Upstream delivery finally hits the mark

According to industry analyst Wood Mackenzie, upstream oil and gas companies are increasingly delivering major capital projects on time and on budget.

The successful execution of projects is of crucial importance to an upstream industry adapting to lower prices. The downturn forced companies to evaluate and improve how they manage their major capital investments.

The sector has a reputation for missing projected deadlines. The top 15 project overruns of the last decade were a cumulative USD80 bn over budget. “The scale of under-performance was staggering,” said Angus Rodger, research director, Wood Mackenzie. “Surveying the last decade of project delivery, the average development started-up six months later than planned and USD700 mn over budget. That is a huge amount of value destruction.”

However, recent performance indicates that the tide has turned. Wood Mackenzie said there is a growing list of mid to large-scale projects that have been delivered on target over the past 12 months. This includes areas previously notorious for cost blow-outs, such as the Arctic and Caspian. Examples of improved execution include deepwater developments such as BP’s West Nile Delta and Atoll, along with Eni’s Zohr and Cape Three Points projects; LNG (Novatek’s Yamal), shallow-water gas (BP’s Shah Deniz Phase two) and subsea tie-backs such as Woodside’s Persephone and Wintershall’s Maria.

Better upstream execution

Wood Mackenzie said the transition to a simpler, lower-cost business model has aided new project delivery. Most recently, Shell brought its deepwater Kaikias field in the Gulf of Mexico onstream nearly one year ahead of schedule. Wood Mackenzie identified six key factors, that in most recent cases, combined to create better project execution:

1. Spare capacity through the supply chain. This leads to better performance and lower costs. For example, in some basins, such as the Gulf of Mexico and pre-salt Brazil, drilling efficiency has improved dramatically;

2. Service sector collaboration and alignment on contracts, albeit mostly for projects developed in northern Europe;

3. Improved project management. Companies have more people looking at fewer things, while under-utilised service companies can offer their best teams for each major contract;

4. Greater corporate discipline. Tougher pre-final investment decision (FID) screening and more stringent hurdle rates have increased attention on execution and cost control;

5. More pre-FID planning. More contracts are ‘signed and sealed’ pre-sanction, often with preferred partners versus putting everything out to bid;

6. Reduced scope. More tie-backs and brownfield projects are using existing infrastructure.

While there have been a few large-scale oil developments sanctioned in recent years, it is not many by industry standards. It is in the LNG sector where there are clear signs that companies are re-engaging with giant, capital-intensive projects. This includes new developments in Canada, Mozambique, Qatar, Papua New Guinea, Russia and Australia.

“There is a looming wave of big pre-FID LNG developments building on the horizon, all aiming for sanction between 2018 and 2020. After a fallow period in new LNG project sanctions, and megaprojects in general, the next 18 months will likely see a step change. This will be the real test of whether the industry has addressed the issue of poor delivery,” Rodger said.

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BP's West Nile Delta project. Photo credit: BP
BP’s West Nile Delta project. Photo credit: BP

Recruitment required in oil and gas sector

Industry analyst Rystad Energy believes there is a massive need for recruitment in the offshore oil and gas sector. New projects are being sanctioned and activity levels in the sphere starting to increase.

It says that the negative trend in employment in the oilfield service industry is levelling out. While there was a 35 percent reduction of the workforce between 2014 and 2016, the overall headcount at the top 50 oilfield service companies remained stable from 2016 to 2017.

Companies involved in the North American shale industry faced especially large cuts from 2014 to 2016, however these companies were the ones adding to their workforce last year.

Recruitment drive

Since the end of 2017, hiring has also been picking up within the offshore sector as rising prices encourage more offshore projects to be sanctioned. In 2018, Rystad Energy expects almost 100 projects worth about USD95 bn to be sanctioned. This compares to only 45 projects in 2016. An additional 100 projects are expected to be sanctioned in 2019, says Rystad.

Together with the expected growth in shale market, Rystad expects the oil service sector’s labour market to grow by 20 percent by 2020 – a level last seen in 2010.

