Over the next five years Saudi Arabia will lead a ramp-up in offshore oilfield spending in the Middle East, where local content is increasingly important
Oil production in the Middle East is expected to grow substantially over the next five years, strengthened by state-run Saudi Aramco’s plans to increase capital expenditures by 30% over the period.
Overall, oilfield expenditures in the Middle East are expected to climb to US$99Bn annually by 2020 – a level that has not been seen since the oil price collapse, according to Norwegian energy research firm Rystad Energy. By 2025, spending will grow even further to US$140Bn.
From 2019 to 2025, the world’s largest oil producer, Saudi Aramco, is expected to increase capital and exploration expenditure by 30%, directed both to a mature asset base and new discoveries. Offshore developments will get the largest capital injections, led by Saudi Arabia’s Marjan, Berri and Zuluf oilfields, according to Rystad Energy. Total oil production in the Middle East will climb from 24M barrels of oil per day (bopd) in 2018 to around 26M bopd by 2025.
This increased spending could alleviate some of the OSV oversupply in the Middle East, where about 100 of the 450 vessels in the region have been repositioned from Southeast Asia. There are about 60 vessels stacked and utilisation rates have averaged between 60-65%.
Oilfield service companies and OSV owners are now positioning themselves to take advantage of the upswing in spending in the region.
Saudi-based OSV owner Zamil Offshore and Houston-based McDermott International, Inc have signed a joint venture (JV) agreement to target the rising demand in the Saudi market for maintenance, modifications and operations (MMO) vessels.
“Strong local partners have become increasingly important in winning work in the Middle East”
Under the JV, McDermott and Zamil Offshore will work together on an exclusive basis to provide Saudi Aramco with offshore brownfield engineering, procurement, construction and installation (EPCI) solutions and asset maintenance services.
Local partners are key
By partnering with Zamil Offshore, McDermott has secured a strong local partner, which has become increasingly important in winning work in the Middle East because of local content requirements in contracts and bidding practices. The JV is expected to significantly contribute to the in-Kingdom Total Value Add (IKTVA) programme and local content commitments, supporting Saudi Arabia’s Saudi Vision 2030.
"Our partnership with Zamil reflects McDermott's commitment to supporting Saudi Aramco across the oil and gas production lifecycle," says McDermott senior vice president, Middle East and North Africa Linh Austin.
McDermott believes the partnership with Zamil Offshore will generate a new revenue stream in the maintenance, turnaround, inspection, and asset integrity services market in Saudi Arabia.
McDermott is one of nine contractors that have been qualified for Saudi Aramco’s Long-Term Agreement (LTA) offshore programme. Besides McDermott, the current LTA contractors are: Cyprus-based Dynamic; Italy’s Saipem; UAE’s National Petroleum Construction Company; Malaysia’s Sapura Energy; and China’s CNOOC. Also, three consortiums have qualified: India’s Larsen & Toubro (L&T) and UK-based Subsea 7; UAE-based Lamprell and Netherlands-based Boskalis; and UK-based TechnipFMC and Malaysia Marine and Heavy Engineering.
Participants that qualify for the LTA programme are allowed to bid in a limited competition for Saudi Aramco projects that are expected to total US$3Bn annually.
The initial programme is for six years, with a possible extension with two options of three years each. All LTA participants are pre-screened on technical qualifications and must bid for all tenders.
Under the LTA programme, the consortium of L&T and Subsea 7 was contracted by Saudi Aramco for EPCI of three oil production deck manifolds and subsea pipelines in the Zuluf and Berri Fields.
This is the fifth award for the consortium and provides for significant project pipeline work for the firms.
With three fabrication yards, L&T will use its flagship facility at Hazira in Gujarat, India, for the design and build of the offshore oil and gas projects.
The first contract won by the consortium, valued at US$1.6Bn, was in support of the Hasbah field located in the Arabian Gulf, which is approximately 150 km northeast of Jubail in a water depth of 65 m.
The development is the second phase of the Hasbah Offshore Gas field and is part of Saudi Aramco’s plan to supply additional natural gas to meet Saudi Arabia’s domestic goal of retiring oil-fired power plants in favour of gas-fired power generation.
Under the scope of work, the consortium will engineer, construct, procure and install offshore pipelines, cables and umbilicals and the T&I of platform system. L&T Hydrocarbon Engineering is responsible for EPC of the platforms and EPCI of the onshore pipelines system. The platforms are engineered in Bangalore, India and fabricated at L&T’s fabrication yard in Sohar, Oman.
