Economic Report 2018

Figure 29: Potential Capacity Constraints Across Supply Chain Sectors Through to 2021

1

Supply Chain Sector

Sub-Sector

Activity Driver

Reservoirs

Seismic, Geological & Geophysical

Despite an expected increase in exploration activity, capacity constraints are unlikely A potential increase in drilling and wells activities could result in increased market rates and issues with service quality No capacity constraints are expected in the purchase and rental of tools and commodities The market will tighten with an increase in activity, with higher rates required to defend the cost of reactivating stacked rigs This sector has seen significant reductions in headcount, an expected increase in projects could result in resource and skill shortages With an expected increase in global topside development projects, yard capacity could tighten along with a squeeze on personnel and other resources There is likely to be sufficient capacity within the market to manage an increase in activity in this area Recent years have seen a significant reduction in engineering and fabrication capacity, creating the potential for a bottleneck with an increase in new projects on the horizon

2

Wells

Well Services

Drilling Tools & Commodities Rigs & Drilling Contractors

3

Facilities

Engineering

4

Engineering, Procurement, Installation & Commissioning

5

Topsides & Processing Equipment Subsea Equipment & Services

6

Marine & Subsea

7

Support & Services Maintenance Services

Key trends are likely to remain relatively flat, with capacity constraints less likely to emerge

Professional Services Transport & Logistics

8

KEY 2021 Capacity

Capacity constraints unlikely

Potential capacity constraints

Likely capacity constraints

9

Due to increases in demand levels, by 2021 there could be capacity constraints emerging within the Wells Services and Drilling and Rig Contractor sector, in Engineering, Procurement, Installation and Commissioning (EPIC) services and in Subsea Contractor services. This will likely result in these sectors seeing the greatest cost inflation, as a new wave of expected field approvals stretch suppliers in their attempts to meet increased demand. Increased capacity constraints also give rise to concerns around the level of service that supply chain companies are able to provide. These considerations have the potential to result in issues such as increased non-productive time and project delays.

10

An increase in demand for goods and services will result in an increase in market rates, therefore it is vital that industry ensures overall project costs remain in a competitive and sustainable position.

11

This will involve continuing to find and implement efficient working practices and optimised operations and also implementing new, innovative, contracting models which support the health of supply chain companies whilst keeping costs under control.

55