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The newsletter, published in association with Heavy Lift and Project Forwarding International (HLPFI) magazine, is designed for those looking to identify project logistics opportunities relating to major industrial projects around the world, while aiding decision making and planning processes.

Saudi Aramco: Arabiah EPC deal, denies profits

Bloomberg has reported that Saudi Aramco made a net profit of USD33.8 bn in the first six months of 2017, making it the world’s most profitable company.

It is almost totally free of debt and enjoys production costs running at a fraction of the industry standard. The eye-catching numbers, if accurate, mean that the secretive Saudi energy giant is more profitable than Microsoft, JP Morgan and ExxonMobil combined.

Saudi Aramco said in a statement: “This is inaccurate, Saudi Aramco does not comment on speculation regarding its financial performance and fiscal regime.”

Saudi Aramco selects Arabiah contractor

Meanwhile, the Dhahran-based petroleum and natural gas company has selected SNC-Lavalin to install additional facilities for a major gas processing facility in Saudi Arabia’s Eastern Province. SNC-Lavalin will construct the Arabiah condensate handling facility and sour water disposal unit project at the Wasit gas plant. Work is already underway with a target completion date of late 2019.

saudi aramco. SNC lavalin

The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here.

Capital Projects – news in brief – April 18, 2018

A quick round up of major capital projects and industry developments witnessed this week. To learn more about the CapProCon e-newsletter, click here.

New Zealand’s Prime Minister Jacinda Ardern said her government “has a plan to transition towards a carbon-neutral future, one that looks 30 years in advance”. In a bid to hit this target, New Zealand will grant no new offshore oil and gas exploration permits.

The ban applies only to new permits and will not affect the existing 22 offshore exploration blocks in the energy-rich Taranaki region. The move by New Zealand comes weeks after Shell sold its final oil and gas permits and producing assets to Austrian firm OMV.

Oil capital projects

Also the oil and gas arena, BP said it has approved the development of Ghazeer, the second phase of the giant Khazzan gas field in Oman, in cooperation with Oman Oil Company Exploration & Production. The final investment decision (FID) for Ghazeer follows the successful start-up of Khazzan’s first phase of development in September 2017.

BP also revealed that it has established a strategic alliance with Petrobras committing to exploring potential commercial agreements in upstream, downstream, trading and across low carbon initiatives, inside and outside Brazil.

In the civil infrastructure field Reliance Infrastructure (RInfra) and Tata Projects have won five contract packages for the Mumbai Metro line-4 project. Meanwhile, construction of the 473 km-long four-lane highway between Nairobi and Mombasa, Kenya, will be delayed amid concerns that the country is taking on too much debt.

The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here.

New Zealand capital projcts
New Zealand has banned all new offshore oil and gas exploration permits. Source: Wikimedia Commons – Wikikiwiman

CapProCon – update

A couple of updates from the latest CapProCon e-newsletter can be seen here.

ExxonMobil has outlined an aggressive growth strategy to more than double earnings and cash flow from operations by 2025 at today’s oil prices. In the upstream sector, ExxonMobil expects to significantly increase earnings through a number of growth initiatives and investments in US tight oil, deepwater and LNG projects.

Meanwhile, Engie, in its latest annual report, highlighted the renewable energy projects it has invested in. They include the acquisition of a wind energy portfolio of more than 400 MW with the takeover of La Compagnie du Vent in France. The company also launched a joint venture with Abraaj Group to develop a 1 GW-plus portfolio of wind energy projects in India.

Clean TeQ

In the mining arena, Clean TeQ completed an underwritten institutional placement which has raised AUD150 mn (USD118.1 mn). Proceeds raised will be used to fund early works and long lead items to accelerate the development of its Sunrise nickel/cobalt/scandium project, located 350 km west of Sydney.

In Europe, Skanska will invest EUR41 mn in the first phase of a new office development in Gdansk, Poland. The first-phase of the project will be 14 stories high with two levels of underground parking.

