Tapping the oil

Contractor competition for oil projects is long, intense and detailed. Ben Roberts finds out what it takes to be a big player.
Tapping the oil
Slick operation: The oil industry has almost unique levels of health and safety standards.
By Ben Roberts
Sat 02 Oct 2010 04:00 AM

Contractor competition for oil projects is long, intense and detailed. Ben Roberts finds out what it takes to be a big player.

Attempts by some Gulf states to diversify away from oil has not diminished the clamour for contractors to be involved with any project linked with the black stuff.

The governments of Kuwait and Oman have been particularly forthright in their prospective plans to expand and regenerate their oil facilities and capitalise on the recent rise in barrel price - and contractors have been keenly listening.

In July, the finance ministry of Oman confirmed it was to spend US $3.5 billion on oil projects at the end of the year. In August, Kuwait's country's oil minister, Ahmad Abdullah Al Sabah, told reporters that there is "big money involved" in the country's four-year US $35 billion development plan.

At the same time numerous contracts have been awarded. Also in July, Saudi Aramco, Saudi Arabia's largest oil producer, awarded seven contracts for EPC work for its planned refinery in Yanbu as part of its drive to boost capacity. Contract recipients included SK Engineering & Construction, Tecnicas, Daelim and Saudi Services.

In August, the state-run Kuwait Oil Company awarded two contracts worth a combined KD520 million to Hyundai Engineering & Construction (HEC) and Petrofac to design and build pipelines. J Ray was awarded a US $350 million contract in Abu Dhabi for construction of new platform and upgrade of existing water injection facilities on an offshore site.

As a sector that appears from the outside unique in demands, contractors face a number of obstacles to securing oil and gas contracts. High health and safety standards and a thorough awareness of the environment and process of extraction sharply reduce the number of hopeful tenders that will reach and proceed through the pre-qualification stage.

One noteworthy characteristic of the oil and gas tender processes is their duration. SK Khuntia, executive vice president for the oil and gas division of Galfar Engineering in Oman, points out that projects usually take around five years to be fully ready to start - meaning contractors have to be patient before they receive word of their success.

He says there is nothing particularly special needed to enter the oil and gas industry as a contractor, though others have cited the difficulty of needing experience in the sector before securing big deals.

Other firms looking to enter the oil and gas market have attested to this situation. Drake & Scull International, the MEP giant that has a construction subsidiary in Saudi Arabia, has been eyeing the sector for the last few years. Tawfiq Abu Soud, executive director heading its infrastructure, water and power division and a 15-year veteran of the oil industry, says the break-through contracts are vital.

"It's a vicious circle, just like a graduate in civil engineering: how can you get the experience without the projects?"

He adds that the company is keeping both its options and approaches open. "At the moment we are considering partnerships and joint ventures with companies that have experience in the sector. On our side we would be able to offer everything: labour, know-how. There are so many ways to do this, and we will see which is the best."

Abu Soud says Drake & Scull International has yet to approach companies or targeted specific projects within the sector. "Once we've finished studies - which could be next year - we will see; at the moment we are being proactive with research," he says.

So how do contractors break into the sector? A good starting point is Santis HSE Group, a management consultant and training provider based in Dubai that essentially acts as a mediator between the oil industry and contractors.

Paul Stothert, commercial director, explains that oil companies will typically have a set of HSE criteria in place that is relevant to contractors, but often do not have the most efficient system to translate this to the hundred or so companies that seek employment. His firm takes the criteria and communicates it to contractors.

"Firstly there is the commercial side: you've got to have approval from the local authorities and from organisations such as ADNOC," he says. "You have to find out what the standards are from all these different companies. These standards are generally similar, though we do help contractors with the pre-qualification, such as the forms to fill in, what company criteria to fulfill, and which international standards apply.

"Oil companies will have these prequalification standards and are looking at a few hundred companies applying for a job, but they might not have a system for prequalification. We have a database and can take that job [off the hands of] the oil company. We then go to contractors and say, ‘here are the pre-requisites'."

The number one thing a contractor can do when approaching a project is to do its homework, he says, and get to grips with the specific local and international standards.

This includes obtaining the companies' health and safety manuals, which Stothert points out are generally available. He adds that there is an intrinsic challenge in keeping up-to-date with all legislation in what he calls a "dynamic" industry.

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