Over recent years, the Kuwaiti-based oil and gas contractor Spetco has successfully ridden a wave of upstream activity in its home country, and become a key company to watch in the sector.
Since the current Chief Operating Officer, Eyas Jadaane, joined the company in 2012, it has consistently seen increasing annual revenues as well as higher profits.
At the same time as boosting revenues, the company has managed to secure larger project contracts, as well as establishing itself as the number one company in Kuwait for well testing – with 32 per cent of the market share.
“We have been well positioned to take advantage of increased upstream activity in Kuwait over recent years,” says Jadaane. “We expect much more work in Kuwait in the future as well. This is partly a result of the country’s production goals.”
In January, the national oil company (NOC) Kuwait Petroleum Corporation (KPC) said it is planning to invest $112bn over the next five years in the oil and gas sector to boost production.
KPC also said it is aiming to lift production capacity from its current level of around 3.2 million barrels a day (b/d) to 4 million b/d in 2020.
Jadaane says for Kuwait to hit its targets over the coming years the country is going to require new projects, new wells, meaning more work for oil field service providers.
“There is going to be plenty of upstream and mid-stream work,” says Jadaane. “The key challenge for companies like Spetco will be maintaining efficiency and offering prices that win contracts. This has been the main challenge since oil prices dropped; it has been a price war.”
Yet amid the low oil price environment, Spetco has remained competitive and won its largest-ever contract. In July 2016, Spetco was awarded the $377m contract for Jurassic Production Facility (JPF) – commissioned at the end of March this year – in Kuwait’s West Raudhatain field.
The scope for phase one of the project included a gas processing facility and an oil processing facility with respective capacities of 120 million standard cubic feet per day (mmscfd) and 40,000 b/d respectively. Phase two of the project is a Sulphur Recovery Unit (SRU) and is scheduled to be fully commissioned in early November.
The project was tendered using a Build-Own-Operate-Transfer (BOOT) contract, rather than the engineering, procurement and construction (EPC) model. The BOOT contract allows the main contractor to recover costs by operating the facility before it is transferred to a public company.
“Since 2012 the company has remained orientated towards the oil production facilities and services – but the size of projects has increased significantly,” says Jadaane.
“The JPF project definitely marked a new era for Spetco – one of the bigger ambitions. Everyone in the sector knew we could do these projects technically, because we had done EPF-50 (a similar $240m project awarded to Spetco in 2006), which used almost the same technology.
“The JPF we won in 2016 was a turning point because of the scale of the project. We succeeded in getting the financing, winning the project and executing the project. We have a better position in the market now. It is an undisputed fact that Spetco can compete with international contractors and take on big projects.”
While the total value of oil and gas projects under execution in Kuwait has boomed over recent years, Jadaane does not generally see capacity among local contractors as a major issue.
“The only thing at the moment that is restricting expansion is our financial capacity,” he says.
In the wake of the low period of low oil prices, KOC has become increasingly interested in using the BOOT and Build-Own-Operate (BOO) models to tender projects as it is less capital intensive for the client. However, the model is far more capital intensive for contractors.
“The multinationals are not as interested in these kinds of projects – they are more interested in projects that use the EPC model,” says Jadaane.
So far, Spetco has won four of the seven contracts that have been tendered by KOC using the BOOT or BOO models. Jadaane believes the increased use of these models has given companies like Spetco an advantage over multinational contractors – but also poses a problem for local contractors.
“From our point of view, financial capacity is the problem because we can [only] take three or four big projects at the same time, but not more than this.”
Bringing in partners
Jadaane says Spetco is looking at a range of solutions that will allow it to take on more large projects without being restricted by financing issues. The simplest method is partnering with other companies in joint ventures for certain projects.
Spetco is also looking at using syndicated loans to fund projects as well as potentially selling part of the company – either to a private investor or through an initial public offering (IPO).
“Spetco is a privately owned family company and I believe we can only expand organically to a certain point,” says Jadaane.
“We are favouring private investors rather than an IPO,” he explains, noting: “It doesn’t feel like the right moment to float on the Kuwait stock market, but it is something we are considering.
On the other hand, he says: “We have already had talks with serious private investors and we are expecting to make a deal within the next three years. We have done the valuation, we know what the company is worth.
But he adds: “If we don’t get a good offer, then we are not going to be willing to sell – the price has to be right. When we eventually sell a stake in the company we will pump that money back into the business.”
Another part of Spetco’s current growth plan is to win project contracts in other GCC countries.
The company is already prequalified to provide onshore and offshore well testing services in Abu Dhabi, and has also started the prequalification process that will allow it to compete for upstream production projects in the UAE.
“Hopefully we will be winning contracts in the UAE within one or two years,” says Jadaane. “Given our experience in Kuwait, I think we will be well positioned to take similar projects in Abu Dhabi, which is also investing heavily in oil production facilities.”
Spetco is also studying the project market in Saudi Arabia for potential work.
“Saudi was a closed market for a long time,” says Jadaane. “Now it is opening up and we are studying the situation. We haven’t done anything in particular in Saudi yet – but we are open to working in all of the GCC countries.”
While Spetco evaluates other markets within the GCC it will still be pushing for more market share in Kuwait, according to Jadaane.
“One of the main priorities over the next five to ten years is keeping an eye on efficiency and making sure that we can offer competitive prices in Kuwait,” he says.
“We already have lower overheads than most of the multinational companies, and we know the market very well – we are therefore well positioned to be competitive. We believe that we should become more efficient as we expand and undertake more projects simultaneously, and so we are going to try and maximise economies of scale and economies of scope.”
As part of this effort, and with a view to targeting more upstream project contracts and expanding its well testing business in Kuwait, Spetco recently commissioned a large, fully automated, fabrication facility.
“Because of all the construction that is currently underway in Kuwait right now there is massive demand,” says Jadaane.
Spetco also sells oil and gas equipment in Kuwait and installs sucker rod pumps (SRPs) at oil fields, and Jadaane adds: “We expect activity in all of these aspects of the business to increase over coming years.”
Significant demand for SRPs is expected from KOC’s Ratqa Lower Fars Heavy Oil megaproject over coming years. Phase one of that project, which is being executed by UK-based Petrofac, is expected to be completed in March 2019. Phases two and three are expected to require a total of 3,200 SRPs to be installed.
On top of this, Spetco is expecting increased demand from its well testing service as Kuwait and Saudi Arabia bring oil fields in the Divided Zone back online. Over recent years Spetco has focused on efficiency and ambitiously pursued bigger projects during a period of significant volatility in global oil markets.
So far this has paid off – earning it a reputation as one of a handful of local contractors that can compete with multinational companies for large contracts within Kuwait. If the company’s growth strategy pans out as planned its executives say it could be winning contracts across the region within a matter of years.