State-owned oil major Saudi Aramco is planning to build a $4bn ship repair and fabrication yard with a South Korean partner at Ras al-Khair in the Eastern Province of Saudi Arabia.

Industry sources based in the kingdom have said STX Heavy Industries is the South Korean partner in question, and that a deal has been agreed between the two parties.

Ras al-Khair and Jizan Economic City were the two locations that have been considered for the yard. Aramco has access to a large tract of land at both places that would have been suitable for the facility. However, sources say Ras al-Khair is now the preferred location.  

“Aramco talked to a lot of interested parties and a deal has been agreed with STX,” says a source based in Saudi Arabia. “Initially, the plan was to have a ship building and repair yard that focused more on building vessels, but the scope has now changed after a feasibility study was carried out.”

The final masterplan and feasibility study for the Offshore Cluster Development Programme (OCDP) is on the verge of being completed and Aramco is expected to make a formal announcement regarding the facility in April.

The plan is to build a large ship repair yard with an extensive fabrication facility. The yard will be capable of building smaller vessels, as well as carrying out the fabrication and maintenance of offshore oil and gas rigs.

“The masterplan has been adjusted to reflect a stronger emphasis on the manufacture and maintenance of offshore structures,” says another in-kingdom oil and gas source familiar with the scheme. “Initially, it will focus on producing more platforms and jack-up rigs than vessels, but in the future it could carry out large-scale maintenance on ships.”

The exact terms of the deal between Aramco and STX have not been disclosed. Most sources believe it will be a joint venture using the South Korean’s extensive expertise in the ship building and repair sector. It is not known if the construction of the yard will be carried out by STX’s engineering, procurement and construction (EPC) contracting arm or if it will be put out to tender. STX declined to comment when contacted by MEED.

Construction is expected to start in 2014, which means the yard should be fully operational by 2017-18.  

STX has extensive operations in the ship building and offshore platform sector, but also has extensive experience in EPC contracting and the power sector.  

Another factor in the contract is how much of any future offshore new build and repair and maintenance work will be given to the yard. Aramco has a long-term agreement with Italy’s Saipem and the US’ McDermott that involves the maintenance and upgrade of the Saudi oil major’s offshore oil and gas assets.  

Saipem has a share in the Saipem Taqa aI-Rushaid Fabricators Company (Star) yard located in Dammam, while McDermott operates a large-scale fabrication facility at Jebel Ali in Dubai.

“It will be interesting to see how this develops in regards to Saipem and McDermott and the agreement they have in place with Aramco,” says the in-kingdom oil and gas source. “I think this will definitely mean McDermott will be expected to operate a fabrication yard of its own in Saudi Arabia at the very least.”

Aramco has been ramping up its in-kingdom activities for the past three years. Its general engineering services-plus (GES-plus) programme has been devised to foster the engineering, project management and design talent of locals. The in-kingdom EPC contracting scheme has also been brought in to increase the amount of work on Aramco’s megaprojects by local contractors. The OCDP scheme is the next logical step in the oil giant’s localisation strategy.