The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here.

exxon mobil oil and gas capprocon

Oil project awards in brief

Various oil projects were announced over the past several days. To receive these updates, plus dozens more, directly to your inbox, please subscribe to the CapProCon newsletter.

Last week Total, Borealis, and Nova Chemicals said that affiliates of the three companies will form a joint venture focusing on petrochemicals on the US Gulf Coast.

The joint venture will include the under-construction 1 mn tonne per year ethane steam cracker in Port Arthur, Texas; Total’s existing polyethylene 400 kilotonne per year facility in Bayport, Texas; plus a new 625 kilotonne per year Borstar polyethylene unit at Total’s Bayport site, following a decision on the outcome of an acceptable EPC contract.

LTHE and Saipem deals

Meanwhile, L&T Hydrocarbon Engineering (LTHE) secured a USD341.79 mn EPC contract from Al Dhafra Petroleum Operations Company for field development in Abu Dhabi. The scope of the contract includes EPCC of flow lines, gathering facilities and pipelines to transfer crude oil and gas from Haliba fields to a processing facility at Asab. It also includes the installation of 132 kV and 33 kV overhead electrical transmission lines.

Finally, Saipem won a contract valued at approximately USD750 mn for the EPCC of new facilities at Duqm refinery in Oman.

duqm refinery oil projects

Mexico: as hot as a habanero

Majors, national oil companies (NOC) and independents are all scrabbling to get a slice of Mexico’s burgeoning oil and gas industry, according to analyst Wood Mackenzie.

Simon Flowers, chairman and chief analyst, said Mexico is ”as hot as a habanero, the spiciest of Mexican chillies”. The country is vying alongside the top drawer of proven oil provinces for scarce investment capital, such as Brazil and Iran.

Mexico’s proven reserves of 64 bn barrels of oil equivalent (boe) in fields discovered so far, is similar in scale to global giants like Norway, Brazil and the UK.

In the northern part of the Gulf of Mexico, in the deepwater Sabina Rio Grande play, Pemex has already made a series of discoveries in the Perdido area. Each may hold up to 400 mn barrels of oil. Further south in the Salinas Sureste basin, US independent Talos last year found 500 mn barrels at Zama.

Also in the south of the country in the Tampico Basin, explorers are attracted by structures offshore, similar physically to recent onshore discoveries, which could make for giant light oil or gas finds.

“Investment in recent decades has been comparatively modest, barely scratching the surface of many plays. There may be much more oil and gas yet to be found,” said Flowers.

Mexico attracts FDI

Mexico has recognised that it needs external investment capital for its oil and gas industry to flourish. Flowers said oil exports’ contribution to Mexico’s GDP has halved from 6 percent in 2004 when production peaked at 3.8 mn bpd to just three percent today. Oil production this year will be 2.1 mn bpd and will still be in decline into the early 2020s. NOC Pemex was not in shape to turn things around on its own.

The Mexican government has taken bold steps to create a favourable regulatory and fiscal environment, in bid to draw investments. The 2013 Energy Reform was a critical step, opening up Pemex’s monopoly to private investment. One measure of success is the number, quality and range of companies now active in the country’s upstream space.

“Over 80 E&Ps, including all the majors, numerous NOCs, independents, and a growing cadre of domestic small-caps have entered the sector in successive licence rounds. The integrated players see opportunities beyond upstream, in the gas value chain and downstream.”

Wood Mackenzie suggests that domestic political stability under President Pena Nieto has also been a key factor in the progress achieved.

This article was first published in CapProCon. To subscribe, click here.

habanero Mexico
The Mexican oil and gas market was described “as hot a habanero”.

Capital Projects and Contracts snapshot

A whole host of developments can be seen in the latest Capital Projects and Contracts (CapProCon) e-newsletter. Here’s a taster of what included in our most recent edition..

CG/LA Infrastructure has released its 11th annual Strategic 100 Global Infrastructure Report, which features a list of 100 projects representing over USD644 bn in expected investment.

