Kuwait will struggle to secure lower prices for Jurassic gas project

12 January 2016

Industry insiders say contractors are wary of taking on the reissued packages

State-owned upstream operator Kuwait Oil Company (KOC) will struggle to secure lower bids from contractors by reissuing tenders for two of the three contracts that form the second phase of the country’s Jurassic gas production programme, according to industry sources.

On 10 January, KOC reissued tenders for the project’s West Raudhatain and East Raudhatain packages.

The third package, to develop the Umm Niqa and Sabriya fields, has not been reissued.

During the original tendering process, only three contractors bid for the scheme’s three packages out of the 19 companies that had prequalified.

It is understood the move to award the scheme under a build-operate model (BOT) rather than an engineering, procurement and construction (EPC) basis put off many potential bidders.

The local office of the US’ Schlumberger submitted the low bid for each of the three contracts. Saudi Arabia’s Al-Khorayef Group and the local Spetco International Petroleum Company also submitted bids.

Under KOC’s rules, each company can only be awarded a single package.

“Schlumberger is expected to win the Umm Niqa and Sabriya package,” said one industry source. “The other two packages are being reissued because KOC has a problem with the bids from Al-Khorayef and Spetco.”

The original bids submitted by Al-Khorayef and Spetco for the reissued packages are between 30-40 per cent over KOC’s budget according to sources.

Al-Khorayef submitted prices of KD523m ($1.72bn) for each of the West Raudhatain and East Raudhatain packages, which have identical scopes.

Spetco submitted bids worth KD489m for the same two packages.

These prices were significantly more than the price of KD421m that was submitted by Schlumberger for the same packages.

“KOC wants Spetco and Al-Khorayef to submit lower bids, but they are unlikely to significantly cut their prices unless the scope is changed,” says one source. “Both companies have had bad experiences executing similar projects in the past.”

Another industry source says KOC is putting pressure on other prequalified contractors to submit bids, but most of these firms are likely to remain reluctant to participate unless the scope of the scheme is changed or the BOT model is abandoned.

“KOC is putting pressure on companies including Gulf Drilling and Maintenance Company (GDMC) to submit bids,” the source said. “GDMC may end up participating, but big EPC companies are unlikely to want to get involved.”

GDMC is a Kuwait-based oil field services company.

Kuwait Petroleum Corporation, the umbrella company that oversees KOC operations, did not respond to requests by MEED asking for details about the retended Jurassic gas contracts.

The reissue of the tenders for the West Raudhatain and East Raudhatain packages comes after a similar attempt to secure a lower price for the tanking and piping package of the Al-Zour New Refinery Project (NRP).

The tender for the package, which is known as package four, was reissued in May 2014, in an attempt to secure a lower bid from contractors.

This proved to be a costly mistake, generating an offer that was KD68m ($225m) more expensive than the previous low bid.

The higher price produced by the retender has added extra costs to the Al-Zour project at a time when it is already struggling to gain approval for an increased budget.

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