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Inside Saudi Arabia’s water PPP ecosystem

Saudi Arabia’s water PPP market has grown into one of the most structured and well-governed sectors for global developers, underpinned by institutional reforms, legal frameworks and digital tools that have systematically reduced the barriers to market entry.

By SHARAKAT

The UK’s BP has carried out considerable preparatory and appraisal work on what has become known as the Khazzan tight gas project. In the period 2007-12, it spent an estimated $1bn on undertaking new seismic surveys, drilling wells, performing hydraulic fractures, and constructing a gas compression station and a small pipeline network.

The first gas is due to be produced from the facility in 2017, with production ramping up to full capacity in 2018

However, this will be dwarfed by the proposed full-field development, which calls for: the installation of a 600-kilometre-long gathering system and a 150km gas export network; the drilling of about 330 wells supported by eight to 10 drilling rigs over a 15-year period; and the construction of a central processing facility (CPF) with a capacity of 1,200 million cubic feet a day (cf/d).

Target production

The facilities will produce 20,000-40,000 barrels a day (b/d) of condensate, 20,000-100,000 b/d of water and an estimated 1 billion cf/d of sales gas. This will be sold directly to the government and have a significant impact on total supplies, boosting production to an estimated 4.7 billion cf/d by 2019 and helping to offset declines in Petroleum Development Oman (PDO) output. Target production is equal to a third of the sultanate’s current gas production.

The government of Oman gave the final go-ahead for BP to develop the Khazzan tight gas field in December 2013, following months of negotiations.

BP, which has a 60 per cent stake in the project, estimated the total investment required for the development at $16bn, which includes investments made to date in the appraisal of the resource.

Khazzan is located in the Block 61 concession in Al-Dhahirah governorate, west-central Oman, and is one of the world’s first greenfield tight gas projects.

The reserves are trapped at 4.5-5km below the surface and, because the gas does not flow to the surface naturally, BP will have to hydraulically fracture the formations to release the gas.

In February 2014, BP awarded the first major construction contract on Khazzan. A consortium of the UK’s Petrofac and Athens-based Consolidated Contractors Company (CCC) was awarded a $1.2bn engineering, procurement and construction (EPC) contract on the project’s CPF.

Consortium leader Petrofac won about $900m-worth of the EPC work on the facility, with CCC taking about $300m.

The first gas is due to be produced from the facility in 2017, with production ramping up to full capacity in 2018.

In June, the water treatment package was awarded to France’s Veolia Environment. In October, the UK’s KCA Deutag won $400m of construction and operation of land rigs, and the local Abraj Energy Services won a $330m contract for three drilling rigs.

The go-ahead of Khazzan, the largest single upstream development in Oman’s history, will provide a major boost for the local contracting sector. It is also likely to encourage other unconventional gas developments, including the Yibal sour gas and Khulud tight gas schemes, both of which are under study by PDO.