Week 17 Overview
The gas industry is going through a confusion that dwarfs all the other industries’ uncertainties. But strangely it is following market trends similar to the unproblematic pharmaceutical industry.
When faced with difficulties, gas companies are progressively adjusting their business models to increase competitiveness. In the last days, industry participants did so in two ways. Some E&P giants are striving to find new opportunities in Africa, while service companies are seeking specialization. The latter trend has been the most evident change in the 17th week of the year.
The gas industry is under the spotlight, and it is changing at a really fast pace. Agreements and new investments are in the springy air, with particularly hot winds in the offshore and in the British shale gas industries.
OFFSHORE: SUBSEA FIELDS
US-headquartered Baker Hughes clinched an agreement with Norway-based Aker Solutions to develop technology for subsea fields.
‘The non-incorporated alliance will combine Aker Solutions' strengths in subsea production and processing systems with Baker Hughes' expertise in well completions and artificial-lift technology to deliver reliable, integrated in-well and subsea production solutions that will help mitigate risk, accelerate output and extend the life of subsea fields,’ reads a note released on Tuesday.
A few hors later, France-based Technip said it would divest its majority stake in Seamec to HAL Offshore.
‘This divestment allows for the development of the Seamec business and HAL’s and is part of Technip’s strategy to concentrate on its core competencies involving deepest subsea complex, deepwater oil and gas developments,’ reads a communiqué published on Tuesday.
The French company confirmed its strategy also on Thursday, while announcing a year-on-year 23.3% increase in revenues in first quarter to 2,468 million euros.
“Revenue in both Subsea and Onshore/Offshore segments was above expectations in the first Quarter and operating margins were in line,” Thierry Pilenko, Chairman and CEO, commented in a note released on Thursday.
At the same time, Technip’s EBITDA registered a year-on-year 18.5% decrease, with operating income from activities before depreciation and amortization of 5.5% in the Subsea segment, and 5.9% in the Onshore/Offshore segment.
But Pilenko’s optimism is grounded in light of recent operations and commercial agreements. Despite declining operating margins, it comes as little surprise that company confirmed its objectives for 2014 and 2015. According to the Technip, the 2014 operating margin should be at least 12% for Subsea and 6-7% for Onshore/Offshore.
Also Poland’s Lotos Serwis is trying to specialize in the offshore industry, signing a letter of intent with the Polish Shipping Register for construction and reparation of offshore units.
‘The companies have declared their intention to cooperate and use each other’s services in supervision over the construction and repairs of offshore units, periodic inspections of such units, preparation of technical expert reports, supervision over the construction and operation of transmission infrastructure, safety evaluation of offshore units, and other projects,’ reads a note released on Thursday.
This enthusiasm for offshore fields came to the surface also in the communiqué released by US-based Noble Energy to present first quarter 2014 results.
‘The first regional export sales agreements for Tamar and Leviathan were signed during the quarter, with larger contracts expected to follow over the next several quarters. Significant progress has been made towards sanctioning the first phase of Leviathan with an agreement reached with the Israeli Anti-trust Authority and the receipt of a Development and Production Lease,’ the American company said on Thursday.
In this sense, subsea fields increasingly seem a way to get over financial difficulties. That is especially the case when regional and national institutions cooperate with companies.
SHALE GAS IN THE UK
On Wednesday, Cuadrilla Resources said it would apply for planning permission to drill, hydraulically fracture and test the flow of gas from up to four exploration wells at each of the Roseacre Wood and Preston New Road sites.
“We announced in February the proposed locations for two new exploration sites in the Fylde as part of our work to understand the full potential of Lancashire’s shale gas resource,” said Cuadrilla’s chief executive Francis Egan.
A few hours later, the British government confirmed it wants to pass a change in trespass law. Doing so, David Cameron’s Government would try to play its cards to pave the way to horizontal drilling. The change in legislation would indeed decrease landowners’ legal instruments to fight shale developments in proximity of their properties.
And the industry cannot do anything but to back these intentions, further providing evidences that the country could benefit from shale gas developments. According an industry-commissioned study carried by Ernst & Young LLP and released on Tuesday, ‘shale gas production could represent over a third of total UK annual consumption in the 2020s.’
The main point of the report is that UK shale would provide the county with a long-term option to buy energy locally rather than through imports. But to do so, significant investments are required.
‘The report supports the numbers already published by the Institute of Directors in May 2013. It identifies that over 2016–32 c.£33bn of spend could be required to bring up to 4,000 wells into production. At peak this equates to around £3.3bn of spend,’ reads the executive summary released on Thursday
WHAT'S NEXT?
Let’s try to be honest: this week did not register any landmark changes. Nonetheless, it has been extremely interesting, as the industry showed its cards to overcome economic difficulties. Subsea and shale fields appear to be its designated way out.
In this context, a knee-jerk reaction is more than welcome, as the situation of the European gas industry remains quite complex. While the standoff over Ukraine continues, there are also other concerns for European politicians and companies.
According to the International Energy Agency, the Netherlands will become a net importer of natural gas in the coming decade. This evidence suggests that the second gas producer in Europe could soon be forced to bet on decarbonisation and electricity-market integration.
“Integrating the electricity systems across borders with new interconnections ensures resource efficiency. Europe’s energy markets need to be efficient and make renewable energies an integral part,” Executive Director Van der Hoeven noted in a note released on Tuesday.
All in all, next weeks could set the direction and establish the priorities of the industry. Also in the Netherlands, shale gas could emerge as the long-term winner, while subsea developments could easily become an undeniable certainty. What is certain is that turning points and winds of change are coming soon.
Sergio Matalucci