On 3 September, Abu Dhabi National Energy Company (Taqa) completed the purchase of four oil and gas explor-ation blocks off the coast of Scotland from US energy giant ExxonMobil Corporation and the UK/Dutch Shell Group.
The state-owned energy fund’s UK subsidiary, Taqa Bratani, first set up an office in Scotland’s oil capital, Aberdeen, with seven staff in July 2008. In just over a year, the office has grown to more than 800 people and has bought key North Sea assets such as the Brent pipeline system and concessions on the Brae oil field.
The decision for one of the most resource-rich countries in the world to buy assets in an area where production is in terminal decline might appear odd. But for Leo Koot, chief executive officer (CEO) of Taqa Bratani, the decision fits perfectly with the company’s strategy.
“Aberdeen is now the global centre of excellence for operated oil,” he says. “In Aberdeen you have all the expertise in one place. If you go out on Union Street [Aberdeen’s main commercial centre] and ask about reservoir pressures in Qatar you will have the most in-depth geological analysis of why these reservoirs are so good and how they need to be developed.
“The philosophy of Taqa Bratani has been to set up a learning organisation. That is why we are based here in Aberdeen. We have got a hub of knowledge we can deploy and use for future developments.”
Koot hopes to tap into Scottish oil and gas expertise, which he describes as “second to none” in the world, and then export it to other Taqa locations around the globe.
The technology and expertise developed during the 40 years since oil was discovered off the Scottish coast is now one of the country’s most important assets, agrees James McCallum, CEO of Scottish drilling and operations consultant Senergy, the company that helped Taqa set up in the country.
“The US dominated the oil and gas industry for much of the modern hydrocarbon producing era, and the reason for that is of course that most of the oil companies were producing onshore in the US,” he says.
“When the North Sea came along, it suddenly changed the technology world of the production of hydrocarbons. The Middle East was an onshore producing environment, as largely was the rest of the world. In the North Sea, it was deep-water production and a hazardous operating environment, but it was very rewarding.”
When international oil companies first started producing from the North Sea, they used techniques developed in the shallow and relatively benign waters of the Gulf of Mexico, says McCallum. Over time, they came to rely on technical innovations developed in Scotland, especially Aberdeen. As the fields got smaller and the costs higher, companies needed different solutions.
“That came from sub-sea technology where you could access smaller and smaller pools of hydrocarbon and feed them back into an infrastructure in the UK,” he says.
“With that came a need to cultivate the necessary talent to develop it, and that stayed largely isolated locally for about 10-15 years until it became readily accepted that the international oil and gas companies had to seek new large fields to replace their existing asset bases.
“They started to look in new places for oil, largely in marine environments. The same thing is happening in the Middle East, and the same technologies that were used in Scotland are applicable out here.
“The knowledge of applying and developing that technology has been primarily based in Europe and Scotland, and that talent is looking at its next home.”
McCallum points out that Scots like himself who have been working in the industry for 30 or more years often started out working for majors like BP, Shell or the US’ Conoco-phillips, developing specialist know-ledge in the industry around the world. Now the same people are starting their own companies.
In the case of Production Services Network (PSN), an Aberdeen-based firm that specialises in brownfield developments – work on existing infrastructure – the company already existed as part of a major international oil services firm, the US’ KBR Halliburton.
In May 2006, the company’s management staged a $280m buyout, and moved swiftly to develop a global profile despite having been largely focused on North Sea projects. It is now one of the top 10 listed companies in Scotland, with offices in 22 countries.
PSN has already won a major front-end engineering and design (Feed) contract in Algeria, working on the In Salah field, and in September entered a competitive bidding round for an integrated services contract on Shell’s $16bn Pearl gas-to-liquids project in Qatar. The company expects to step up its efforts in 2009 and 2010, and become a recognisable name in the competitive design and engineering consultancy market.
“We have been looking at the Middle East for a while now but it is only over the past year or so that we have really managed to develop a foothold there,” says Jerome Lynch, managing director of international business at PSN. “It is the most recent region we have tackled, and as much as anything [it is about] building relationships, [and] working out how to do business over there [the Middle East].”
The niche work in which the company specialises is a major benefit in the Middle East, says Lynch. “We feel we have a very strong pitch in that we are a very focused brownfield solution provider,” he says. “The Middle East has the largest amount and some of the oldest infrastructure out there.”
The need for Scottish oil and gas engineering companies to focus on specialist sectors comes from working in a relatively small market, says Mike Smith, vice-president of Middle East sales at MacLean Electrical Group, a Scottish specialist electrical equipment distributor and consultant.
“A lot of companies diversify too fast and lose their core competencies,” he says. “You look at a lot of the more successful Scottish companies and they stuck to what they knew.”
This has worked particularly well for Aggreko, a rental power and cooling services provider, which again grew on the back of the development of the North Sea, when temporary and emergency systems were often needed at short notice.
The company is one of the most established Scottish firms in the Gulf, having opened its first office in the emirate of Sharjah in 1991. It now has 10 depots across the region.
Aberdeen-based Wood Group has also occupied itself with power generation and repair, and has become one of the most visible Scottish oil and gas services companies in the region. The company’s list of customers includes Saudi Aramco, petrochemicals giant Saudi Basic Industries Corporation (Sabic), and UAE energy giant Abu Dhabi National Oil Company (Adnoc).
