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Colin Johnston, Director, SeaNation LLC

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Market Conditions
The current market conditions, including lower for longer expectations, are impacting all areas of oilfield
operations. Specifically, the area of subsea well operations is adapting to these market conditions along
with other operating niches within the offshore sector.

The low commodity price environment is impacting the industry in several areas. Firstly, in a macro sense,
increasing emphasis and acceleration of the decommissioning of uneconomic production assets,
particularly in the North Sea. Decommissioning in the Gulf of Mexico has been very active and is ongoing
as a result of the idle iron initiative and facing a peak requirement, in terms of expected expenditure,
during the 2016 / 2017 period.

Furthermore, Brazil, via mainly Petrobras commitments and requirements, is entering a phase of
decommissioning emphasis due to increasingly ageing assets combined with a focus on selecting methods
and procedures to catch up with what is a substantial legacy issue.

Figure 1 Offshore Capex Changes 2011 2020

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Secondly, the overall pull back in offshore development efforts, particularly in the subsea and deepwater
areas, results in a lack of exploration, and therefore development drilling, and well construction activity.
Figure 1 above indicates the pull back in overall capex for the next few years. This in turn results in severely
reduced operations with regards to subsea field construction activity. The low price environment raises
concern for a substantial period of reduction or even cessation in deepwater field sanctioning based upon
the current and projected level of capital expenditure.

What do these macro industry effects mean for those involved in the subsea well operations segment?
There are several factors that come in to play, resulting in a change to how the market is assessed and
also how the near term market should be approached in order to ensure activity can still be sourced.
As stated above, subsea field development prospects have taken a severe impact with many delays and
cancellations resulting in significant reduction in current and future scopes of work for subsea field
construction and installation compared to recent projections prior to the current commodity price

Subsea Well Operations Assets

On the basis of subsea development growth there now exists a significant operating asset oversupply
situation. On the hardware side such oversupply is reflected through reduction in manufacturing capacity
as a function of layoffs and mothballing of facilities. More difficult though is the ability to deal with vessel
and floating asset oversupply. Cold stacking of the assets is of course one answer, not a cost free solution,
with the dilemma being that the benefit of stacking transmits to all, not just the asset owner. Such
decisions are being seen across all floating asset classes in this current operating environment.

There is no one solution to maintaining operations and even gaining market share in this market but what
is becoming clear is the need for flexibility of application of assets as well as flexibility of commercial

Subsea well operations as a niche, covers the areas of minimum invasive activities such as inspection,
repair and maintenance (IRM), equipment etc through to full through tubing well intervention and
associated decommissioning operations. The typical assumption being that between drilling and well
construction as well as large scale field installation, there exists a need for specialist vessels to assist with
bringing fields on line, keeping them producing efficiently and ultimately offering the capability to
decommission the assets.

Asset Classification
The vessel types applied can range from ROV support vessels and subsea construction vessels (SCV) to
riserless well access capable vessels and complex multi-purpose semi-submersible or monohull vessels
capable of full riser based through tubing intervention including some well construction capability.

Figure 2 Well Operations Vessel Categories

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Figure 2 shows, these vessels are classed as Category A (riserless well intervention capability) or Category
B (riser based intervention capability). At either extreme are the sub Category A vessels (ROV support
vessels and SCV) and Category C vessels (drilling rigs with associated full operational capability). Based
upon the Category A and Category B classification the current estimated worldwide supply of these
vessels, and their status, is indicated in Figure 3.

Figure 3 Global Well Operations Vessels Category Type and Status

Within the current market environment there is a blurring of the lines for vessel types and the scopes of
work being chased. At the lower end of the market, in terms of operational complexity, the larger ROV
support vessels typically used for subsea stimulation are now facing competition from more capable
Category A vessels chasing this segment.

Category A and ROV Vessel Operations

The Category A vessels can offer advantage with built in pumps, moonpool deployment capability and
fluid storage amongst others. Eliminating the need for associated well stimulation vessels when
conducting subsea stimulation, and improved equipment handling can enhance operational efficiency.
The overall vessel costs may be higher for such subsea stimulation work but in this market the pursuit of
utilization can improve options for operators with attractive commercial opportunities and the ability to
reduce overall project costs through application of higher specification vessels.

