Why Oil Companies Do Not Own All the Offshore Assets They Use
Developing an offshore oil and gas field requires a wide range of assets, including drilling rigs, pipelay vessels, heavy-lift vessels, subsea construction vessels and FPSOs. In many projects, however, the oil company does not own them. A specialist drilling contractor may supply the rig; offshore contractors may perform installation work using their own construction vessels; and an FPSO may be financed, owned and operated by a company such as SBM Offshore or MODEC.
A single offshore development can require billions of dollars in capital. Why, then, do oil companies often lease assets or procure services from third parties? Whether an asset is worth owning depends largely on how it will be used over its working life. Financial capacity is only one consideration.
What Are an Oil Company’s Core Assets?
An oil company’s primary business is to acquire interests in oil and gas resources, explore and develop those resources, and produce hydrocarbons safely and economically. Its interests in licences and fields, the reserves attributable to those interests, and the production they generate underpin the business over the long term.
Drilling rigs, construction vessels and production facilities are all essential, but they are primarily assets used to deliver and operate a development. From the oil company’s perspective, the priorities are whether an asset will be available when required, whether it meets the project’s technical and safety requirements, and whether its cost is acceptable. Legal ownership is rarely the first consideration.
Utilisation Matters More Than the Ability to Buy
An offshore development moves through several distinct stages. Exploration and development drilling require drilling rigs. Field construction requires pipelay, heavy-lift and subsea construction vessels. Once the field comes onstream, fixed platforms, FPSOs or subsea production systems support production over the long term.
Drilling rigs and construction vessels are generally required only during defined phases of a project. A rig moves on once its drilling campaign is complete, while a pipelay or heavy-lift vessel may spend even less time on the project. If an oil company buys one of these assets for a single development and has no follow-on use for it, the asset may remain idle after the work is finished, while crewing, maintenance, surveys, berthing and financing costs continue to accrue.
Specialist drilling contractors and offshore construction companies can redeploy the same rig or vessel across multiple clients and projects. For high-value mobile assets, maintaining a high utilisation rate is often more important than the identity of the owner.
Different Assets Favour Different Ownership Models
Because drilling rigs and construction vessels are mobile, they are commonly owned and operated by specialist contractors. Oil companies procure drilling and offshore construction services under contracts structured around a well, a campaign or a wider project scope. The contractor provides and operates the asset, supplies the crew and manages day-to-day operations, while the oil company defines the work scope, technical specifications and health, safety and environmental requirements.
An FPSO is different. It may remain on the same field for well over a decade, so direct ownership by the oil company can appear to be the natural choice. However, an FPSO is capital-intensive and complex to deliver and operate. The market therefore supports both direct ownership by oil companies and lease-and-operate models.
In a lease-and-operate project, the specialist FPSO provider does much more than charter a vessel. Depending on the contract, it may arrange financing and take responsibility for engineering, procurement, conversion or new construction, system integration, commissioning and long-term operations. Under a long-term agreement, the oil company is effectively procuring both floating production capacity and an operating service. This model does not necessarily lower the overall project cost. Instead, it changes the upfront funding structure and reallocates responsibility for financing, project execution, asset management and operations.
Fixed production platforms and subsea production facilities are designed for a specific field and are difficult to redeploy. Many are therefore owned by the oil company or the project company. FPSOs can also follow several models: direct ownership by the oil company, a long-term lease-and-operate contract with an FPSO provider, or a lease followed by an agreed transfer of ownership. No single model is appropriate for every project.
Why Does CNOOC Seem to Own So Many Offshore Assets?
At first glance, CNOOC may seem to be an exception. Viewed at group level, CNOOC has a broad base of offshore assets and engineering-service capabilities, including drilling rigs, construction vessels and certain floating production units. Much of this asset base and service capability, however, sits within specialist businesses such as China Oilfield Services Limited (COSL), Offshore Oil Engineering Co., Ltd. (COOEC) and CNOOC Energy Technology & Services Limited (CNOOC EnerTech), rather than directly within the upstream business responsible for developing and producing the fields.
The model still relies on specialisation. The difference is that much of the drilling, engineering, asset operations and field production capability sits within the same corporate group. Compared with a model that relies entirely on external contractors, the organisational boundary is different, but the underlying division of labour remains.
How Is the Ownership Decision Made?
In practice, four questions tend to determine the choice: how long the project will need the asset; whether it can be redeployed or secure follow-on work; how much capital ownership would tie up; and whether the company has the expertise and organisation required to manage and operate the asset over its full life cycle.
The same oil company may therefore own a fixed platform on one development, use a leased FPSO on another, and contract out drilling and offshore installation to specialist contractors. Even when the assets come from third parties, the field operator still leads decisions on the development concept, production capacity, technical requirements and safety standards.
The division of roles among oil companies, drilling contractors, offshore engineering and construction companies, vessel owners and FPSO providers reflects the different utilisation patterns, capital requirements and operating capabilities associated with each asset class. Affordability is only one consideration. The decisive issue is which ownership and contracting structure best fits the project.