Founded in 1977, Zamil Offshore has one of the largest OSV fleets operating in the Middle East, with an average age of nine years and a total value of about US$71M, according to VesselsValue.
Zamil’s newest vessels include the 80-tonne bollard pull anchor-handling tug supply (AHTS) vessels Zamil 505 and Zamil 506, built by China’s Guangdong Yuexin.
Zamil Offshore also plans to scrap at least five vessels, including two 15-year-old smaller utility vessels, Zamil 21 and Zamil 22, two 20-year-old AHTS vessels, Zamil 4 and Zamil 5, and a 20-year-old maintenance and support vessel, Zamil 6. All the vessels were built by shipyards in India.
Through its shipbuilding and repair division, Zamil Offshore manages and operates a shipyard inside the Dammam port. Covering some 121,400 m2 with 500 m of waterfront, the shipyard has a shiplift that can handle vessels up to 1,500 tonnes, 80 m in length and 15 m in breadth.
Zamil Offshore also has an engineering and construction services division for offshore hook-up projects with Saudi Aramco and a sea port operation division that provides navigation and pilotage services at King Abdul Aziz Port in Damman, serving about 2,400 vessels calling annually.
UAE-based ADNOC Logistics and Services’ fleet extends well beyond the offshore services market, with more than 500 vessels, including dry bulk ships, container ships, tankers, LNG and LPG carriers. It has a fleet of 43 OSVs with an average age of nine years old and a combined value of US$120.6M. China’s Zhejiang Shipbuilding is also constructing nine 80-tonne bollard pull AHTS vessels for the fleet, all due for delivery in 2019.
ADNOC owns 43 OSVs and has orders for nine more AHTS vessels at Chinese yards
ADNOC Logistics and Services’ parent, ADNOC, plans to grow from its current production capacity of 3M bopd to 4M bopd by the end of 2020 and 5M bopd by 2030. ADNOC is expanding its development in the first phase of licencing through six new concessions, two offshore and six onshore.
Elsewhere, UAE-based Zakher Marine International Inc is due to take delivery of seven vessels ordered from Chinese shipyards for delivery in 2019. Among the newbuilds are two third generation jack-up vessels, QMS Al Maryah and QMS Bahia, that are being delivered by heavy-lift ship from Haixi shipyard. Other vessels on order include two PSVs, each with clear deck areas of 800 m3, one dive support vessel, one AHTS vessel and one liftboat.
Zakher Marine owns 33 OSVs, with an average age of eight years and a total valuation of US$64.8M, according to VesselsValue.
Reducing costs, improving utilisation
“We plan to focus further on reducing our operational cost in 2019 across the group companies; higher revenue and lower operational cost is what we are striving for,” says Stanford Marine chief executive Elias Nassif.
In 2018, Dubai-based Stanford Marine secured 72 new contracts, operating 42 vessels in support of offshore operations in the Middle East, Southeast Asia, Nigeria as Angola. Despite tough market conditions, the UAE OSV owner had a fleet utilisation rate of 74%.
“Construction is underway on one of the biggest projects in the region, the US$5.2Bn Saudi mega-yard International Maritime Industries, bringing together some of the largest players in the offshore oil and gas sector”
“At Stanford Marine, we anticipate sustained utilisation levels above 80%, despite the low utilisation of the world OSV fleet,” says Stanford Marine chief executive Elias Nassif.
With a fleet consisting of crewboats, AHTS vessels and PSVs, Stanford Marine’s 32 vessels in the Middle East have an aggregate valuation of about US$50M, according to VesselsValue.
Last year, Stanford Marine’s Grandweld Shipyards was awarded a US$45M shipbuilding project for 10 vessels.
“[At] Grandweld, despite the slow demand in the shipbuilding business, we continue to identify potential opportunities to build vessels for clients within the Gulf Cooperation Council,” says Mr Nassir. “As for ship repair, it is expected to turn healthy due to the improved utilisation of the OSV fleet in the region, hence the demand for dockings,” he notes.
Construction is already underway on one of the biggest projects in the region, the US$5.2Bn Saudi mega-yard International Maritime Industries (IMI). Set for opening at Ras Al-Khair in 2022, IMI is a cornerstone of the Saudi government’s Vision 2030 programme that aims to diversify the country’s economy, employment and revenue.
IMI brings together some of the largest players in the offshore oil and gas sector. It is 51% owned by Saudi Aramco, 19.9% by Saudi Arabia-based shipping company Bahri, 20% by Dubai-based rig builder and fabricator Lamprell and 10% by South Korea-based shipbuilder Hyundai Heavy Industries (HHI).
