The region’s growing focus on offshore acreage is creating several opportunities for the world’s small band of specialised engineering firms and is attracting new entrants to the market
Blessed with abundant and highly productive onshore oil fields, it is hardly surprising that the region’s oil companies placed a higher focus historically on onshore exploration and development than on the technically more challenging and costly offshore acreage.
But as oil producers strive for new production and advancing technology brings down the relative costs of offshore development, the region’s previous reluctance to explore offshore fields is abating.
Many of the region’s biggest national oil firms such as Saudi Aramco and Abu Dhabi National Oil Corporation (Adnoc) have been ramping up their investment in offshore exploration and production. The Middle East now accounts for a significant proportion of global platform and pipeline contracts.
The latest rig count figures from the US’ Baker Hughes confirms the rise in offshore activity in the region. In September, the 45 offshore rigs in the consultant’s monthly international rig count represented an increase of eight since September 2011 and exceeds the previous peak of 43 recorded in September 2008.
Increased offshore opportunities
For offshore engineering specialists such as the US’ McDermott, France’s Technip and Italy’s Saipem, the region’s increasing focus on offshore oil and gas projects is attracting renewed interest in the Gulf. Asian heavyweights such as South Korea’s Hyundai Heavy Industries (HHI) and newcomers such as India’s Larsen & Toubro are also starting to make a mark with large contract awards in the region.
Abu Dhabi has emerged as the most active of the Gulf’s offshore markets. Zakum Development Company (Zadco) – an affiliate of Adnoc – is preparing to award a $4bn contract for early production facilities on the offshore Upper Zakum field by the end of 2012.
The UAE’s main offshore operator, Abu Dhabi Marine Operating Company (Adma-Opco), is meanwhile set to award about $4.5bn on full field developments at its Nasr, Satah al-Razboot (Sarb) and Umm al-Lulu fields. Commercial proposals on the Sarb and Umm al-Lulu oil and gas packages are expected in November-December, with Technip, Saipem and South Korean groups Daewoo Shipbuilding & Marine Engineering Company, HHI and Samsung Engineering among the engineering, procurement and construction (EPC) bidders for the second package of the
|Foreign offshore operators in the Gulf|
|Company name||Estimated value of offshore projects under way in the Gulf ($m)|
|National Petroleum Construction Company||1,001|
|Hyundai Heavy Industries||800|
|Larsen & Toubro||225|
|Source: MEED Projects|
MEED has learned that HHI and Samsung Engineering have emerged as the two frontrunners to win an estimated $4bn of offshore contract in Abu Dhabi, confirming the general trend of South Korean contracting success in the region’s oil and gas sector.
The scale of expansion in the UAE offshore sector means plentiful opportunities for contractors, with a $25bn programme to add 650,000 barrels a day (b/d) of offshore oil production capacity by 2016. Technip remains a dominant player, with $651m of contracts in Abu Dhabi. Teaming up with the local National Petroleum Construction Company (NPCC), in July 2012, Technip won the $800m EPC 1 contract to construct the offshore section of Zadco’s scheme to boost oil production at its Upper Zakum field. This will include laying 240 kilometres of subsea pipelines and 128km of subsea composite and fibre-optic cables.
NPCC is the most prominent of the Gulf-based contractors, winning major projects in the past year such as a $445m contract in July to supply drilling rigs to Adma-Opco.
Technip’s partnership with NPCC on the EPC 1 contract represents a formidable merger of Gulf and European corporate muscle, which will support its long-term relationships with Abu Dhabi’s oil firms. But Technip has also muscled its way to winning contracts in Dubai. In July, it was awarded an engineering, procurement, installation and commissioning deal from Dubai Petroleum for the southwest Fatah and Falah fields, 90km off the shore of Dubai.
Aramco has also ramped up its offshore presence in recent years, led by an estimated $16bn development of the Manifa offshore field, along with the Karan and Hasbah-Arabiyah fields, also being developed by Aramco. These will bring 4.4 billion cubic feet a day (cf/d) of gas, 900,000 b/d of oil and 65,000 b/d of condensate online.
In Saudi Arabia, McDermott enjoys the dominant market share, with a project slate in excess of $2bn, founded on a long-term relationship with Aramco. In July, the firm was awarded two contracts at the non-associated Karan gas field, one of which includes the fabrication and installation of wellhead and auxiliary platforms, jacket and link bridges, flowlines and fibre optic cables. The second covers the procurement, fabrication and installation of pipelines and subsea tie-ins at the Safaniya and Zuluf offshore developments.
The Middle East now accounts for a significant proportion of global platform and pipeline contracts
Aramco has widened its offshore contractor base beyond McDermott, awarding Saipem a $300m EPC deal to build a portion of pipeline at the Arabiyah-Hasbah non-associated gas fields. Although HHI is understood to have submitted a lower offer, Aramco chose to go with the Italian company, suggesting that clients are not only considering price in their offshore contract award process. After protracted delays related to the high sulphur content at the Arabiyah-Hasbah fields, the project is now understood to be set to go ahead.
Another major offshore project involving Saudi Arabia that could be up for bidding in 2013 is the offshore Dorra field (shared between the kingdom, Kuwait and Iran). The client, Al-Khafji Joint Operations, is delaying the release of tenders for the scheme’s EPC deals until early 2013 while the respective governments negotiate over the field’s sovereignty. The scope is likely to include five or six offshore platforms with interconnecting flowlines, gas gathering equipment, 200km of 30-inch pipe and 100km of subsea cables, as well as extensive onshore gas processing facilities.
With an impressive raft of megaprojects, the Middle East offshore sector will continue to attract specialist contractors, though there is evidence of a move away from EPC firms to operation and management (O&M) style arrangements. McDermott for example is working with Dubai Petroleum as its in-house asset manager, while in August, the UK’s Petrofac won a $100m deal from Iraq’s South Oil Company to provide offshore operations and maintenance services for the new oil export facilities.
The Gulf offshore contracting market looks set to stay competitive, with Asian entrants battling with heavyweight incumbents such as J Ray McDermott and Technip. Clients have shown they are not always guided by price alone, but if offshore firms are to continue to secure large awards, they will likely have to become more flexible in the way they do business. Offering O&M services is an example of this, and more such deals may be likely in one of the worlds’ most active offshore spaces.