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What downturn?

Written by  Mirzi Moralde, IHS Sunday, 01 January 2017 00:00

Offshore construction activity in the Middle East Gulf has remained buoyant, but that hasn’t stopped pressure on costs and dayrates. Mirzi Moralde, of IHS, outlines activity in the region.

Saipem’s Perro Negro 5 and Perro Negro 7 self-elevating drilling platforms are being used offshore Saudi Arabia by Saudi Aramco. Perro Negro 7 can operate in water depths up to 375ft and Perro Negro 5 is designed to work up to 300ft water depth. Photo from Saipem.

More than two years since the slump in the oil price, the Middle East Gulf region has managed to keep offshore construction activity buoyant with existing portfolio of projects, which were awarded prior to the downturn.

Sanctioned projects in 2016, which were either aimed at sustaining hydrocarbon output capacity or increasing natural gas production, are expected to boost offshore construction in the short- to medium-term. However, the volatile oil price coupled with high vessel availability, currently running at only around 45% utilization, continues to contribute to the downward pressure on dayrates in the region’s construction vessel market.

In 2016, a number of oil and gas development programs were awarded offshore Saudi Arabia, while greenfield campaigns off Abu Dhabi in the United Arab Emirates (UAE) are underway to meet target production capacity by 2018.

Consolidation of major operators Abu Dhabi Marine Operating Co. (ADMA-OPCO) and Zakum Development Co. (ZADCO) is expected to enhance efficiency and growth in Abu Dhabi’s offshore operations.

In the Persian Gulf, Total entered into a Heads of Agreement with the National Iranian Oil Co. (NIOC) for the South Pars gas field Phase 11. Though international sanctions on Iran were lifted in January 2016, NIOC just commenced pre-qualification of exploration and production companies in preparation for the tender rounds during Q4 2016. There are around 15 offshore programs, covered under the Iranian Petroleum Contract (IPC).

Saudi Arabia

Installation of a wellhead platform by Derrick Barge 27. Photo from McDermott.

In line with Saudi Aramco’s maintain potential program (MPP), which aims to sustain crude oil production capacity in existing and producing assets, around US$1 billion worth of engineering, procurement, construction and installation (EPCI) contracts were awarded to Saipem in Q4 2016. The sanctioned projects, which are part of long-term agreement (LTA) contracts under the MPP, will involve a total of 20 decks, 10 jackets and seven deck upgrades for the Safaniya, Marjan and Zuluf oil fields, offshore Saudi Arabia. Other work will cover pipelines, subsea cables, umbilicals and maintenance for Saudi Aramco’s offshore fields. These LTA EPCI projects are expected to complete in 2021.

In October 2016, Saudi Aramco released two more EPCI LTA tenders, which involve a total of 17 jackets to be utilized for drilling in the Marjan and Berri oil fields. Offshore installation work is expected to start in 2018.

The MPP also covers offshore gas-producing assets. In July 2016, Saudi Aramco awarded the $1.6 billion EPCI Hasbah gas field facilities expansion program to Larsen & Toubro Hydrocarbon Engineering (LTHE) and the EMAS Chiyoda Subsea consortium (OE: November 2016). The scope covers topsides for wellhead platforms, tie-in and flare platforms, bridges, umbilicals, infield pipelines and trunklines, among others. Offshore work is expected to begin in Q4 2017.

Hasbah is one of two non-associated offshore gas fields, developed under Saudi Aramco’s Wasit gas program, which started operations between the end of 2015 and early 2016. The other gas field is Arabiyah. Saipem carried out the EPCI campaign for the Wasit gas development from 2011 until completion in 2015. The Arabiyah and Hasbah offshore gas fields are targeted to produce around 2.5 Bscf/d of gas. Production from both gas fields aim to meet Saudi Arabia’s increasing domestic energy demand.

There are now five EPCI contractors, which have LTA contracts with Saudi Aramco. The National Petroleum Construction Co. (NPCC) is the fifth contractor and was awarded a LTA in October 2016. The first four contractors: Dynamic Industries, LTHE-EMAS, McDermott and Saipem, were awarded in 2015. The LTA contract will allow them to bid for Saudi Aramco’s offshore LTA tender packages.

As recently sanctioned projects will aid in sustaining Saudi Aramco’s oil and gas production capacity, continuing exploration activities in the Arabian side of the Gulf will add to its natural gas and hydrocarbon reserves. In June 2016, Saudi Aramco announced the discovery of a new oil field, Faskar, which is near the oil-producing Berri field.

Abu Dhabi

Saipem’s Castoro has been working on the Wasit Project. Photo from Saipem.

Over in the UAE, Abu Dhabi’s multi-billion worth of combined offshore projects like the ZADCO-operated UZ 750, the ADMA-OPCO-operated Umm Lulu and Nasr full-field development programs, along with other continuing maintenance and workover campaigns in producing fields, are on track to meet hydrocarbon production capacity target of 3.5 MMb/d by 2018.

However, contract award for the Umm Shaif pipeline replacement project has been delayed since bids were submitted in April 2015. Around 12 or more pipelines are involved in the program.

Focus is also on gas production with Abu Dhabi Gas Industries’ (GASCO) Integrated Gas Development Expansion (IGD-E), involving a 117km-long, 42in offshore pipeline stretching from Das Island to an onshore terminal, which will aid in increasing gas processing capacity by 400 MMscf/d. The IGD-E is set for completion around the end of 2017 or in early 2018.

