Expansion of MENA Offshore Sector Underway

By Indrajit Sen, Oil & Gas Middle East

Commentary by Tommy Mars, Managing Director--Opportune EMEA

Over the last decade, the offshore segment has been one of the main growth areas of the global oil and gas industry. Almost 50% of discovered conventional oil and natural gas resources were found in deepwater reserves, with almost 75% coming from a water depth of over 1,000 m.

Until the second half of 2014, there had been a rush by majors to secure offshore acreage that was perceived as one of the few remaining sources of new conventional resources, where oil majors could play a significant role in bringing the resources to market (thanks to the complexity of the development).

"This has all changed with the collapse in oil prices," Tommy Mars, managing director--EMEA at London-based energy management consultancy Opportune LLP, says. "FIDs (Final Investment Decisions) have been postponed, projects have been canceled altogether and offshore drilling has been hit hard by the new oil price scenario. The offshore industry as a whole is expected to suffer for years to come with operators targeting less complex reservoirs and lower water depth."

Although the offshore upstream sector is under pressure, some bright spots are emerging and few of key players are leading the way in implementing effective new industry standards and cost reduction programmes.

In particular, the Eastern Mediterranean is developing as a significant new upstream zone, following Italian giant Eni's discovery of 850 bcm-worth Zohr gas field and the ongoing $11bn development in Egyptian waters. This project is becoming a benchmark for the global offshore industry.

"Eni is bringing the field on stream in less than three years after it was discovered. That would be the fastest for a project of this size to have started production in the industry's history. The speed is combined with efforts to be profitable at current low prices and competitive with US shale oil and gas developments," Mars told Oil & Gas Middle East.

Eni has implemented effective techniques for cost optimisation, including the use of standardised designs for rigs and other assets and equipment. This is coupled with significant cuts in asset and equipment rates, following negotiations and contracts with oilfield services providers.

"Following Eni's success, big oil is rethinking the Eastern Mediterranean region's potential. The ranks of large companies in the region now include Total, ExxonMobil and Rosneft, in addition to the established players--Eni, Royal Dutch Shell and BP--indicating the potential significance and scale of the basin," Mars states.

Russia's Rosneft acquired a stake of up to 35% in Egypt's offshore Shorouk concession, which includes the Zohr discovery. BP acquired a 10% stake, it values at $5.25 bn, with an option for a further 5%, in the same field earlier this year.

Industry experts say it is difficult to estimate the financial magnitude of the regional offshore market, although "in terms of global work, the Middle East and GCC region is the single largest individual market in the world and therefore a focal market for us," Linh Austin, vice president--Middle East & Caspian at McDermott International, says.

"Despite markets suffering elsewhere, we are seeing strong indications that the local market will continue to grow, one of which is the increase in demand in Offshore Supply Vessel (OSV) activity. While 2016 saw a decline in all other regions in the world, in the Middle East OSV demand increased 2.6% - this reflects the fact that national oil companies (NOCs) are continuing to invest in the region despite the lower oil prices," Austin comments.

Anne-Marie Walters, the global marketing director for Bentley Systems says: "The Middle EAst is a significant revenue contributor for Bentley's offshore products (SACs, MOSES and MAXSURF) with leading engineering firms, as well as owners such as (ADNOC subsidiary) ZADCO. They are using these products to design new offshore structures as well as validate the integrity of existing structures. Additionally, Bentley has seen growth in the application of our construction management applications for offshore oil and gas projects."

"In summary, the future of the offshore industry will largely depend on its success to keep development costs and time to delivery under control," Mars concludes.

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