Special Report Contents

• Comment: Grim 2016 for producers
• Oil price forecasts make for a bleak 2016
• Egypt’s game-changing gas find
• The most important energy project in Iran
• The future of oil field management

When the UK oil and gas engineering consultancy Amec agreed the takeover of its US-listed rival Foster Wheeler in February 2014 oil prices were riding high at more than $90 a barrel.

At the time, Amec stressed that the Middle East was one of the key markets where it saw the most opportunity for growth.

Since then, crude prices have plunged, scraping lows of less than $40 a barrel, turning the world of oil and gas on its head and triggering huge job cuts in some of the world’s biggest energy companies.

At the same time, instability in the Middle East has dramatically increased. Saudi Arabia and its Gulf allies are fighting an expensive war in Yemen and the militant group Islamic State in Iraq and Syria (Isis) has taken control of large swathes of Iraq.

Although much has changed since Amec first agreed the takeover of Foster Wheeler, more than one year later the combined company still sees the Middle East as a key market for expansion.

“It is in the Middle East that we see our most important growth,” says Roberto Penno, a 27-year veteran of Foster Wheeler who became Amec Foster Wheeler’s regional president for Asia, the Middle East, Africa and Southern Europe in the wake of the acquisition.

Continuing to invest

Penno says that while the drop in oil prices has delayed some projects in the Middle East, most regional governments have signalled a commitment to investment that will create opportunities for engineering consultancy companies and project management firms.

“Both IOCs [international oil companies] and the NOCs [national oil companies] are continuing with their investments,” says Penno.

Amec Foster Wheeler expects spending on large capital projects to remain robust in the Middle East, as some countries look to take advantage of lower commodities prices and cut construction costs.

“I would say that Saudi Arabia and Iraq are going to be our focus, regional bright spots for growth”

Roberto Penno, Amec Foster Wheeler

“Today, clients can get more for less. They can really pick the people they want, the best people, because the project market is suppressed… it’s a very good time to invest,” he says.

Key markets

Penno says that within the region Amec Foster Wheeler sees Saudi Arabia and Iraq as key markets for expansion over the short term.

“If you gave me a timeline of five years, I would say that Saudi Arabia and Iraq are going to be our focus, regional bright spots, for growth.”

The company currently provides services to UK/Dutch Shell Group on its $4bn Majnoon oil field development project in southern Iraq and is hoping to secure more contracts in upcoming months, capitalising on new investments from IOCs and state-owned oil companies.

“There are a number of jobs that we are bidding on. Some are coming up soon,” says Penno.

Amec Foster Wheeler’s enthusiasm for Iraq comes amid an uneasy stabilisation of the country’s overall security situation.

Considering Kurdistan

After Isis seized large swathes of Iraq in June last year, including the country’s second city Mosul, both Isis and forces loyal to Baghdad and Erbil have become entrenched, with neither side making large gains.

August 2015 marked a year since the US-led bombing campaign against Isis started.

The US says Isis has lost the ability to operate freely in 30 per cent of the territory it controlled in August 2014 and can now no longer launch major offensives, thanks in part to the aerial campaign.

Fighting continues in key areas, such as around the Baji refinery and near Kirkuk, but Isis’ activities have largely been limited to small-scale attacks.

The change in the country’s security dynamics are making new provinces attractive to oil and gas companies that have previously been wary of the unstable security situation.

 “Kurdistan is opening up,” says Penno. “In the past, we didn’t want to operate in Iraqi Kurdistan. We believe security in the region is improving and we want to explore our options.”

Saudi Arabia

Amec Foster Wheeler sees a wide range of opportunities in Saudi Arabia across oil and gas, power, renewables and infrastructure projects.

The UK-based multinational currently has 450 workers in Saudi Arabia and is looking to double its workforce in the country over the next three years.

“The number of Amec Foster Wheeler workers in Khobar will increase over coming years,” says Penno. “We are going to expand and we are going to create local capacity and local expertise to do more sophisticated work.”

Currently Amec Foster Wheeler works across a range of projects in Saudi Arabia that includes state-owned Saudi Aramco’s multibillion-dollar Shale Gas Development project, which saw its first package awarded to Japan’s JGC in August.

On top of contracts already awarded, Penno says Amec Foster Wheeler is optimistic about winning future projects.