All of the engineering, procurement and construction contracts have been awarded for the shipyard’s development. Early construction is ongoing, with dredging and reclamation works “progressing as planned,” according to Lamprell. Lamprell’s equity investment in the shipyard is US$59M.
Divided into four zones, IMI will offer rig fabrication, commercial ship construction, OSV building and general ship repair.
Its facilities will include a 490 m x 90 m rig dock, a 550 m ship dock, a 25,000-tonne-capacity shiplift and two large cranes.
Vessel orders are already lined up for the facility. Bahri plans to place orders with the IMI yard to construct a minimum of 52 different vessels, including 20 VLCCs over a 10-year period. The shipping company also plans to use IMI for most of its vessel maintenance, repair and overhaul requirements.
Up to 20 rigs are expected to be built at the IMI facility over the next 10 years. "Our IMI joint venture has provided us with a Letter of Intent (LOI) for two newbuild jack-up rig orders, the first order globally since 2015,” says Lamprell chief executive Christopher McDonald. Technical partner Lamprell has completed the development of a new LJ43 proprietary jack-up rig design for the project, in collaboration with naval architect and engineering firm MSC Gusto.
Christopher McDonald (Lamprell): “Local content is a key going forward”
Zone D, the rig fabrication yard, will be operational by the end of this year.
Lamprell will complete the assembly of the first two jack-up rigs that will be delivered from the shipyard. It will undertake most of the fabrication work for both jack-up rigs at its Hamriyah yard in the UAE, while maximising work in Saudi Arabia to approximately 15% of the scope of work.
An LOI was signed for the subcontract of the two newbuild jack-up rigs from IMI in December 2018, with the rig design and final contract terms expected to be concluded in Q2 2019.The contract is valued at US$280M.
Lamprell will also be the technical partner for Zone A, the general ship repair facility that will be open in 2021.
Zone C, the shipyard facility, will have a capacity to produce three VLCCs plus 15 other merchant vessels per annum and be operational in 2020. Zone B, the boatbuilding facility, will have a capacity of 15 OSVs per annum and will be operational in 2021. HHI will be the technical partner for both zones.
Through its inclusion in Saudi Aramco's LTA offshore programme, Lamprell says it was able to increase its bid pipeline from US$3.6Bn in 2017 to US$6.4Bn in 2018, with bidding on new LTA projects already under way.
Lamprell will focus on EPC of offshore structures such as topsides and jackets, while Boskalis will concentrate on transport and installation. They were among the four contractors that were added last year, an indication of the volume of work expected in the near term, according to Lamprell’s Mr McDonald.
Mr McDonald also points to the number of rig refurbishments that Lamprell performed last year as a positive sign for the market. “We delivered 23 rig refurbishments, which we think is a leading indicator of a recovering market,” he said
For the offshore wind market, Mr McDonald points out that there is a projected need to fabricate up to 500 jackets globally over the next two years. Lamprell can deliver about 50 jackets per year without compromising its yard capacity for the LTA programme.
“We are encouraged by increased scrapping and consolidation among offshore drillers which will further rationalise rig capacity”
Local content is “a key going forward,” Mr McDonald says, which is why the company established Lamprell Saudi Arabia with a local JV partner.
Overall, Mr McDonald says he expects full year revenues for 2019 will be in the US$250M-400M range.
“We’re encouraged by increased scrapping and consolidation among offshore drillers which will further rationalise rig capacity. We’re starting to see signs of a tighter market for higher spec rigs, which we believe will lead to potential orders in the medium term.”
Additional shipyard capacity is being added in Qatar, although on a much smaller scale. Dutch project management company Royal HaskoningDHV is developing plans for the upgrade of Milaha’s shipyard to increase its capacity and efficiency in handling ship repairs on larger and more complex vessels, according to Milaha’s president and chief executive Abdulrahman Essa Al-Mannai. The 40-year-old facility has two floating docks and a shiplift with capacity to handle vessels up to 150 m. Plans involve adding a larger floating dock, with completion by Q3 2020.
Qatar-based Halul Offshore Services Company, a subsidiary of Qatar Navigation (Milaha), has four vessels under construction for delivery this year, including the PSV Halul 47 and three 150-tonne bollard pull AHTS vessels, Halul 64, Halul, 66 and Halul 67. All are under construction at India’s Laursen & Toubro (L&T Shipbuilding). Halul Offshore has a fleet of 36 OSVs, with an average age of eight years old and a total valuation of more than US$140M.