A comfortable nicheApril 17, 2017
TOGY talks to Emad Elatreby, general manager of Ali & Sons Marine Engineering Factory (ASMEF). Founded in 2009, ASMEF is an Abu Dhabi-based engineering company that specialises in marine services and equipment for the oil and gas industry.
ASMEF’s areas of expertise cover steel works, piping work, pressure vessels, naval architecture, marine engineering, and project engineering and management. In 2016, the company completed the CS Maram, a cable-laying vessel certified as the first green vessel of its kind by the Royal Institute of Naval Architects. ASMEF’s oil and gas division manages a facility that hosts five workshops built for machining, pressure vessels and pipe work.
• On work with majors: “Major EPC companies opt to take medium-size contractors, yards and marine assets operators to support them in the execution phase, while keeping the design, engineering, major procurements and project management for themselves.”
• On modularisation: “The trend of putting the infrastructure and building on site is declining, and modularisation is increasing.”
• On opportunities in Egypt: “In total, Egypt’s offshore and onshore will require investments of about USD 24 billion-30 billion. That will require a lot of companies to participate and execute such projects.”
Besides touching on these topics, TOGY spoke at length to Emad Elatreby about the latest trends in the oil and gas industry, opportunities to work with major EPC companies and other opportunities in the region. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Emad Elatreby below.
What are the latest changes you have seen in the oil and gas industry?
Currently, the industry is trending towards refining. The production surplus will be heading toward refineries. It has been a long time since new refineries or petrochemical complexes have been built in this region. The GCC and the region produces oil and gas, sells it and then buys back the [refined or derivative] products. It would be better to make your own [refined or derivative] products and sell those as well.
There are a lot of refining projects coming up. In Saudi, there are petrochemical complexes under development with about USD 19 billion of investment, which is huge. In Kuwait, projects are expanding tremendously; there is USD 18-19 billion in investments. In Oman there are talks about the Duqm refinery going ahead, while the Sohar refinery expansion is ongoing. There is the Bahrain Petroleum Company expansion, which has been long awaited as well and will add another multi billion dollars’ investment to the region. We are closely following those expansions and will make sure to participate in those opportunities when the time comes.
The market is not going to stop. Fossil fuels will continue to be required. It will not be easy to replace fossil fuels with renewable energy, especially in this economy.
How have EPC companies adapted?
A lot of changes came after the last economic crisis in 2008 and 2009. At that time, the market was moving towards Asian companies from, for example, Korea and China. That trend is now changing, companies are going back to the old players: Technip, Fluor, Petrofac and Tecnicas Reunidas. Companies are trying to find the right recipe to be competitive and win jobs.
Are the bigger EPC companies starting to compete for medium and small jobs?
There are fewer mega projects in the region and it is not expected to go back to the way it was in the near future. However, if you look at other markets, such as Africa or the US, they are full of major EPC works. Angola, Ghana and Mozambique are the new markets for major EPC companies. They have diverted most of their resources there.
EPC companies will need to make lots of changes to take medium-size jobs. Their overheads are extremely high, so being competitive is not going to be easy. However, what I see is that EPC companies are joining forces, rather than working on their own. For example, Saudi Aramco has invited new players to tender for the LTA this time. Major EPC companies opt to take medium-size contractors, yards and marine assets operators to support them in the execution phase, while keeping the design, engineering, major procurements and project management for themselves. With that new structure they can offer more competitive solutions and gain some market share, or at least that’s what they are trying to do.
As a hypothetical example, if Technip is the best at FEED or design, while ASMEF is good at fabrication, and Valentine Maritime is best at marine operations, then the co-operation will work. Everyone will carry part of the risk and overheard will be maintained at the lowest level to win the tender and make some profit at the end, which is the ultimate goal for any contractor.
Do you expect the trend of forming consortiums to continue among EPC companies?
Yes, but that applies to big companies and not to us because we are taking small to medium-sized jobs. I doubt that trend will spread into the market for small-sized jobs, but for medium-sized projects it will. We are trying to work with some of these EPC companies. We expect this trend will last between 2-2.5 years. Everybody is looking forward to mid-2018 when the industry is expected to recover, however that is based on predictions and no one can be sure of any timeline for that recovery.
What other trends are you seeing in the EPC sector?
You can see from the Mender job, the Schneider job, Petrofac UZ750, and the KNPC job in Kuwait that everything is being modularised in both onshore and offshore. The trend of putting the infrastructure and building on site is declining, and modularisation is increasing. We engineer, build and test the modules, and then load them out either into offshore through barges or to onshore via land transport trailers. The modules are customised in size to suit the mode of transportation and we can manufacture products of any size to suit that.
We have an advantage because we can easily handle oversized structures and equipment. Due to our facility location we are not hindered by bridges and flyovers when it comes to sending those structures to onshore fields.
Is ASMEF’s focus on Abu Dhabi or the region?
We have mainly been focusing on Abu Dhabi. Abu Dhabi is a huge market for oil and gas. It is the second biggest in the region, after Saudi Arabia. If we are able to get a market share in Abu Dhabi, that would be more than enough.
At the same time, we are currently in the process of qualifying ourselves with international and regional players, such as Kuwait National Petroleum Company, the Kuwait Oil Company and Saudi Aramco. We are pursuing pre-qualifications with these companies. We are in the process of bidding for jobs with the end user being Saudi Aramco or KNPC.
What opportunities do you see in the region?
