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Exclusive: Oil & gas contractors stand firm

by Peter Ward on Oct 5, 2009

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Technip Middle East senior vice president Arturo Grimaldi.

Major players refute clients cost reduction claims while energy market remains steady

EPC contractors in the Middle East have issued warnings over unrealistic cost reduction expectations from oil and gas clients.

According to industry insiders, clients of EPC contractors believe that the financial crisis should result in a lowering of prices – and this is not the case.

Sam Mathew, director, global operations, oil and gas, Mott MacDonald reports: “The general expectation of clients is that there is a downturn so they are expecting a reduction of costs.

“The expectation is that the real estate market has fallen so the oil and gas market should come down in proportion but that is not the case. So the biggest challenge right now [for EPC contractors] is matching client expectations.”

Client and contractor relationships have seen a seismic shift during the economic crisis, as is expected when market conditions change at a similarly drastic rate. Technip senior vice president Arturo Grimaldi, explains: “The market is very difficult, there has been decreasing since 2008, all the main contractors have been obliged to reconsider their own way to be competitive, to be winning.

For new companies attempting to break into the oil and gas sector, this makes it a complicated time to get involved. However Tawfiq Abu Soud, executive director, Infrastructure, Water & Power – Drake & Scull, reveals it’s a challenge his firm is keen to face.

“The oil and gas business is not easy to penetrate, but we are focusing on this now, and are determined to achieve good results. The difficult part is the registration process. They say you cannot be an oil and gas process contractor unless you have previous experience. It’s like when someone graduates from university. No one wants to employ you because you don’t have work experience,” Abu Soud states.

“However, we have staff within the company with extensive oil and gas experience. So maybe as a firm locally we do not have a back catalogue of oil and gas projects, but our talent pool has a huge pedigree in this business,” he adds.

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The market has taken a few knocks due to the downturn, although it has not been hit as hard as other sectors, according to Mathew.

“The oil and gas business has been strong for us, because we have not seen any downturn in the business, compared to last year. However, we have not seen any increase in the business, but it is still holding. The projects that we are working on indicate that the business is holding steady,” Mathew states.

Mott MacDonald was recently awarded a three year engineering services contract in Oman with Oxy which involved engineering design and technical support. Upstream contracts have been awarded to the company within Oman also, although details of these are yet to be released.

Drake and Scull is offering integrated solutions in which the firm partners with construction firms and private utility providers. The firm is now actively bidding on a number projects alongside other companies.

“We have submitted bids worth hundreds of millions of dollars in collaboration with contractors, who are bidding for billion dollar projects in the oil and gas business in Abu Dhabi. In this instance we work as a joint contractor with the lead EPC firm,” reveals Abu Soud.

Although EPC contractors are facing challenges such as the lower price expectations, the portfolio of oil and gas opportunities on offer in this region remains strong.

“If you look at Europe and Africa, it is not growing as you would normally expect to see. You expect that Europe is a more mature market and in Africa you have funding issues. But the market in the Middle East and Asia is growing because of demand. There is a shortage of power, especially in Asia, so there are a lot of energy projects coming up and we are looking to take advantage,” concludes Mathew.

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