Coflexip Stena Offshore (CSO) Chairman and Chief Executive Officer Pierre M. Valentin and Chief Operating Officer Thomas Ehret share their views on the future of deepwater development.

Hart's E&P: Can you outline your strategy in agreeing to acquire Aker Maritime's deepwater division? What additional capabilities do you expect to gain from this acquisition?
Valentin: Our strategy has been defined since the end of 1996 after the merger of Coflexip and Stena Offshore. Principally, we wanted to complement our capabilities in regard to deep water, all the way from conceptual design and engineering to installation. Secondly, we knew that we had to make a significant move to consolidate our presence in the Gulf of Mexico and in West Africa.
The acquisition of Aker Maritime's deepwater division will allow us to pursue both of these objectives. Another result, which was not explicitly part of the 1996 plan but nevertheless will be achieved, will be enlarging our market from the core subsea business, which is about (US) $3 billion to $4 billion per year, to about $20 billion and will include floating production systems. A key point for us was that we had reached about 35% market share in our core business, and it is increasingly difficult to grow beyond this level in a competitive market. By widening the scope of our business, we can make the natural expansion from our flowline and pipelay business into the floating structures they serve. And we can grow in areas that make use of our technologies. We have always been recognized for our operational capabilities and know-how, but real growth will come from the application of new technologies, especially in deep waters. For example, the Aker spar floating production system, for which they are best known, is a good fit with our deepwater flowline and riser technology. By broadening our scope we expect less sensitivity to the various business cycles that affect our industry.
Hart's E&P: The Minerals Management Service is expected to issue a report favorable to the introduction of floating production storage and offloading vessels (FPSOs) into the Gulf of Mexico. How do you see this affecting the market for CSO's installation and engineering services?
Valentin: It will be a fundamental move. In the classical sense, with few exceptions, FPSOs mean major applications for flexible pipe. The introduction of FPSOs into the Gulf of Mexico could be the big opening we have been dreaming about for many years for this key product. But that being said, once we have acquired the Aker Maritime's deepwater division, we will be open to all floating solutions.
Hart's E&P: What about your flexible pipe manufacturing facilities in Le Trait and Vitória? Do they have the capacity to supply the pipe you will need?
Valentin: We have a total capacity in French and Brazilian plants of about 1,000km (621 miles) per year of standard 6in. flexible pipe, as well as the ability to manufacture other sizes. With this kind of capacity, which can be expanded rather quickly as we have proved by adding additional shifts, we believe there will be enough to sustain our market share. Of course, these are the sorts of problems one likes to have.
Hart's E&P: CSO owns nearly 33% of the premium-class vessel capacity in the world. In addition, the company's share of the flexible flowline market is estimated at 75%. Nevertheless, the potential scope of deepwater construction work could exceed marine construction capacity by 2002. What steps is CSO taking to address this forecasted demand?
Valentin: We must be very careful in defining the "capacity" in the industry. Many factors enter into the equation - types of pipe, length, water depth and location - because although they are movable, the ships do not move instantly from one end of the world to the other. Part of one's capacity is having the right number of the right ships in a given area. Availability of support vessels, such as barges, contributes to capacity, and so forth. So it is difficult to say that 2 years from now demand will exceed supply.
Another factor that must not be overlooked is the upgrading of our fleet to increase our vessels' capabilities and efficiencies. For example, the recent upgrade of the Sunrise 2000 in 1999 and the presently ongoing upgrade of CSO Constructor will add capacity to perform operations in deeper waters. The new-build CSO Deep Blue, which will be delivered mid-2001, will give us greatly increased lifting and carrying capacity in the deepwater Gulf of Mexico.
Ehret: Basically, we have responded to the tightening market through more modern, more productive equipment and manufacturing techniques.
Valentin: It should also be said that we took the decision that reeled rigid pipe would experience strong future growth, so we equipped some of our vessels to handle this type of pipe as well as the traditional flexible pipe.
We are prepared, and I trust the market will respond to what we have decided.
Hart's E&P: CSO maintains a strong position in the North Sea, yet your third-quarter report suggests some softening in the UK North Sea Market. What is your opinion on when North Sea activity will experience a comeback? What factors will influence this?
