UK yards in danger of missing the boat

Floating vessels are fast becoming the favoured option for producing oil from UK waters. But our offshore construction industry seems incapable of building them. David Bowen finds out why `For the next 10 years, Floating Production, Storage and Offloa

SIR Francis Drake singed the king of Spain's beard in Cadiz harbour, sending in a fireship to torch the armada. Now the Andalusian port is getting its own back, winning business that experts say could and should be going to British yards.

The Uisge Gorm used to be a 740ft 100,000-ton oil tanker called the Dirch Maersk. In a few months, thanks largely to the attentions of Astilleros Espanoles in Cadiz, it will be a 740ft 100,000-ton oil rig. More precisely, it will be a Floating Production, Storage and Offloading system - a ship with a rig incorporated. The £30m conversion, the first done for a North Sea field, will have kept 600 people busy in Spain for six months. Next month, the vessel will sail to Tyneside, where it will be finished off by the private company McNalty's. But the lion's share of the work will have gone to Cadiz.

FPSOs are expected to revolutionise the UK's offshore industry. Uisge Gorm will be used to lift oil from the small Fife field, which its operator, Amerada Hess, reckons would not be worth developing with a conventional platform. Oil comes aboard through a turret near the bow, around which the ship rotates like a windvane. It is processed and then flows into the tanks, which are drained by another tanker every 10 days or so.

Because FPSOs do not have massive "legs", they can start producing quickly and can be moved on - under their own steam - when a field is exhausted. And because they have their own storage tanks, unlike floating "semi-submersible" platforms, they do not have to be linked by pipeline to the shore. That means they are ideal for the small fields that contain most of the unexploited oil in UK waters.

But according to the vessel's Dutch owners, British yards failed to make a serious bid for the conversion work. Otto van Voorst, vice-president of operations for Bluewater, a contractor that will pump Fife's oil on Amerada's behalf, says that the three British bids were "way above" the Astilleros price. They were also higher than the bid put in by Blohm and Voss of Hamburg, despite Germany's much higher labour costs.

Mr van Voorst says that while the Spanish yard does have one inherent advantage - an ideal climate - the British yards appeared to have overestimated the time the job would take. "They said they would have a problem meeting the original schedule," he reported.

Industry experts say this reflects an excessive if understandable caution. Conversions for the oil industry have a fearful record. The most recent and spectacular disaster cost the Davy Corporation its independence, after its offshore division lost more than £150m on a fixed-price contract to convert a drilling rig into a production platform for the Emerald field.

There are, however, several UK yards with offshore expertise that are short of work but that failed to put in a competitive bid for the Uisge Gorm contract. Highland Fabricators, based at Nigg in northern Scotland, was one of the three overbidders. The others were A&P Appledore, the ship repairer, and a consortium that planned to use the old Cammell Laird yard at Birkenhead for the work.

"We believe we did quote a realistic price," says Tom Preston, Highland's commercial director. "We go for quality - but we were unable to convince Bluewater." The yard, which is about to merge with McDermott's down the coast to cope with the lack of business, will continue to bid for FPSO work, Mr Preston says.

The problem is that the expertise of these yards lies elsewhere - in the massive platforms that have become a symbol of the North Sea. When fields had lives of 20 years or more, these giants made commercial sense. Now oil companies are looking for ways of making money on fields that will last five years or less - and fixed platforms are not part of their plans. When Amerada Hess, a medium-size US company, discovered the Fife field 150 miles due east of Edinburgh, its engineers concluded that a dedicated platform would not make sense. "The capital cost of Fife could not be amortised over the four-year life of the field," says Tim Kieft, the field's development manager. "We needed to have a vessel that could be re-used."

Amerada's development director, Rex Gaisford, had long banged the drum for the FPSOs, which were already being used in the calmer waters of East Asia and West Africa. He had met incredulity from other managers, who did not believe it would be possible to bring oil on to a ship in the harsh conditions of the North Sea.

In 1991, Mr Gaisford hired the Petrojarl 2, a purpose-built Norwegian FPSO, and used it to drain the tiny Angus field in 18 months - profitably. This, he says, changed the industry's perception of the technique. Kerr McGee, another independent, then moved an FPSO on to its Gryphon field, though it was not until BP decided to use one on its Foinaven field, in the new development area west of the Shetland Islands, that the concept moved into the mainstream. Golar Nor, the Norwegian company that owns Petrojarl , is currently converting a Russian nuclear submarine carrier into an FPSO for BP. "One of the things that will allow oil companies to develop West of Shetlands is floating technology," Mr Gaisford says.

Most of the oil majors are now examining FPSOs. Edinburgh stockbroker Wood Mackenzie reckons that 14 of the UK fields now being planned will be developed with floating platforms. "The majority of these will be ship-shaped," says analyst Julian Kennedy. Bluewater is one of several specialist FPSO contractors (mostly Dutch and Scandinavian - none are British). It has already converted seven, although Uisge Gorm ("blue water" in Gaelic) is the first for North Sea use. The company is now owned by Hugo Heerema, whose father pioneered the use of massive floating cranes in offshore fields. He raised a $150m (£96m) syndicated loan from Dutch and French banks, having convinced them of the viability of the system. The total cost of Uisge Gorm, including purchase and conversion, will be about $200m. To repay that, it will have to be producing long after the Fife field is drained. "We want to keep it in service for 20 years," Mr Heerema says.

One British yard is looking hard, if belatedly, at FPSOs. Harland and Wolff of Belfast has decided it has enormous potential for FPSOs but has also concluded that it will not win contracts unless it cuts costs to the bone. Harland built the very first North Sea FPSO, known as SWOPS, for BP. But it was too expensive to be commercially successful. "For the next 10 years, FPSOs are going to be the big battle," its chief executive, Per Nielsen, says. "We need to offer solutions that are as cheap as possible."

Harland did not bid for the Bluewater contract but is now chasing three others, two for UK fields. These are for new vessels but, Mr Nielsen says, "we are also looking for conversion work, and I have no doubt we can compete on it."