Power shortage

“I think [Saudi Arabia’s leaders] are very pragmatic and the sense is that the investment will continue,” he says. “We already have the unconventional gas project… then there are opportunities in renewable energy, as well as in environmental and infrastructure projects.

“Saudi Arabia has forecast a shortage of power and they are planning to fill this gap with nuclear and solar power. We are interested in both and we are setting ourselves up to provide these services. We are optimistic these projects will happen. The timing is less certain.”

Economic concerns

Amec Foster Wheeler’s planned expansion into Saudi Arabia comes amid concerns about the country’s economy and the stability of its project market.

On 6 September, Saudi Arabia’s Finance Minister Ibrahim Alassaf said the kingdom would cut spending in some areas and delay some projects due to low global oil prices.

Saudi Arabia has predicted a budget shortfall of $39bn for 2015, but analysts believe the actual figure could be much higher.

On 2 September, the Saudi Arabian consultancy Jadwa Investment said it expects the shortfall to be about $109bn.

Despite the concerns about project spending in the kingdom, Penno remains confident that Riyadh will ensure government projects remain on track.

“I believe Saudi Arabia has all the characteristics to succeed in what they have in mind. They manage very professionally, they are really committed, and I am very optimistic.”

Iran opportunities

Penno says there is potential in Iran for big contracts to be won by international project management companies and consultancies over coming years.

“A couple of weeks ago, a representative from Amec Foster Wheeler was sent to Tehran as part of a British trade delegation,” he says. “It is clear Iran needs services and investment to modernise. There is incredible demand.”

While there is no doubt of the demand for the kind of services Amec Foster Wheeler provides, Penno says that, with sanctions still in place, Iran remains an uncertain market.

“There is very little we can do until sanctions are lifted – something we expect to occur in early 2016.”

Penno says that Iran’s significant investment needs may see most contracts go to companies from countries that have strong financial institutions and can supply credit.

“Our one concern about Iran is that they need financing,” he says. “The Japanese are having discussions in Iran. They have very strong institutions and investment arms.”

Infrastructure expansion

Amec Foster Wheeler sees environment and infrastructure projects as a key sector for expansion in the Middle East over the medium term, with significant opportunities in remediation in Kuwait and Saudi Arabia.

“Contamination and remediation work is part of our growth strategy,” says Penno. “In Saudi Arabia, cities are growing to the point where they are overlapping with industrial sites.”

Penno says it is soon reaching the point where Riyadh will have to clean up the contaminated industrial areas, or even move them elsewhere.

Amec Foster Wheeler already has a project management consultancy (PMC) contract for Kuwait Environmental Remediation Project – a unique scheme that aims to clean up the huge swathes of Kuwaiti desert contaminated during the First Gulf War.

The project is being funded by $3.2bn in war reparations provided by Iraq, most of which is yet to be spent.

“We can provide our expertise in terms of how to deal with such a large project,” says Penno. “We have done it a number of times and we know how to deal with it. We know the processes and the technologies to be used. And we have a track record of managing time and cost effectively.

Adapting for efficiency

Penno says Amec Foster Wheeler (the merger was completed in November 2014), is already seeing the benefits of its increased size.

“There are benefits in terms of oil and gas supply chain coverage, geographical coverage and brand,” says Penno. “We can already take on bigger projects and carry out of a wider spectrum of processes.”

“We remain strong in oil and gas, but we also have the ability to diversify into other markets”

Roberto Penno, Amec Foster Wheeler

While other multinational companies working in the oil and gas sector have announced thousands of job cuts over recent months, Amec Foster Wheeler is not likely to look to save money through sweeping job cuts, although the company is aiming to increase efficiency.

“Of course, when you merge two companies there are some positions that will become redundant, but we’re not expecting the cost savings to come from job cuts,” says Penno.

“It is not by reducing our work force of engineers and project managers that we will become more effective – it is by improving our processes.”

As the merger process continues, Penno says Amec Foster Wheeler is looking to increase efficiency by examining how construction activities are managed, increasing design standardisation, improving project sequencing, and pursuing diversification.

“The strength of Amec Foster Wheeler is that we remain strong in oil and gas, but we also have the ability to diversify into other markets,” he says. “This ability is extremely important to us in the current environment.”