Developing a Business Case for Marine Asset Investment
Authors: Taylor Leland 
Published: April 2012

An offshore contractor seeking to invest in marine equipment assets as a meansto increase return on capital is confronted with a range of technical, commercial and geopolitical parameters, which can dramatically influence theinvestment outcome. The complexity of the offshore construction market does nottranslate readily into a simple traditional market analysis of " supply anddemand". Given the continuous evolution of offshore facilities design andchanging oil and gas market the forecast of demand is highly dynamic. Thedecision of what are the best marine equipment capabilities to meet thisuncertain demand, which can remain competitive over 20+ years, is a challengingone. In order to arrive at a logical business case for a given marine assetinvestment, the use of scenario planning involving various business models mustbe used.

This paper will discuss the range of parameters typically studied in a marineasset investment business case and the types of parametric business modelswhich are used to provide a quantitative analysis of investment opportunities. The use of parametric models allows the use of scenario planning to establishrange estimates of return on investment (ROI) for a single marine equipmentasset capability or a portfolio thereof.

Scenarios involving various marine construction market evolutions over the lifeof the asset can be assessed for ROI based on ranges of market share which areimpacted by competitor's capabilities and geopolitical factors.

The paper will present typical case studies for two investment scenarios, onefor the construction of a new construction vessel and the other the upgrade ofan existing marine asset. The paper will discuss how the capabilities of theseassets were selected.

The Business Case- Value Proposition Based on Compromise

The installation of offshore facilities is a high variable cost business, wherethe progress of the work involves inherent physical risks not found in mostother forms of construction or any other line of business. Given the cash flowinvolved in bringing offshore project on line, the owners of these projects, demand predictable contractor performance: certainty of schedule and quality inthe finished work.

As any tradesman will attest, using the " correct tool" for any job is essentialfor completing it in a safe, efficient and reliable matter. Employing undercapacity or ill suited construction equipment offshore means the offshoreproject duration will take longer, result in considerably higher variable costand reduce surety in the quality and schedule of the finished work. Using thewrong equipment offshore can create situations where the offshore risks of thejob cannot be effectively managed resulting in disaster for both the contractorand other stakeholders in the project.

An offshore contractor deciding to invest in new or upgraded equipment mustbelieve the cost invested will generate greater future profits than otherwisepossible. Typically these profits are generated by reducing incremental cost ofproduction and/or increased turnover thereby increase margins on fixed cost. The future profits must be rationally dimensioned to create a businessinvestment case.