THE NETHERLANDS:

Dutch offshore struggles with competition, politics and decline

Hans de Boer, managing director of IRO (Association of Dutch Suppliers in the Oil and Gas Industry), describes the Netherlands’ offshore companies’ battle with economic and political forces, as they try to maintain momentum in the North Sea and elsewhere.

Q. What role does IRO play in the overall structure of the Netherlands upstream industry?

Hans de Boer

A. Founded in 1971, IRO is the official association of Dutch suppliers in the upstream oil and gas industry, and represents about 300 member-companies. We are the only such association in Holland. Our origin coincides with the development of the Dutch continental shelf in the North Sea, and in November we will celebrate our 30th anniversary.

Q. What major initiative(s) or project(s) is IRO either leading or contributing to?

A. We are one of the five founding members of EUROGIF (European Oil & Gas Innovation Forum), the cooperative venture to expedite R&D for new technologies and more efficient work practices. In addition to their headquarters office at the European Union in Brussels, we house some of their operation in our own offices here in the Netherlands. We also are the organizers of Dutch exhibition sections that go to the Offshore Technology Conference in Houston, as well as other trade shows and conferences. Additionally, we organize seminars and trade missions.

Q. How did your members cope with the poor economic environment of 1998 and 1999 in the North Sea?

A. It was not an easy time for our companies, including the operators. Among the 12 operators, nine of them were engaged only in production operations on the Dutch shelf, and that is still the case today. Exploration almost disappeared, and the overall E&P activity level was quite low. Most of our companies have survived by expanding their business beyond the North Sea into other regions.

Q. Analysts have termed 2000 as a "recovery" year for the North Sea. Was that true for the Dutch shelf? What is IRO’s outlook for 2001?

A. It definitely was not a year of recovery for the Dutch shelf. Activity levels were still very poor. Drilling, both for exploration and development, was very low. The results were certainly not in line with the expectations that we originally had at the beginning of last year. New developments are taking off slower than expected, but we think 2001 looks much better.

Q. What are some of the major Dutch E&P projects underway?

A. Increasingly, Dutch companies have been looking at other regions of the world for new discoveries and field developments. However, Veba reports that its Hanze field in Block F2a of the North Sea is progressing as the first new oil production platform on the Dutch shelf in 10 years. Veba signed contracts for construction and installation of a production and storage platform with (South) Korea’s Hyundai Heavy Industries in June 1999. Subsequently, they fabricated and installed a gravity-based structure in August 2000. Fabrication of the topsides for the platform is finishing in (South) Korea at present, and that portion should be delivered and installed perhaps as early as this month. Veba anticipates production start-up in July 2001.

Q. Is the Netherlands upstream permanently gas-prone? Is there hope for improving oil resources and production?

A. Natural gas is now the dominant factor on the Dutch shelf. It is the largest portion of production, and we do not see that situation changing. There just have not been any recent new discoveries of oil, certainly not anything significant. I think the chances for any future oil finds of significant size are not very realistic. That having been said, only about 50% of the Dutch shelf has actually been awarded and explored. It is conceivable that operators might want to explore selective portions of the other 50%. Nevertheless, in my opinion, there would have to be a combination of operating incentives – including high oil prices, better regulatory terms and optimistic seismic findings – to lure operators into taking on additional tracts on the Dutch shelf.

Q. How is the health of the construction sector of the Dutch upstream industry?

A. In general, the condition is poor. There has been very little fabrication and design activity over the last couple of years. Many Dutch construction companies are short of work, and they are facing increased, stiffer competition for contracts within Europe, particularly from firms in the UK.

In addition, they are facing new competitive threats from places like South Korea. A prime example of the latter is Veba’s Hanze field, for which virtually all of the facilities were constructed in Korea. Yes, Smit International was involved in installing the platform’s support structure, but that was the extent of Dutch firms’ participation. Currently, the only company in Holland involved in any conversions and repairs of drilling rigs and other vessels is Verolme Botlek. The government’s attitude on this subject is very weak; it has not wanted to get involved.

Q. What are some of the Dutch offshore industry’s operating and technical challenges / successes?

A. Some of our members are involved in some interesting technical ventures. Several of them are also looking outside the North Sea to prosper. For instance, Fugro has just developed an umbilical-less ROV, for work in deepwater areas worldwide. As you know, E&P developments are in ever-increasing water depths, and the umbilicals hooked to traditional ROVs have become much too long and cumbersome. Allseas’ pipelay vessel Solitaire, the largest of its kind, continues to tackle difficult pipelaying projects in the North Sea and in the deepwater Gulf of Mexico. These include trunklines and pipe for field developments, and the vessel is operating in ever-deeper waters.

Vryhof Anchors is also developing new deepwater mooring and anchoring systems for mobile offshore rigs and floating production units. Speaking of floating production, Bluewater Energy Services continues to expand its FPSO expertise into new regions, the most recent being Brazil.

Q. What is the Netherlands government’s attitude toward the upstream industry?

A. In two words, too political. There is way too much politics these days. The government is too busy paying attention to, and addressing the agendas of, "screaming minorities." By this, I mean people like environmentalists, consumer activists, extreme socialists, and other citizens that just don’t like the oil and gas industry. In our country, oil and gas are considered "dirty" these days, and we at IRO, unfortunately, are lumped together with the operators, who are unfairly labeled with making obscene profits at the perceived expense of average consumers.

The government is paying far too much attention to these factions without appreciating the value that the offshore industry contributes to the Dutch economy. We account for a substantial portion of the gross domestic profit, as well as a substantial share of employment, with at least 20,000 people employed by our firms.

Q. What are the latest developments with tax policies?

A. The major item still on the agenda is the new mining legislation, which includes oil and gas, and has been under development for the last three years. A new draft law had been composed and sent to parliament, but members cannot agree on what they want in the bill. It was sent back to the ministry from parliament for revision. The draft law contains much stricter rules, both on the financial / tax side and on the environmental side. Needless to say, the operators have been screaming about this, saying that the upstream sector in the Netherlands is already too financially difficult, especially when prices are lower. The government thinks it can compose and approve some sort of compromise law before the end of the year.

Q. How do Dutch companies feel about today’s relatively high oil prices? What is their opinion of OPEC actions?

A. In principle, we are all quite happy with the current oil and gas price situation. Higher prices will certainly stimulate new activity and field developments. They should also breathe some new life back into the depressed North Sea region. So, we are all quite happy and optimistic, at least as much as we can be, since we have little control over where prices go. OPEC, of course, stimulates this price activity, and we can only react to it. Naturally, there are some citizens in the Netherlands that complain about high fuel prices. But higher prices, so far, seem to have done little damage to the average citizen. The Dutch economy is still performing strongly enough that the complaints about higher prices have not been too loud, yet.