The question on every Gulf of Mexico (GOM) contractor's lips is: How far will storm work take us in 2003?

Let's take a look at the underwater contracting industry in the Gulf of Mexico to get an idea of how much work can be expected in the 2003 season. We will focus on ROV work, commercial diving, IMR tasks (inspection, maintenance, and repair), and new offshore construction.

Platform Inspection
During Underwater Intervention 2003 in February, one of the most commonly heard phrases was "platform inspection." It didn't seem to matter if you were involved with ROVs or diving, small company or large - everyone had either just finished an inspection job, was involved in an inspection job, or was chasing an inspection job.

The inspection work taking place since last winter has primarily been due to Isidore and Lili. The market got another boost when, on January 14, 2003, the US Minerals Management Service (MMS) mandated Level I and II inspections for structures that were within 25 miles of Hurricane Lili's eye when she was a category III and IV storm. The majority of the work is diving-related, as less than 10 percent of the affected structures are located deeper than 300 feet (91m). MMS set a deadline of May 1 to complete the inspections, so that boost of inspection work will be ending as you read this, just in time for the summer diving season to start.

According to spokesmen for both Stolt Offshore and Global Industries, even though they are seeing more inspection bids than other types of bids, the rates are very competitive. There are at least eight diving companies, four ROV companies, and a few manned submersible companies chasing the inspection work.

While the day rates are all very competitive between the companies, there is a wide gap in offshore operational efficiency, which adds dramatically to the overall cost of the project. Quite often, this fact is missed up front while operators are merely looking at the bottom line day rate in chosing a contractor.

The post-hurricane inspection work will provide a little boost heading into the summer diving season. At that point, another boost will kick in for the diving contractors.

Way back in 1988, the MMS mandated that all Gulf of Mexico structures have a Level III survey by 2003. As is no surprise, a large number of operators have waited until the last minute to spend the money for this underwater inspection. Time is up, and this should keep the inspection boats busy throughout the summer.

There are hopes that the day rates get a little higher as a back log of work develops, other sectors of the industry get busy (such as the four-point market), and operators may take a look at what they get for their money and reward efficiency. Oceaneering hopes so, as the company has put together a 145-foot vessel geared toward inspection. This is larger than the normal 110-footers that are really too small for inspection work, but are cheapest.

Platform Repair
The jury is still out on how much money will be spent to repair underwater hurricane damage. The initial report that came out from the MMS on October 16, 2002, indicated that only six structures out of 800 that were within 25 miles of the eye of the hurricane had sustained serious damage. These structures all were older than 20 years. The tone of the MMS statement left the market with an impression that the MMS was patting both itself and the industry on the back for the structural integrity of the offshore oilfields, which, considering the MMS data buoy registered 145-mile-per-hour winds, may be considered an accomplishment.

Until the initial Level II inspections are completed, the extent of the underwater damage cannot be fully assessed. However, a couple of operators have completed their inspections and, with over 50 platforms examined, the damage was minimal.

Platform Removal
According to the MMS database, Chevron removed ST 23 in 1973 - this was the first Gulf of Mexico structure to be removed. For the next 14 years there was an average of 30 structures a year pulled out. In 1988 the number jumped to 100 a year, and has pretty much remained above that to this day. The highest year was 177 structures removed in 1997. The off-year was 1998, with only 76 removed.

For 2003, indicators point to a removal program that should be between 125 to 175 structures. Rick Kasprzak, who heads up the Artificial Reef Program for the Louisiana Department of Wildlife and Fisheries, states that there are at least six structures that are applying to be reefed (some from Hurricane Lili). In addition, there could be more structures that were damaged during the hurricane that are presently undergoing economic review to determine if they stay or come out.

Besides the hurricane removal work, this year had already been shaping up to be an active abandonment year. There are several operators that are planning to pull out 20 to 30 structures. Another indicator that confirms a busy abandonment year is the number of pipeline abandonment bids that have come up in the last month. Representatives from Stolt, Global, Epic Companies, and Superior Diving, all have seen an increase in the number of pipeline abandonment bids.

Platform abandonment will continue to be a steady market for the foreseeable future. A quick look at the MMS database shows some interesting statistics. There are 13 structures in the Gulf of Mexico that are over 50 years old, 232 structures that are 40 to 50 years old, 668 structures 30 to 40 years old, and 864 structures that are 20 to 30 years old. Contractors can take solace in the fact that there are still numerous older structures that will eventually need to be removed.

New Construction
The one area that seems to be lagging is new offshore construction both in shallow water and deepwater. The effect of the slowdown in new construction will likely be felt more in the deepwater arena. Shallow water will have platform inspection, repairs, and removal to take up the slack and help vessel utilization rates. What the shallow water market may be missing this year is new pipeline construction. Right now it appears that the number of bids for shallow water pipelines is down from previous years.

There may be excess capacity in the ROV industry if indeed the year turns out to be slow for deepwater offshore construction. According to the MMS, 2002 was one of the biggest years for new deepwater discoveries and production coming online. The current year will also be a big year for deepwater production coming online. What that will mean for 2003 is that there will be confirmation drilling and project planning, but an off-year for offshore construction.

However, with all the new discoveries, the outlook for the future is very positive. Torch Offshore is one of many companies banking on a healthy deepwater construction market as they introduce their new DP vessel, the Midnight Wrangler.

What Does It All Mean?
The shelf diving market should be steady all year. However, at this point in the year, the bidding is very competitive and profit margins are down, as companies try to keep their vessel and personnel utilization rates up.

Once post-Hurricane Lili platform inspections are completed and decisions on repairs and removals are made, the vessel market should tighten up and day rates should increase. Then, as we get into the summer season and removal projects get underway, I expect to see a backlog in work and a shortage of vessels, especially four-point vessels and jack-up boats.

According to Denis Renear of Maritime Logistics, right now in the jack-up boat market, there seems to be a surplus of the larger class vessels and a shortage of the 105-foot class vessels. This should change as more removal and repair projects get underway - the larger jack-ups will be harder to find. However, I do not expect to see a backlog of work until well into the summer. Even though we are predicting a big year for removal and repair, the bids for these projects seem to be coming out late, which will delay the start of the projects.

The ROV deepwater market will not be as steady as the diving market. There may be a surplus of vessels on the market this year. If this is the case, companies may elect to move vessels out of the Gulf into other areas to make it through what could be a down year for deepwater vessel utilization.

Another factor that is coming into play more and more is efficiency. Ten years ago, when the push to deepwater began, the industry was scrambling to provide equipment that was able to work in several thousand feet of water. Now, operators want equipment to be able to not only work in several thousand feet of water, but to do it efficiently.

Historically, the Gulf of Mexico has lagged behind the rest of the world's oil fields in terms of project management and efficient purpose-built vessels. Operators have been very slow to recognize the value in getting the right vessel for the right job, even if its day rate is higher. There are some overseas contractors that have come into the Gulf with the right vessel and good project management tools and have captured market share - Allseas is an excellent example with their state-of-the-art vessels Lorelay and Solitaire.

Roy Sijthoff of Allseas points to Subsea 7 and its Subsea Viking as examples of efficiency. The Subsea Viking recently completed a Submar mat installation in one-third of the time that other vessels have installed the same number of mats. Mike Newbury of Subsea 7 has only one problem with the vessel - it is in such demand worldwide that he cannot keep it in the Gulf of Mexico.

Successful underwater contractors are also looking at diversification. One example is Global Diving. While other companies are experiencing slow times, Global has kept its personnel busy in other parts of the world with diverse expertise - specifically in underwater welding.