Saudi Aramco is planning to spend about USD 11 billion between now and 2022 to expand their offshore business. They have long-term agreements [LTA] with five major EPC companies to do the work onshore and offshore. The volume of work is huge and the main LTA EPC contractors require additional facilities and jetties to handle the works that exceed their capacity. Hence, ASMEF comes into that work with our huge facility and waterfront.
We are currently bidding [for work with] National Petroleum Construction Company as well as in discussion with other EPC majors that are part of the LTA. We are targeting things like boat landings, drilling decks, manifolds and barge bumpers, which are the main parts of offshore platforms. However, we are also geared to build jackets and topsides if we are awarded those jobs.
We have been working with Petrofac on the UZ750 project since 2015. Part of our quayside and jetty is being used by Petrofac as a marshalling yard for their offshore logistics operation. In the meantime, the award for the interface modules that Petrofac is building is conducted in our yard. Moreover, we successfully built two cargo barges for Petrofac in the past year in record time and the barges are being now utilised for the project logistics. In addition to the offshore operations, loading, offloading and sea fastening is exclusively being done in our yard. We are contributing a lot to the UZ750 project.
In the meantime, our ship repair remains a consistent business. We call it our cash cow because it is quick work, quick turnaround, quick revenue, easy payment and more or less stable.
What is your outlook for the future?
2016 was not an easy year. 2017 probably will be a tough one and will not as good as it was predicted due to the oil prices and the current unrest in the area. I have been in this business for 26 years, so this is not the first time I have seen this sort of downturn and oil price fluctuation. It is the fourth time. It is a proven fact that the companies that had survived through those hard times are the one that gained a lot afterwards.
If oil production will not be increased, it will have to be sustained. In order to sustain production, the operating companies still need to spend money to maximise the output of current assets, doing maintenance and core projects where investments have already been made. Operating expenditures will never stop, as there will always be small to medium-size projects, shutdowns and upgrades. Moreover, most operators, whether NOCs or IOCs, focus on maximising the output of their facilities because that will cost less money than investing in new projects.
ASMEF only targets small to medium-size jobs. The multi billion-dollar EPC contracts are going to come, but it is not going to happen very soon. Meanwhile, the EPC majors with their huge overheads will not be able to profitably operate in this niche, so we have an opportunity there.
Having said that, there are some projects in the pipeline that are mainly related to gas. The GCC countries, especially the UAE, have a shortage of gas, so projects in the gas sector will continue. We are actively bidding on those projects with the EPC contractors, and the awards are expected by Q3 for execution by mid-2018.
Examples of those projects would be the Bab Integrated Facilities Project and the Haliba Field project, which are not just to sustain production. We are also supporting the EPC bidding for those new developments. We are continuing with our growth plans as we don’t wish to lose the opportunity if we are not ready in time.
Do you cater to the African market as well?
In our yard we build products for shipment and use in any location. We are currently talking to a client in Ghana. We are expanding our market to meet those clients’ requirements. As long as we can build at our yard and ship it anywhere, then we do not have a problem.
There are no physical or legal obstacles. Everything is easy. It is a matter of how you approach these markets. These markets are very sensitive, and the biggest struggle for anybody who enters these markets is the local content requirements. You need to be very careful and do your homework before you go there.
What opportunities do you see in Egypt?
Egypt is a very promising market. They have several mega projects. Zohr by itself is a USD 12 billion-14 billion development. The other developments with BP in the West Nile and West Delta are at the same range. In total, Egypt’s offshore and onshore will require investments of about USD 24 billion-30 billion. That will require a lot of companies to participate and execute such projects.
We are bidding for part of the Zohr project in Egypt, but for work to be done in our yard. We signed an MoU with Rosetti Marino, one of the biggest offshore EPC contractors in Europe. They are looking to improve their presence in the Middle East. They are currently in the market, and have executed some work in Egypt. They are also bidding for works in Qatar’s offshore and other areas.
We also have an MoU with an Italian company called Tozzi Sud, with whom we are executing the Mender Field skids project. We are bidding with them for some work in Egypt. The market in Egypt is different. It is split between local and international companies. We are aiming to partner with international companies that are looking for special packages to be built and shipped to there.
What are your expansion plans for 2017 and 2018?
In 2017, we are just trying to finish what we have started, such as the expansion of our jetty, which will be completed soon. We created a 3-side configuration for our quay side, where we can now accommodate bigger vessels, drilling rigs, lift boats and accommodation jackups.
We created something we call the basin, where we can work on any vessel from three angles from land, rather than working from offshore. That gives us an advantage over the other yards because time is reduced by at least 30%. But the most important part is safety, because working from land is much safer than working offshore with hanging scaffolds arrangements and rope access.
We have done some dredging for the jetty whereby we increased our portfolio to receive bigger draft vessels and accommodate it within our floating dock. We have another initiative that we call the one-stop shop. This initiative serves our clients for repair of their rotary equipment, calibration of their instruments and repair of their motors.
We are not just focusing on steel and piping works. We would like to offer more solutions to our clients than just steel and piping fabrication. We do not want to be known as a fabricator, but rather as a contractor. We have engineering support, and our one-stop shop initiative will continue growing until the end of 2017. We are now adding more machines and technicians who have been certified and trained by the OEMs. With that in mind, we have signed agreements with reputable OEM’s like Termomeccanica, Samson and Sulzer, becoming their certified repair shop. We are in the process of negotiating more agreements with other OEMs that have significant equipment in the area.
For more information on ASMEF in Abu Dhabi, such as its work on the Mender field, see our business intelligence platform, TOGYiN.
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