A sustained low oil price environment has led to a large number of delayed maintenance activities as operators continue to look to reduce costs wherever possible. The Offshore Maintenance, Modifications & Operations (MMO) market experienced a substantial fall of 22% in total expenditure between 2014 and 2015, and an additional 5% decline is projected by the end of 2016. This is a result of the postponement of non-critical work which otherwise would have been sanctioned in a $100 oil period.
However, whilst efforts to reduce bottom line figures have paid off and continue to be in play, E&P operators must acknowledge the inevitable threshold levels of MMO that are required in the prevention of lost-time incidents. Therefore, DW anticipates a recovery in MMO expenditure to 2021 as operators address maintenance backlogs that can no longer be postponed.
As a function of this backlog and the growing age and degradation of existing asset infrastructure, the market is forecast to witness expenditure increasing from $81 billion (bn) in 2017 to $95bn in 2021 for the world’s global offshore platform population of approximately 8,700 fixed and floating assets. This forecast expenditure will be comprised of Asset Services (60%), which focuses on the R&M of structural, mechanical and electrical systems on platforms, Asset Integrity (14%), people-driven services focusing on efficiencies and processes, Support Services (6%) which is the provision of manpower services supporting the needs of onboard personnel and Modifications (20%). Among all sub-services, Modifications spend is forecast to experience the most significant improvement through to 2021, as a function of the increasing number of platforms globally due for upgrades and operators turning their attention to previously postponed Modifications work scopes.
Regionally, Asia’s historical share of 22% of total expenditure is anticipated to grow to 24% by 2021, due to an increase in Fabric Maintenance demand, whilst North America’s share is projected to experience a contraction from 23% historically to 20% over the forecast, associated with a reduced appetite for value-added maintenance services.
In the current commodity price environment, there is significant pricing pressure and a push for MMO service providers to assume more risk / liabilities. Duty Holder contracts are being downgraded to simpler O&M contracts and in some instances E&Ps are now bypassing tier 1 players to achieve better value directly from tier 2 contractors. This has led to increased tender activity in the marketplace. Whilst this has resulted in heavy pricing pressures for many supply chain players, the flipside is that this provides opportunities for tier 2 players who are able to provide cost effective bundled solutions to tier 1 players or E&Ps and capitalise on the expenditure growth to 2021.