By Andrew Hobbs
MARINE contractors are handling the current period of low oil prices well, despite the difficult position it leaves many in, the chief executive of a leading industry association says.
Speaking with Oil & Gas Australia in January, chief executive of the International Marine Contractors’ Association (IMCA) Allen Leatt said the lower global oil prices encountered over the past 18 months had dominated the direction of the industry.
“I think the contractors are taking an intelligent approach to this and saying OK, I need to redimension myself to the scale of market and make adjustments to capacity, rather than stripping out the capabilities they obviously need,” he said.
Industry would be trying to reduce its capacity in line with market demand, but retain its capability and competence, he said, with most striving to boost their efficiency.
“I’d say we’ve been used to these oil price shocks on a frequent basis, but this one looks particularly brutal and everyone’s taking a look at how they shape up,” he said.
“If you reflect on the oil price in the 90’s, it would be in the $20 range for 10 years or so and despite that low level, contractors who were efficient, who were innovative, who were commercially astute did well and as oil prices have gone on to $100 or more the industry has brought in more capacity.”
During that period companies had uncovered new ways to build partner models of contracting that aligned the goals of the oil companies with those of the contractors and supply chain companies.
“They fell out of favour because we had oil price inflation which covered a lot of the inefficiencies up and we went back to the very adversarial contracting approach, a very legalistic approach which we’ve had for the last 10 years or so,” Mr Leatt said.
“I think there are lessons to be learnedand applied in a modern context.”
Mr Leatt took over as leader of the IMCA in October 2015, leaving a job as senior vice president of engineering and project management at Subsea 7 for the role.
He had spent 15 years with Technip, rising within the company to become executive vice president for the company’s subsea umbilicals, risers and flowlines product line, moving on to Stolt Offshore as chief technology officer.
Mr Leatt said he was committed to steering the IMCA through the difficult times the industry was facing, but added that it was important the industry understand the recovery would be slow.
It was a buyers’ market right now, he said, meaning that some in the industry would need to reset their cost base, with contractors likely to face the financial risk that went with that.
“What they’ve found particularly difficult at this point in time is shouldering some of the changes to the risk profile industry that some of the companies are wanting to impose – post Macondo,” he said.
Trying to insure against damages caused by pollution and other consequential losses was a difficult task for contractors, he said, as there was limited capacity in the insurance market for catastrophic risk insurance.
“It’s putting contractors in a very difficult position when the industry is least able to absorb that sort of risk… even in good times catastrophic risk is a company killer so I see this as not the way to go,” he said.
“There are plenty of other ways for oil companies to ensure that contractors are aligned and have skin in the game, as its most often referred to, without them being in a position where they would be facing a real catastrophic loss and therefore go out of business.”
Despite these challenges, Mr Leatt said the substantial investments in safety, equipment and management over the last 10 years had left the industry in a solid condition.
“Our tool kit here today is in the best shape it’s ever been,” he said.
“We need to apply that – we have the efficient tools, we just need to work in an efficient way. A lot of that comes down to the working model with oil companies.”
To help achieve that, the IMCA publishes a variety of documents on good practice prepared through a series of standing committees covering fields including diving, marine, survey, safety, legislation and environment, competence and training.
“Behind those committees there’s a network of work groups that actually go into the detail of the issues of the day in those subject areas to develop new documents or to update old documents on guidance, recommended practice and the like,” Mr Leatt said.
“It’s a matter of working together and understanding that the nuances, if you like, of each market sector and construction sector is a niche. The oil and gas industry is a galaxy of market sectors and often they don’t talk to one another.”
“Our mission here is to improve the performance of the marine contracting industry it’s a business I’ve been in all my life and I’m absolutely committed to deliver on that mission,” he said.