Oil and Gas Matures
In 1961, Shell installed the first subsea production tree in the Gulf of Mexico. By 1997, 1,000 subsea completions were in place, and 15 years later, more than 4,800 Christmas trees had been installed on subsea wells worldwide. By 2014, subsea systems were operating in water depths approaching 10,000 feet. In the past half century—and particularly in the past two decades—subsea development has unlocked enormous opportunities for resource holders and oil companies and profitable growth for innovative service providers.
Although great technical and commercial progress has been made, the industry faces new challenges as it enters its sixth decade, including increased production losses, technical bottlenecks, and a lack of sustainable business models for certain subsea services. At the same time, other less glamorous yet persistent problems remain unsolved, such as reducing delivery lead times, improving recovery factors from subsea fields, achieving planning excellence, and making standardization tradeoffs. BCG has worked with some of the world’s leading subsea operators, equipment suppliers, and service contractors to identify these challenges and the best options for addressing them.
As an industry, subsea is maturing. Installations designed to last approximately 20 years are about to exceed their design lives. The concern is particularly acute in the North Sea and South America, where the average age of producing subsea wells is greater than ten years, in contrast to more recent developments in areas such as West Africa. (See Exhibit 1.)
In our recent work with leading subsea operators and suppliers, we have identified three major challenges that operators and contractors are confronting as subsea fields mature:
These emerging challenges compound those that operators and contractors have been facing for many years:
How can subsea operators and contractors respond? Although they face fundamental challenges, we believe they can continue to prosper by adapting to subsea’s new era of maturity. Many will have to act in five areas:
Equipment suppliers must take four actions to mirror the moves of operators and proactively address clients’ service and maintenance needs:
We believe these challenges for the maturing subsea market also present three investment opportunities for both suppliers and financial investors:
The tone of the subsea industry is changing. While high-tech megaprojects remain a crucial element of the market, the world’s largest subsea operators have learned that proactively planning for maturity in subsea developments—covering equipment specs, maintenance strategies, and intervention planning—is critical in order to avoid enormous and unexpected loss of value. As operators worldwide emphasize increased cost efficiency and capital discipline in the years ahead, addressing subsea’s midlife crisis is an opportunity that can no longer be ignored.