The subsea stimulation market may benefit from current market conditions. The ability to perform an
intervention via bullheading acid without the need to compromise well integrity promotes such
operations on several fronts. The relatively low profile of such operations, i.e. full well control equipment
is not required since the well is only being re-entered hydraulically. Tree valves or plugs are not opened
or removed to conduct the operation.

The ease with which the work can be carried out based upon operational risk profile and also the scope
of required equipment is optimized. Consequently, the ability to approve and carry out such work means
this is an ideal production enhancement opportunity when budgets are restricted and pay back must be
achieved in a short time frame. The criticism of indiscriminate placement of acid is offset by the minimum
nature of the work, however concerns over necessary repeatable operations on say an 18 24-month
timeframe coupled with concerns over subsequent sand and fines production need to be assessed.

Category B and Drilling Rig (Cat C) Operations

Similarly, the Category B vessel operations for riser based intervention operations can capitalize on the
focus of maintaining existing wells production in lieu of new development drilling. In theory the workload
and opportunities for these vessels increases in a downturn. In reality the search for utilization results in
drilling rigs, or Category C vessels, increasingly being made available for this kind of operation and as such
competition increases and day rates decrease.

This situation will only right itself once drilling rig utilization increases as a function of exploration and
development well drilling. The key challenge is that drilling rigs are, in theory, less efficient when it comes
to the rig up / rig down aspect of carrying out through tubing well intervention. The in-hole operations
whether e-line, slickline or coiled tubing (CT) are however inherently the same once well access is gained,
whether from a Category B or a Category C vessel. There are some nuances regarding changing from one
service type to another but generally the decision between which vessel type to choose for operations
comes down to availability and day rate.

The key challenges moving forwards for both Category B vessels and drilling rigs, specifically in the subsea
well intervention market, are somewhat different. For Category B vessels it is the efficiency driver that is
key. To date conventional approaches have been adopted, i.e. using standard CT lift frames to achieve
riser tension and well service access.

Such an approach was applicable when the focus was on category B vessel capability rather than
efficiency. With the role of category B vessels proven, mainly in the Gulf of Mexico, the shift is now
towards optimizing efficiency. Aker Oilfield Services provide such an approach via the design of the
Seafarer monohull vessel and Helix ESG are also optimizing operations with the implementation of the
integrated lift frame on both the Siem Helix vessels for Brazil and the under construction, but delayed,
Q7000 semi-submersible design. The key element within these vessels is the focus on eliminating man
riding by improving personnel access and increasing the efficiency for change out of services from e.g.
slickline to CT. Figure 4 below shows these type of vessels either in service or planned to come into service.
Figure 4 Category B Enhanced Efficiency Vessels
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For drilling rigs to better compete in the well intervention space the conventional approach of subsea BOP
and marine riser coupled with subsea test tree can be replaced by deployment of an intervention riser
system. The requirement for drilling contractors therefore is to enhance the capability of storing, testing,
handling and deployment of such equipment. Such capability opens up the access to subsea well
intervention operations during the period of low drilling activity.

Combining the inherent full capability of a drilling rig with the efficiency of Category B or even Category A
well access methods is currently being put to use in the Gulf of Mexico. Operations are currently under
way to deploy a riserless well access system from a semi-submersible drilling rig for decommissioning
operations. The overall cost of the operation is believed competitive with the added advantage of full well
access capability if required from the conventional subsea BOP and marine riser equipment.

Decommissioning Operations
Decommissioning as a market segment offers potential increased utilization for all vessel types and as
such is being exploited where operators are obliged to undertake operations due to either economic or
regulatory requirements. The vessel day rate gap has somewhat closed during this period of excess vessel
availability and as such the ability to have full capability on hand for operations, rather than selecting
vessels and systems for each aspect of the decommissioning operation, is providing an opportunity for
drilling contractors.

The effect of market conditions emphasizes the need for technology development to enhance the
Category A and Category B vessels in terms of carrying out more, if not the full, subsea well
decommissioning scope. New technology developments in the form of modified well control equipment
as well as downhole capabilities are required if these vessels are to be capable of carrying out full well
decommissioning. In addition, there may be regulatory hurdles to be resolved prior to full non-drilling rig
based plug and abandonment operations.

