Undersea Specialists Ride High on Oil Price - Financial Times

4 March 2008

04 March 2008

By Andrew Bolger in Aberdeen

Published: March 4 2008 21:56 | Last updated: March 4 2008 21:56

The soaring price of oil and gas and the rapid depletion of existing fields are propelling the industry into deeper and more hostile environments, spelling boom times for the UK’s specialists in underwater extraction.

So-called subsea engineering uses seabed drilling and extraction structures that can be attached to surface vessels to winkle oil out of the most inhospitable corners of the world. As the price of oil has risen, there has been a surge in demand for the sophisticated but highly expensive equipment.

Last year, as prices headed towards $100 a barrel, revenues jumped by nearly 30 per cent to £4.3bn in the UK subsea sector, which has 800 companies providing direct and indirect employment for about 40,000 people.

International sales account for more than half the revenues of British subsea companies, most of which are clustered around north-east Scotland and north-east England.

Africa is forecast to be the world’s largest subsea market, with Asia and Latin America also expected to enjoy extensive growth.

But there are choppier waters ahead. Just as the industry wins a new lease of life, many of its most experienced workers – who learnt their skills during the last era of high-priced oil in the 1970s – are approaching retirement. The result is that, while UK subsea companies have full order books, they are facing a shortfall of up to 3,000 employees over the next two years, says David Pridden, chief executive of Subsea UK, the industry’s representative body.

“Many of the people in the industry are in their 50s,” he says. “We have a ‘lost generation’ of people in their 30s and 40s because of the restructuring the industry went through in the 1980s and 1990s, when the oil price was low.”

Deep-water applications tend to attract the headlines, but Mr Pridden says subsea techniques are also ideal for tapping into relatively small pools of oil and gas in mature areas such as the North Sea, particularly when wells can be “tied back” to existing infrastructure, such as production platforms and existing pipelines.

“By 2010, half the UK continental shelf’s production will come through subsea wells,” he says.

In a development seen as entrenching the UK’s credentials, Aberdeen is to host a new research centre into subsea technologies in partnership with Robert Gordon and Dundee universities. Mr Pridden says: “We need to keep up with Brazil, Norway and the US, all of which have long-term research programmes.”

Professor Albert Rodger, vice-principal and head of Aberdeen university’s college of physical sciences, says the university strongly supports initiatives to promote and develop the future of the subsea industry globally.

He adds: “With this new initiative, we are asserting the position of the UK as the leading centre for the international subsea industry.”

Meanwhile, Aberdeen’s National Hyperbaric Centre, a private company that offers pressurised chambers for diving, medical and technical use – is planning to build the world’s largest and deepest test chamber.

The £10m project will allow it to test equipment in pressures equivalent to 5,000 metres deep – or 500 times normal atmospheric pressure.

Most North Sea oil and gas is found at depths of 300 to 350 metres, although fields discovered west of Shetland lie as deep as 2,000 metres.

David Smith, who owns the hyperbaric centre, says: “Oil has been discovered in the ‘golden triangle’ between west Africa, Brazil and the Gulf of Mexico at depths of 3,000 metres, so we are trying to stay ahead of the curve.”

The centre was established by the Scottish Development Agency in 1987 and bought by Mr Smith, an entrepreneur, in 2005.