In 2018, the transit sector presents the highest number of opportunities with 20 projects with a combined value of USD115 bn. High-speed rail is second with seven projects at a value of USD106 bn. Bridges and tunnels come in third place with almost USD74 bn of investment spread across 14 projects.

Elsewhere, in power generation, Mitsubishi Hitachi Power Systems (MHPS) received a full-turnkey order for the EPC of a 5,300 MW natural-gas-fired power plant in Thailand. Meanwhile, India approved the construction of 12 new nuclear power projects.

In a week where a number of the oil majors reported significant rises in net profitability, CB&I received a letter of award from Abu Dhabi National Oil Company (ADNOC). It will build the Crude Flexibility Project (CFP) , valued at more than USD500 mn, in Ruwais, UAE.

Meanwhile, in South Africa, DRA secured a contract from Exxaro Coal Mpumalanga to construct a 500 tonnes per hour coal handling and preparation plant in Mpumalanga.

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The Capital Projects and Contracts (CapProCon) e-newsletter, distributed every Monday, includes dozens more updates and developments. To learn more, click here or email

oil and gas. Capital Projects and Contracts.

Encouraging signs following oil price rise

Having started 2017 facing a lack of investment and high volumes in storage, the international oil and gas business saw a steady improvement over the course of the year, with the oil price gradually climbing and now approaching USD65 per barrel.

Some cite the production cut agreement worked out by the Organization of Petroleum Exporting Countries (OPEC) and Russia as being behind this recovery, but underlying factors supporting a continuing price rally are also apparent.

Price rally

Some commodity investors suggest that oil prices could surge as high as USD110 per barrel this year. Bullish investors point to the fact that inventories continue to fall, with demand forecast to increase this year. OPEC is expected to restrict oil production output until at least the end of 2018.

The US Energy Industry Association (EIA) reported another strong drawdown in crude stocks for the week ending on January 5, 2018. At 419 mn barrels and falling, US crude inventories have not been this low since early 2015.

On the demand side of the equation, OPEC sees demand growing at a brisk 1.5 mn barrels per day in 2018; the International Energy Agency (IEA) expects a softer 1.3 mn barrel per day growth this year.

Encouraged by the rising oil price, there has been talk of restarting previously postponed projects, which would be good news for the project logistics companies that serve this sector.

But there has also been the suggestion that price increases could slowly undermine the willingness of Middle Eastern producers to comply with agreements made with OPEC, which would create further uncertainty in the sector and could negatively impact oil prices.

This story was first published in the CapProCon e-newsletter.

oil and gas. Capital Projects and Contracts.

OPEC: striving for balance

One year ago the Organization of the Petroleum Exporting Countries (OPEC), plus ten other producers, forged an alliance to reduce their output in a bid to bolster prices.

The fall in oil prices, from a peak of USD115 per barrel in June 2014 to under USD35 at the end of February 2016, had a profound impact on the oil sector and its wider supply chain. The drastic measures adopted in 2016 to address a global stock glut have contributed to oil’s recovery to around USD60 per barrel today.

Ahead of OPEC’s meeting in Vienna later this week, industry analysts suggest that further producers could join the alliance. Currently, the group is removing 1.8 mn bpd of crude oil out of the markets, compared to 2016 levels.

OPEC production cut

The scheduled end of the production curb is currently March 2018. This date, however, could be extended to the end of 2019, following statements made by the Saudi Arabian and Iranian oil ministers – OPEC’s two largest producers.

The effect that any extension will have on oil prices is debatable. In late May 2017, the group decided to prolong the output curb from June 2017 to March 2018. Oil prices fell 20 percent over the next month.

In recent weeks, European and US oil prices have climbed to between USD60 and USD65 per barrel, a year-on-year increase of between 20 and 30 percent. Tensions in the Middle East, triggered by Saudi Arabia’s assertive foreign policy towards Lebanon and Iran, have also supported the oil price in recent weeks.

If oil prices were to continue on their upward trajectory, it’s likely that North American producers would increase their output, contrary to the interest of OPEC and its allies.

OPEC oil and gas