Modification and development of well control equipment is based around the ability to pull, handle, clean
and retrieve large diameter equipment such as the tubing hanger. Downhole technology to improve plug
and zonal isolation placement and verification along with increased logging and multi-string assessment
capability is being chased on several fronts through different specialty technology and service companies.

The advantage being a reduced spread rate for intervention operations, including possible
decommissioning applications whilst maintaining the full drilling rig capability if needed, particularly for
e.g. upper well decommissioning operations.

Top Hole Drilling

Such approaches to furthering the application of vessels and capabilities as alternatives to drilling rigs is
in contrast to a potential market that has taken a back seat as a result of the downturn. Prior to 2014
there was significant emphasis on the upper well construction capability of Category B well operations
vessels to conduct top hole drilling.

Whether in the form of standard drilling operations or in a closed loop system with returns to the vessel,
top hole from a well operations vessel offered the opportunity to allow drilling rigs to focus on
intermediate drilling and completion operations. The benefit in a tight rig market was more well delivery
in unit time whilst maintaining the same number of rigs under contract, an overall boost to asset
development net present value.

In the current rig market, where utilization has dropped significantly, this requirement has also dropped
in terms of urgency. Rig development with dual BOP stacks becoming more common may see the
opportunity arise again but not until rig utilization is also back to a high level. Dedicated top hole vessels
are thus seeing application in other areas of well operations such as intervention and decommissioning.

Upper Completion Operations

Similarly, and tieing in the capability for top hole drilling and full well decommissioning, the equipment
required also enables upper completion to potentially be carried out from the production packer up to
the well operations vessels. This operation refers to the completion tubulars and jewelry from the
production up to and including the tubing hanger as well as well hook up and clean up.

Again in a tight rig market such capability enables the rig to focus on well construction with other assets
to deliver the quality and accuracy of operations required for completions but from a lower cost basis
vessel. To date no such operations have been carried out but in the advent of rising rig rates it is likely to
be brought back to life, particularly with the development of the necessary subsea hardware technology.

Commercial Issues and Options

The final area relevant to the current market conditions is the advent of alliances and partnerships to
create a smoother path to contracting and also to benefit from collective knowledge, services and
technologies that offer complimentary benefits. Whilst there have been significant developments in this
area such as Technip/FMC, including FTO, Schlumberger/Cameron/Subsea 7 including Helix and most
recently GE/Sapura Kencana. There has not been full development in the realm of single point contracting
to offer a simplified commercial and procurement approach to operations but it is believed that this is just
a matter of time as companies continue to work closer together.
The next step in the maturation of operations, in terms of procurement and supply chain simplicity, will
see commercial developments along the line of lump sum / turn key operations. Decommissioning in
particular has seen this type of approach where production risk is not part of the contracting issue.
Ultimately this approach will offer those service companies who take it on much more acceptance from
operators but the ability to manage the shift in operational risk is the key to making this a success for all

The current subsea well operations market is, like the drilling market, suffering from oversupply of assets
and corresponding utilization and day rate pressures. The status of the market with long term contracts
has softened the blow somewhat. The market has been helped by the cold stacking of some assets to the
benefit of the market overall. Specifically, the following observations summarise the current and near
term issues;

Subsea well stimulation offers a low cost lower risk route to maintain production with short time
to payback and is expected to increase in popularity amongst operators.
The competition from drilling rigs versus well operations vessels will remain until the drilling well
construction market begins to recover.
Dedicated well operations vessels, particularly those of Category B type, must focus on, and be
seen to benefit from, efficiency of operations. New vessel delivery should provide this capability
subject to commercial delays.
Drilling rigs should focus on more efficient well intervention operations if they are to secure
adequate utilization in addition to standard drilling operations.
Decommissioning offers an opportunity for utilization as economic and regulatory drivers increase
the volume of well P&A commitments.
Advanced operations in the form of top hole drilling and upper completion operations from well
operations vessels are likely to be delayed in terms of attractiveness to operators for several
Commercial innovation, driven by alliances and mergers, offers a means to jump start the market
to increase utilization. Acceptance and management of risk from all parties must be carefully

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