Statoil has announced that the contract for delivery of the Johan Sverdrup drilling topside has been awarded to Aibel. This was a job that Kvaerner had strong ambitions to win. The company will now utilise learnings from this tender loss to implement further cost reductions in parallel with positioning for other contract opportunities.
Over the past two years Kvaerner has worked systematically to reduce its own cost level and increase productivity. This has made it possible to offer a lower price level for delivery of the first topside to the Johan Sverdrup development. The platforms for Johan Sverdrup are large and complex, as well as at a tight schedule. Kvaerner has therefore been of the opinion that the company’s capabilities and cost level would be competitive.
“The loss of this tender is disappointing to Kvaerner as well as an illustration of how intense the competition for every contract is. The company take this as a signal to not only step up the cost reduction measures in Kvaerner but also to evaluate if the company has to change its execution model and increase the use of subcontractors”, said Jan Arve Haugan, President & CEO of Kvaerner.
At the start of 2015 Kvaerner had an order backlog of NOK 16.5 billion. This includes a number of major projects where some are completed in 2015 and others in 2016 or later. The backlog provides a sound foundation for activity within most of Kvaerner’s operations which in addition to topside deliveries comprise substructures of steel and concrete, as well as onshore processing plants. The company has opportunities to expand adjacent businesses such as offshore hook up work and completion for new platforms, decommissioning of old installations and large upgrades of existing facilities.
Kvaerner see a significant demand for expertise within such areas for a long time ahead but with today’s turbulent market it is difficult to estimate when new projects are expected to start up. In 2015, there are a few key contracts to be awarded and the drilling topside for Johan Sverdrup was one of these.
“In this industry where large projects last for a number of years, it takes some time before effects of won or lost contracts are seen. We have previously communicated that it is important for Kvaerner to win all key tenders this year. Apart from the large project for the drilling topside for Johan Sverdrup, the scope of remaining contract opportunities in 2015 is not large enough to fill the capacity we have in the Topsides business area. We are now going to discuss how we can handle this in the best possible way together with the employees and employee representatives”, Haugan says.
As part of Kvaerner’s ongoing work with cost reductions it was already this winter said that the company expected some necessary staff reductions before the summer. With the loss of the drilling topside tender, the need to start capacity reductions before the summer are strengthened. The size and pace of such reductions will however depend on how successful Kvaerner are in the competition for other contracts this spring.
Adapted from press release by Joe Green