Projects market: Offshore market booms

19 February 2010

Offshore projects worth $87bn are planned in the Middle East and North Africa region over the next five years to boost production

The Middle East and North Africa (Mena) offshore sector is witnessing a new wave of investment, as regional and international oil and gas companies look to boost their -production levels.

At present, offshore production facilities supply about 18 per cent of regional -hydrocarbons output, but UK consultancy Douglas-Westwood predicts that figure will rise to 25 per cent by 2015.

In numbers

  • $23.7bn - Value of contracts to be awarded in UAE by 2015
  • $24bn  - Value of schemes planned in Saudi Arabia
  • $87bn - Total value of offshore contracts to be awarded in Mena region by 2015

Some $450bn-worth of oil and gas projects are currently planned or under way in the -Mena region, according to regional projects tracker MEED Projects. Of this, about $141bn, or 31 per cent, are related to offshore schemes.

Regional and international oil and gas -companies plan to award about $87bn of major $100m-plus offshore oil and gas contracts by 2015.

On paper, the most lucrative market in the region is Iran, which is developing more than $37bn of projects. But with trade sanctions -levied on the country by the UN and the US government, the pool of contractors that can bid for work there is limited. Under the US’ Iran Sanctions Act of 1996, US companies are barred from certain trading or making specific investments in the country, as are any businesses from abroad that want to do business with the US.

Furthermore, over the years Iran has gained a reputation of announcing projects but not bringing them to fruition.

“[Iran] is free to announce projects,” says a senior regional banker. “But actually making them happen is an entirely different matter.”

Slow progress

The country’s development of the giant South Pars gas field is one example. National Iranian Oil Company wants to -produce 450 billion cubic feet a year of gas from the field by 2020, but has so far been slow to award contracts.

Phases 11 to 21 are all due to be awarded by 2015 at a total cost of more than $27bn, but issues with finding development partners and a lack of funding make this -schedule unlikely. Contractors working in the region also -discount the idea that Iran is likely to provide real work prospects for offshore oil and gas firms.

Iran is free to announce projects, but actually making them happen is an entirely different matter

Senior regional banker

The Gulf states of Qatar, Saudi Arabia and the UAE are far more attractive locations, says the business development manager of one of the region’s major US contractors.

Gulf prospects

After Iran, the UAE has the most work on offer, with about $23.7bn of contracts to be awarded by 2015, according to MEED Projects. Contractors say a series of projects planned by Zakum Development Company and Abu Dhabi Marine Operating Company, both subsidiaries of state energy giant Abu Dhabi National Oil Company, are among the most attractive in the region (see Market Focus: Abu Dhabi on page 13).

Saudi Arabia, meanwhile, is developing schemes worth more than $24bn. Chief among these is the giant project to produce 900,000 barrels a day of heavy oil from the offshore Manifa field. When the value of the ancillary facilities involved in the scheme, such as the onshore gas/oil separation units, are also taken into account, the project is forecast to cost state energy giant Saudi Aramco more than $15bn between 2008 and 2015.

Following Doha’s decision in 2005 to halt new development on the giant North field, the number of projects in Qatar has seen a sharp drop, but contractors expect to see a rise in the contracts on offer from 2014 onwards when the moratorium is expected to be lifted. In the meantime, the country continues to develop offshore schemes, with exploration ongoing at the Al-Shaheen and Khuff reservoirs.

When you compare somewhere such as Abu Dhabi with Tehran or Tripoli it is obvious where we’d want to be

Business development manager, US contractor

Although the volume of contracts being -tendered in North Africa is significantly lower than the workload on offer in the Gulf, contractors remain interested in the region due to the amount of exploration happening in Libya and Egypt in particular.

The UK’s BP plans to award an estimated $40m contract to build offshore oil and gas facilities at El-Burullus field in Egypt by the end of the first quarter of 2010, while -contractors are also eyeing the development of El-Burg field off the country’s coast, by another UK firm, BG Group, in partnership with Malaysia’s Petronas.

In Libya, front-end engineering and design work is under way for the $1bn-plus development of the Bouri field by a joint -venture of -Italy’s Eni and the state-run National Oil -Corporation.

An engineering, procurement and -construction contract for the project is planned to be tendered in 2011, although Eni said in April 2009 it was delaying work on the scheme after Tripoli suggested a new law that would allow only locally headquartered firms to work in the country.

As long as obstacles to foreign involvement remain in countries such as Iran and Libya, the Gulf will continue to be the priority focus for consultants and contractors hoping to win work in the offshore sector.

As the business development manager of one major US engineering firm with an offshore division says: “From an offshore oil and gas perspective, the Gulf is the regional centre for companies looking for work. When you compare somewhere such as Abu Dhabi, where there is a long-established tradition of international contractors and partnerships, with Tehran or Tripoli, where there is still a suspicion of -foreign firms and sanctions, it is obvious where we would want to be.”

And with more than $47.7bn of contracts to be awarded in the Gulf over the next five years, there are plenty of opportunities to be had.

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