“Wherever you look, Wood Group is there, normally working alongside some of the bigger companies,” says a senior executive at one major international engineering design group working in Abu Dhabi. “Like a lot of the other Scottish companies, it is not as high on the radar as some of the bigger firms, but it is well known, and that is bound to change as it grows.”
In November 2008, Mustang, a Wood Group subsidiary, landed a contract that typifies what many Scottish engineering firms see as the future for their work in the region: Feed work to design carbon capture and storage facilities for industrial and power plants in Abu Dhabi.
The client on the project, Abu Dhabi Future Energy Company (Masdar), is the first of a new wave of Middle East initiatives in renewable and sustainable energy. The state-owned fund is currently building a carbon-neutral city in Abu Dhabi.
“When you look at what it is doing in Abu Dhabi and the rest of the emirates, there is a real desire to embrace the future and it is actually treating the hydrocarbon resource as the precious resource it is,” says McCallum, who plans to make renewable energy technology key to Senergy’s development.
For the engineering skills and knowledge required to take this step, he is looking to Scotland. The country is already a world leader in water and wind power generation, and the current Scottish National Party government, under First Minister Alex Salmond, has vowed to produce 20 per cent of the country’s energy from renewable sources by 2020. The government is investing heavily in the research and development of new technology.
Firms looking to the future point to Aber-deen as a key part of the Scottish govern-ment’s plan for sustainable and renewable energy developments.
The Scottish government and Aberdeen University have set up the $3m Scottish European Green Energy Centre to develop new technologies and strategies for energy use. The centre will study the generation of energy through waves and wind as well as solar power, carbon capture and storage, renewable heat and energy efficiency.
As interest in sustainable and renewable energy develops in the Middle East, McCallum says, so will the technology being pioneered in the Scotland.
Before all of this, though, Scottish engin-eering companies must make use of their other national resources: patience and relationship building.
“Getting work in the Middle East is tough to start with,” says a senior executive at one Aberdeen-based engineering firm. “It is often as much to do with who you know as what you know, and it really takes time to get in with the right people. That can be frustrating for the bigger corporations that need to justify every penny they spend.”
Scottish engineering firms, often smaller and more willing to take the risk than their inter-national peers, are well positioned to benefit from this, he adds.
“We are willing to wait it out and build up over a long period if needs be,” says McCallum. “The Scots are hardy people, and have the patience if they think the reward is there.”
“There is no quick way into the Gulf,” says PSN’s Lynch. “You have to have a long game plan and stick with it. There are some very important milestones we have to achieve over the next few years, and that means winning work.”
RMJM in the Gulf
One of the Middle East’s longest-serving architectural services companies has gone from strength to strength in the region, and hopes to capitalise on a boom in public buildings in the coming years
Scotland’s experience in engineering and design is not limited to oil and gas. The country has a strong tradition of architecture, and boasts one of the most prominent architectural practices in the Gulf.
RMJM was founded in 1956 by architects Robert Matthew and Sirrat Johnson Marshal. It opened its Dubai office in 1972 and describes itself as one of the longest-standing consultancies in the region.
Having designed and overseen the construction of high-profile projects such as the conference centre at Abu Dhabi National Exhibition Center, the firm’s biggest current project is the $300m Adnec Capital Gate development.
Architectural firms around the globe have been hit hard by the global recession, but the company is capitalising on its presence in the Gulf.
“We are the largest architectural firm with a base in the Gulf and we have been here for a long time,” says Hugh Mullen, managing director of the company’s Middle East operations.
“A lot of our competitors who have not had presences in the Gulf have really suffered and basically pulled out of the market. We have stuck it out here before and we have been given a lot of respect because of that.”
Mullen sees public projects such as schools, universities and hospitals currently under development as a great potential source of revenue as the market for ‘iconic’ buildings slows.
He also says the high-quality buildings the company is renowned for will become more popular in the future
“The iconic buildings culture meant there were a lot of very brash structures out there,” says Mullen. “There has been a definite shift from ‘bling’ buildings to more conservative work, which is more integrated with the -culture.”
Scotland’s Oil Industry
Although oil has been produced in Scotland since the 1850s, it took the 1969 discovery of significant reserves at the offshore Montrose field for the country to become a significant player in the international energy market.
Within a year, the UK’s BP had discovered the giant Forties field, and in 1975, the UK/Dutch Shell Group discovered the Brent field, which subsequently gave its name to the benchmark European crude contract. Scotland, and by extension the UK, became the largest oil producer in Europe, a position it did not cede until the 1990s, when it was overtaken by Norway.
The UK’s economy has reaped the benefits. Oil and gas production remains the largest -industry in the UK, and has contributed £250-270bn ($400-440bn) to the UK’s public coffers over the past 39 years.
The harsh nature of the environment of the North Sea has also made Scotland, and the country’s oil capital, Aberdeen, a global hub for oil and gas exploration and production technology, from sub-sea drilling to advanced seismic surveying.
Now the country’s most precious resource is running out. UK oil production peaked at 2.9 million barrels a day in 1999, falling to 1.6 million b/d by 2008, according to BP. The country became a net importer of oil in 2004, and Scotland’s ability to produce oil profitably is projected to end in the early 2030s.