To help meet gas production targets, in February 2016, ZADCO sanctioned the EPCI for two drilling jackets for the North West Development, in the Dalma field, offshore Abu Dhabi. The jackets are set to be ready for drilling in 2017. Discovered in 1971, Dalma is an oil and gas field. Additional infrastructure like wellhead platforms and pipelines are being planned and a tender has yet to be released. At this stage, gas production will be prioritized in the Dalma field.

In November 2016, appraisal drilling for the Shuwaihat-6 well in the shallow water Shuwaihat gas and condensate field started, while another appraisal well, Shuwaihat-7, is anticipated to be drilled thereafter, pending results from Shuwaihat-6. The appraisal activity is part of the technical evaluation agreement (TEA) between the Wintershall-OMV joint venture and state-owned Abu Dhabi National Oil Co. (ADNOC), which was signed in 2012.

Potential future field development offshore Abu Dhabi is also anticipated, as ADNOC signed a TEA with OMV and Occidental Petroleum (Oxy) in the Q1 2016. The TEA will involve oil and gas fields in Northwest offshore Abu Dhabi, including the Ghasha and Hail areas. The agreement will cover four-year seismic activity, drilling and engineering work for exploration and appraisal.

Meanwhile, consolidation of Abu Dhabi’s two major offshore operators ADMA-OPCO and ZADCO is underway and is set to be concluded in 2018. ADNOC has a 60% share in ADMA-OPCO while the rest is owned by BP, Japan Oil Development Co. (JODCO) and Total. ADNOC also holds 60% share in ZADCO while its partners ExxonMobil and JODCO hold the remaining shares. The consolidated offshore operating company, which will operate both ADMA-OPCO’s and ZADCO’s assets, is set to optimize synergy of resources of both companies for efficiency and growth.

Qatar

Offshore Qatar, Qatar Petroleum (QP) will merge its LNG operating companies Qatargas and RasGas in 2017 to secure its competitive advantage in the current market. QP also signed a joint venture agreement (JVA) with Total to form the North Oil Co., which will develop and operate the Al Shaheen oil field. The JVA covers the development and fiscal agreement, which provides the license for the development and operation of the Al Shaheen field, production, sale and export of crude oil for a period of 25 years. The JVA is set to start in July 2017, following the expiration of QP’s existing agreement with Maersk Oil Qatar.

Redevelopment of the Bul Hanine oil field is also moving ahead with QP’s request for expressions of interest for a pre-qualification exercise, involving offshore facilities under the early production scheme (EPS). The EPS will involve four topsides, which will each weigh 1000-tonne, flowlines and modification of existing facilities for tie-in operation. EPCIC bids are set to follow, thereafter. The project is anticipated to be commissioned between 2018-2019, which is to be then followed by the full field development of Bul Hanine.

In the contracting front, QP awarded the EPCI North Field Alpha project, consisting of a wellhead topside, pipeline and brownfield modification works, to China Offshore Oil Engineering Co. in Q4 2016, while the RasGas EPCI offshore pipeline repair work on Barzan gas field went to McDermott in Q1 2016. The scope covered four pipelines having a total length of around 200km with diameters of 24 and 32in However, the Qatargas EPCI North Field Bravo LQ platform tender package, which was released for bidding in 2015, has yet to be awarded.

Iran

Since the lifting of international sanctions on Iran in January 2016, the NIOC has signed a Heads of Agreement with Total for the South Pars Phase 11 (SPP 11) development in the Persian side of the Gulf. Total will hold 50.1% interest while NIOC subsidiary Petropars will have 19.9% and the remaining 30% will be held by China’s state-owned oil and gas company CNPC.

Included in the agreement, NIOC and its partners will engage in exclusive negotiations to finalize a 20-year contract, which is based on technical and economic terms covered in the framework of the Iranian Petroleum Contract (IPC). The first phase of SPP 11 will involve two wellhead platforms with 30 wells and two subsea pipelines that will be connected to onshore facilities. The decision to carry out a second phase will be based on reservoir conditions.

NIOC has around 15 offshore oil and gas projects on the IPC list. Out of 15, 10 will be greenfield developments while the others will necessitate enhanced oil recovery schemes. The new field program will include the Golshan and Ferdowsi oil and gas fields, among others. The Golshan and Ferdowsi gas fields are planned to be developed together. An integrated development plan is also intended for the Golshan and Ferdowsi oil layers.

Last October, NIOC started the prequalification process for exploration and production companies in anticipation of the tender rounds.

Meanwhile, offshore construction activities in the South Pars Phases 17 & 18, 20 & 21 are ongoing, which are mostly carried out by Iran-based contractors like Sadra Engineering and Kito among others.

In the short- to medium-term, the Middle East Gulf offshore construction market is anticipated to withstand the downturn until the market recovers, buoyed by ongoing and recently awarded oil and gas projects in Saudi Arabia, Abu Dhabi, Qatar and Iran that are set for completion in the next 2-4 years’ time.


Mirzi Moralde
is a senior specialist at IHS based in Dubai. Moralde covers the Middle East Gulf offshore oil and gas construction market, focusing on field development activities from discovery, engineering, procurement, construction, installation and production phases.

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