Oil and gas contractors in Qatar lobby to cut risk exposure

18 April 2008
Services companies hold talks with Qatar Petroleum over managing megaprojects on fixed-price contracts.

Oil and gas contractors in Qatar are locked in talks over a new contracting model with Qatar Petroleum (QP), in an effort to cut their exposure to financial risk on major projects in the state.

Several of the largest energy service firms working in the gas-rich state, including France's Technip, are holding meetings with the state-run firm to discuss concerns over managing mega-projects on fixed-price contracts.

Technip, which revealed a $295m charge in January because of contractual difficulties on building a series of liquefied natural gas (LNG) trains in Doha, says it met with Qatar's Energy Minister, Abdullah bin Hamad al-Attiyah in early April to express its concerns.

"We have proposed a contractual scheme [to QP] that will help us focus on the project," says Thierry Pilenko, president of Technip.

Technip is keen to introduce more targets and have greater consultation with the client to alleviate the financial risks it faces.

"We are going to favour contracts where we work with the customer to tailor the project during the front-end engineering and design to make sure we understand the risk, the quantities and then take commitments on target prices with a bonus system if we achieve the targets," says Pilenko.

Further meetings over the model to reduce risk were planned by Technip and QP as MEED went to press.

Another major contractor working on several megaprojects in the state says it has also sought clarification from QP over suggestions that a more flexible contract would be introduced for future energy projects.

"There has been a lot of talk that QP will look to help out contractors and protect them from some of the swings in the market that we are seeing," says one senior executive at the contractor.

He adds that while QP has made no commitment on altering its preference for fixed-price contracts, it is aware of the discontent among contractors.

Qatar has been pushing for a mas-sive increase in LNG capacity, but contractors have suffered a large spike in labour and raw materials prices, with costs doubling over the past two years (MEED 15:2:08).

The problem has been exacerbated by the fact that clients have increasingly been signing lump-sum turnkey deals with contractors, placing virtually all project risk on the latter.

"It is obvious that we will not be able to take the level of risk that we took in the past," says Pilenko.

"If you do [cost] reimbursable contracts and convert to lump-sum turnkey once you have defined the packages you have worked on, you are in a less-risky environment because you do not have to put all sorts of contingencies on [the contract]."

In late March, Technip's joint venture partner on its Qatar LNG ventures, Japan's Chiyoda, cut its group-wide profit forecast by almost 50 per cent following a rise in Qatari LNG construction costs caused by increased labour charges and lower worker productivity.

QP was unavailable for comment on the talks.

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