Petroleum Development Oman’s (PDO’s) decision to award the bulk of its engineering and supply contracts to local entities has sent a clear message to the market: Oman’s largest oil and gas company will continue to support the sultanate’s localisation agenda in a bid to derive maximum value from its supply chain.

The tactic is part of PDO’s strategic operational excellence programme – implemented since the onset of the industry downturn – and will benefit Omani oil and gas service providers immensely.

LCCs favoured

Some 41 per cent of PDO’s overall contracts are now placed with local businesses, and as much as 53 per cent of its engineering contracts are awarded to local community contractors (LCCs) – a figure that is among the highest in the regional energy industry.

“Our business is capital intensive and complex,” PDO’s managing director Raoul Restucci tells MEED. “We are trying to increasingly find opportunities to seek value in our supply chain.” The majority-government-owned company is currently engaged with 170 local companies, he says.

Among PDO’s notable contract awards to local firms in the past couple of years are two key engineering contracts, valued at about $780m, that went to an LCC, Seeh al-Sarya Engineering, and Galfar Engineering & Contracting in May 2017 for work in northern Oman. Under the terms of the four-year deals, off-plot mechanical work was assigned to Seeh al-Sarya Engineering at PDO oil fields at Fahud, Lekhwair and Yibal, and to Galfar E&C at Qarn Alam.

Both contractors were also made responsible for training and providing job opportunities for 700 Omani workers, as well as providing business opportunities to LCCs and small- and medium-sized enterprises, as part of the contracts’ mandate.

Vital equipment

In September last year, PDO signed two deals worth $253.1m to ‘Omanise’ the provision of upstream equipment in its supply chain. These deals were aimed at localising manufacture and supply of transformers and valves to be used in its operations and sold abroad.

PDO struck deals with Rusayl-based Voltamp Transformers Oman for the supply of power transformers and with Al-Jizzi Transformers & Switchgears, located in Maabella, for the supply of wellhead transformers.

The same month, the Omani energy major penned agreements with Chinese firm Wuzhou Valve Company, for the manufacture of ball valves, and with India’s Gene-tech Controls for the manufacture of mono-flange valves. After three years, the intention is for both the foreign firms to establish production facilities in the sultanate to manufacture the components locally.

As per the scope of the contracts, the product range includes thousands of valve items in various material grades, from half an inch to 24 inches in size. The parts cover the majority of PDO’s operations, as well as potentially the wider petrochemicals industry in Oman and beyond.

PDO deals with local contractors and suppliers

Award year Contract value ($m)
2010 100
2011 96
2012 476
2013 85
2014 552
2015 1100
2016 1254
2017 80
Total 3,743
Miraah work

More recently, all works related to the site preparation of Miraah – PDO’s solar steam-based thermal enhanced oil recovery (EOR) project – have been performed by LCCs. The equipment for building the glasshouse structures, which will produce steam for extracting heavy crude from the Amal oil field in southern Oman, was sourced locally, and much of the installation work has also been done by local firms, says Restucci.

Non-oil projects

To further PDO’s strategy of transforming itself into an entity covering the full scope of the energy spectrum, the company awarded a contract worth $45.77m to the local Al-Hassan for engineering, construction and procurement (EPC) work at its Haima West combined-cycle power project in central Oman.

A large portion of the roughly 100 expression of interest letters received for PDO’s Amin solar power project in the south of the country have also come from local firms, Restucci points out.

“Certainly a good percentage of the EPC contracts will go to local firms going forward. We are being serviced well [by the local companies],” he says.

Supporting Omanisation

As part of its stated commitment to support the Omani government’s ambitious localisation campaign, PDO has also undertaken various other initiatives, from training Omani youth for oil and gas jobs, to nurturing SMEs and helping set up units to manufacture machinery and equipment locally. These schemes have, in turn, contributed to the company’s cost optimisation programmes, such as Every Rial Counts.

In all, PDO’s National Objectives programme has provided more than 30,000 job, training and redeployment opportunities for Omanis since it was launched in 2011. Jobseekers have been qualified to work in a range of vocations and employed either with PDO, or within the wider contracting community. Participating contractors include Bahwan Engineering Company, Drake & Scull, Adhi Oman, Arabian Supply & Contractors, Power Tech, Al-Turki Enterprises, Mud Industries, Oman Fiber Optic, Techno Gear Industries and Najed al-Ahliya.

The Omani national oil company is targeting the creation of a further 50,000 job and training opportunities in the next three years in close consultation with the government’s National Training Fund. It has also been actively working with partners beyond its normal boundaries, including in the aviation, real estate, fashion and hospitality sectors, as part of the ongoing effort to diversify the sultanate’s economy.

Solar programme

Going forward, PDO has stated it will focus on replicating solar EOR models similar to Miraah, as well as stepping up work on solar power projects. The company is currently mobilising the local engineering community to support its solar programme, and is working with Riyada, a state body that assists SMEs, in order to leverage their capabilities.

“We are giving Riyada an overview of the solar projects we are working on, [to show them the] clear supply chain requirement in that space. We have given a lot of presentations to them. We are trying to provide more guidance, and say, ‘Look, here’s a business opportunity’,” Restucci says.

“We have a number of vehicles to assist local community companies and SMEs,” he adds. “Across the board, we are trying to find ways to establish a local supply chain.”

Oman market focus in features:

Brief: Oman’s diversification drive introduces new challenges
Government: Oman walks domestic and regional tightrope
Economy: Muscat continues its search for economic stability
Banking: Omani banks face ongoing pressure amid weak growth
Construction: Mixed results for Oman’s construction sector
Oil & Gas: Driving the use of local contractors in Oman
Power: Muscat looks to strengthen energy diversification
Transport: New airport fuels Oman’s logistics ambitions
Databank: April 2018
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