Valentin: The North Sea has been a bit slow because it is an area where the oil companies found it easiest to draw from their reserves to get over the crisis, rather than launch new developments. In addition, taxwise the Gulf of Mexico has offered lower barriers to new projects. Operators would say that three 100 million-bbl fields in the Gulf of Mexico would produce a better return than a single large field in West Africa. In the Norwegian North Sea, we have several good projects, and recently we saw business opportunities returning to the UK North Sea as well. We continue to regard the North Sea as our base business. Our safety record and good reputation there give us a significant advantage. Projects require a lot of good engineering and attention to QHS&E, and fortunately we are prepared to give it.
Hart's E&P: As discoveries reach deeper and deeper waters, the cost and complexity of tieback projects to surface production facilities increases almost exponentially. This would seem to reopen interest in so-called turnkey-added-production (TAP) projects introduced a few years ago by CSO in conjunction with ABB Vetco Gray and Schlumberger. In your opinion, what is the future of such projects?
Ehret: Very good. In fact TAP was a good idea that was simply ahead of its time. It was difficult to get the oil companies to think about expanding field boundaries while they had more prospects to drill. Now, the idea has been relaunched in the UK during the last 6 months, with very positive response. The increased entry of independents into the Gulf of Mexico provides a natural opportunity to expand the TAP concept.
Hart's E&P: Recent joint industry projects seek a solution to deepwater drilling involving elimination of the marine riser and substituting a seabed mud pump connected to the floating drilling rig by flexible mudlines. This has the potential to increase ultradeepwater drilling capacity in a giant step (far faster than introducing new-build deepwater drilling rigs). Is CSO participating in this research, and if so, how is it progressing?
Ehret: Interestingly, the original application for Coflexip flexible pipe was for drilling. The idea, as conceived by Institut Français du Pétrole, called for flexible drillpipe to be used from floaters. However, when the industry pursued another solution to overcome the effects of a moving vessel, the flexible pipe idea was "turned on its side" and applied to subsea risers and flowlines.
Hart's E&P: What new technologies and materials will affect future business for CSO? Are you actively participating in research and development projects for these, or is the company positioned only as an installer and service contractor?
Ehret: CSO's research is aggressively pursuing opportunities to increase the performance of our products through basic research in materials and pipe structures. We are not developing composites as such, but have come up with specifications for composites which we are ordering from various suppliers. The main objective is improving strength-to-weight ratio for deepwater pipe and riser applications. We have built prototype flexible pipes using the new components and designs and have tested them.
We have developed new grades of steel that offer the same properties as before in a lighter package. We have introduced new wire shapes. The sum of these improvements is to reduce weight, increase strength and reduce costs.
Recently we have also done a lot of work developing the robotics side of our business. Perry Slingsby Systems, which evolved from the merger of Perry Tritech in Florida and Slingsby Engineering of the United Kingdom, is doing very exciting work on electric vehicles, automatic underwater vehicles and all sorts of robotic devices to be used in deep water.
Valentin: A strong focus in our recent work has been flow assurance, and that, too, has led to developing a new product called IPB (Integrated Production Bundle), in which we combine the flexible pipe functionality with control umbilicals, gas lift and heating capabilities such as hot water or electric cables.
Hart's E&P: This leads to a question about intelligent completion systems. Several suppliers are successfully installing these now, and they have great potential to improve production while reducing the need for intervention. How is CSO positioned to participate in this growing market?
Valentin: We are following these developments closely, including the installation of subsea processing facilities. Our integrated pipe bundles plus our development of robotics systems and our new cranage capabilities fit well with these activities.
As a conclusion, I would say that our recent acquisition of Aker Maritime's deepwater division is a fundamental step forward for us. It will enable us to work in new countries as well as expand our activities in growing markets, such as the Gulf of Mexico. Our reputation for reliability and our experience at successfully managing difficult projects together with our new complementary capabilities puts us in a very good position. Besides the North Sea and the Gulf of Mexico, our extended base at Vitória in Brazil is exciting. We are operating a logistics base for Petrobras there, and expect to assist them and non-Brazilian operators in the development of the new deepwater fields. From there, we hope to build a bridge to West Africa - a business bridge, of course - particularly to Angola, where deepwater activity is promising.