Oman contract awards reach record highs

06 November 2014

While this year is set to be the most active for oil and gas contractors in Oman, 2015 also looks promising, with several large schemes moving ahead

With an estimated $2.4bn of engineering, procurement and construction (EPC) deals awarded in the year to date, 2014 is set to be the most active since 2006 for oil and gas contractors in Oman.

Spending has grown for four consecutive years after a lull in 2008-10, when less than $1bn was awarded in each year. And with key oil, gas and chemicals projects in the pipeline, such as the Khazzan tight gas development, the Duqm refinery and the Liwa Plastics complex, 2015 points to being another long-term record for the market.

The sultanate’s upstream oil sector has been characterised by recovery over the past seven years, with crude and condensate production increasing every year since the low point of 710,000 barrels a day (b/d) in 2007. In 2013, output increased by 2.5 per cent to 942,000 b/d, the highest volume since 2001.

Enhanced recovery

The growth has been driven partly by heavy spending on enhanced oil recovery (EOR) technology to revive Oman’s maturing fields.

The sultanate’s largest oil producer, Petroleum Development Oman (PDO), reported record hydrocarbons output in 2013, averaging nearly 1.3 million barrels of oil equivalent a day (boe/d). However, only about 656,000 b/d of this was crude and condensate production, much below the company’s production of more than 900,000 b/d in 2000.

Much of the increase in crude and condensate output has been driven by non-PDO production, most notably US energy group Occidental Petroleum. Production from the company’s Mukhaizna field in Block 53 has risen significantly since operations began in 2005, reaching 213,200 b/d in 2013 – 22.6 per cent of Oman’s total production.

Gas production in Oman totalled 37.2 billion cubic metres in 2013, according to the Oil & Gas Ministry, almost double the volume produced 10 years ago. But rapidly increasing electricity demand driven by population growth and industrial expansion means supplies are exceedingly tight.

Khazzan development

The most important strategic project in Oman is the $16bn Khazzan tight gas development being carried out by UK oil major BP to boost gas availability.

The full-field development in Block 61, located in north-central Oman, will have the capacity to produce 1.2 billion cubic feet a day (cf/d) of natural gas, expanding the sultanate’s capacity by about a third from current production levels.

Muscat gave BP the final go-ahead on the project in December 2013, and two months later the UK company awarded a $1.2bn EPC contract to a consortium of fellow UK firm Petrofac and Athens-based Consolidated Contractors Company (CCC) to build the project’s central processing facility (CPF).

Oman construction awards

BP has invited companies to submit EPC bids on three major pipeline packages on the Khazzan development. The deadline to submit technical proposals on the gas gathering pipelines was 16 October. This package covers a large, dispersed, buried gathering system to transport multi-phase gas condensate from the well sites to the CPF, and will comprise more than 400 kilometres of pipelines.

The deadline for EPC bids on the gas export pipeline was 6 November. The package will connect the CPF to the gas network at Saih Nihayda through a 60km, 36-inch pipeline.

BP has asked companies to submit bids on the development’s condensate pipeline by 13 November. The package comprises the construction of a 68km,12-inch pipeline to transport the stabilised condensate from Khazzan to PDO’s pipeline network at Yibal.

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

US-based Jacobs Engineering was awarded a contract for project management on $2bn-worth of EPC work on gas gathering pipelines, wellhead production facilities and export pipelines, along with process and infrastructure work. Earlier in October, BP said it had awarded the UK’s KCA Deutag a $400m deal for five new-build land rigs and a $330m contract to the local Abraj Energy Service to supply three rigs for the full-field development. The firm has also awarded a $50m deal to French group Veolia to build permanent water treatment facilities at the site.

Duqm refinery

The next largest scheme moving ahead in Oman is the proposed new refinery in Duqm, located in the Al-Wusta governorate on the sultanate’s central coastline. The scheme is being carried out by Duqm Refinery and Petrochemical Industries Company (DRPIC) – a joint venture between Oman Oil Company (OOC) and Abu Dhabi’s International Petroleum Investment Company (Ipic).

In late September, DRPIC invited EPC contractors to prequalify to bid on the 230,000-b/d refinery by 23 October. MEED reported in March that US-listed Foster Wheeler had been awarded the front-end engineering and design (feed) contract for the project.

The EPC phase is likely to be tendered in the first half of 2015, but it is unclear how many packages the scope will be split into.

The refinery will handle the import of crude from outside Oman and the export of refined products to the international market. Site preparation work is expected to start in the first quarter of 2015 and be completed in the first quarter of 2016. DRPIC is planning to build a petrochemicals complex for the second phase of the scheme, but this is understood to be still in the early study phase.

The sultanate’s main refining group, Oman Oil Refineries & Petroleum Industries Company (Orpic) is currently executing the expansion of Oman’s largest existing refinery, located in Sohar. A $2.1bn EPC contract was awarded to South Korea’s Daelim Industrial and Petrofac in November 2013. Orpic is expanding the refinery’s capacity to 187,000 b/d from 116,000 b/d, to meet growing demand for fuel and petrochemicals feedstock.

Liwa Plastics

Orpic is planning another of Oman’s cornerstone hydrocarbons projects due to be awarded in 2015 – the $3.6bn Liwa Plastics steam cracker and petrochemicals complex. The project is the biggest petrochemicals scheme in the sultanate’s history. Orpic is currently prequalifying companies for four major packages for the project, which is located in Sohar.

“Early packages for EPC contracts will be called in January and the final ones in April,” Henk Pauw, general manager at Liwa Plastics, told MEED’s Oman Projects Forum in Muscat on 28 October. He said he expects the feed phase to be completed in March.

The feed study is being carried out by US-based engineering group CB&I, which is also the technology provider for the steam cracker, while Engineers India has been appointed as the project management consultant (PMC).

Pauw expects the EPC packages to be awarded in the fourth quarter of 2015, commissioning to start in the first quarter of 2018, and the scheme to be operational by the end of 2018. The four EPC packages are: natural gas liquids (NGLs) extraction plant; liquefied natural gas pipeline; cracker and associated offsites and utilities; and polymer units and associated offsites and utilities.

The complex will have the capacity to produce 880,000 tonnes a year (t/y) of high density polyethylene and linear low density polyethylene; 300,000 t/y of polypropylene; 90,000 t/y of methyl tertiary-butyl ether; 41,000 t/y of butane; and 111,000 t/y of pyrolysis gasoline.

Polyester complex

Another major petrochemicals project in Sohar will see Oman International Petrochemical Industry Company (Oipic) developing a polyester chemicals complex. The company, a joint venture of OOC (50 per cent), South Korea’s LG Corporation (30 per cent) and the local Takamul Investment Company (20 per cent), is planning to tender the EPC package in early 2015.

The plant will have the capacity to produce 1.1 million t/y of purified terephthalic acid and 500,000 t/y of polyethylene terephthalate, which is used to make plastic drinks bottles and other packaging.

Speaking at the MEED Oman Projects Forum on 27 October, Abdullah al-Risi, senior project engineer at Takamul, estimated the project would require an investment of more than $600m. Earlier this year, Australia’s WorleyParsons was appointed as project management consultant (PMC) for the EPC phase.

Oman has about $31bn-worth of oil, gas and chemical projects in the pre-execution phase. While some schemes in this pipeline may not materialise or face delays, the schemes already moving forward should provide some of the biggest ever opportunities for contractors operating in the sultanate.

Key fact

The most important project in Oman is the $16bn Khazzan tight gas project being carried out by UK oil major BP

Source: MEED

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