Diversification and continuity in OmanApril 21, 2020
The Energy Year talks to Said Al Maskery, director at Composite Pipes Industry (CPI), about the overall industry sentiment in Oman following the Covid-19 restrictions and advice for companies struggling to stay in business. Composite Pipes Industry manufactures and installs pipes and fittings for regional hydrocarbons markets.
What has been the industry’s overall sentiment in Oman since the Covid-19 restrictions were put in place?
The global macroeconomic impacts of Covid-19 will be huge and the oil price crash will greatly affect the world’s oil and gas production, as well as the activities of all industry stakeholders across the supply chain. Oil prices are not only volatile at the moment, but are likely to remain depressed for the entire year.
The historic oil production cut that OPEC and its allies agreed to has prompted Oman to take control of the situation. The Ministry of Oil and Gas has already announced a cut of 200,000 bopd to the country’s oil production to restore balance to supply and demand, and companies have been asked to take the necessary measures to reduce production costs. The reduction in the country’s daily oil production means that the government will not be able to sell more than 800,000 bopd. Subsequently, less income from oil exports will greatly affect the government’s cashflow.
For us as a company, it is clear that in order to adapt to the new reality we have to scale down our operations and explore new opportunities for diversification. We have to diversify into offering new services, but most importantly, we need to look into entering new markets such as Saudi Arabia, which due to its size and total amount of activity seems to be an ideal place for a manufacturer.
We have already increased the total number of work shifts from two to three at our manufacturing plant to avoid too many employees carrying out work at the same time. That will lead to decreased manufacturing output, so we have to improve our efficiency and processes.
Petroleum Development Oman (PDO) has recently directed oilfield contractors to achieve savings of at least 30% of their contract values. How will this influence the labour-intensive oilfield services and manufacturing sectors?
As a manufacturer, we ought to work with relatively small margins. Requesting the same amount of reduction from services providers and manufacturers is not possible in practical terms. Services providers operate with much greater profit margins. If we have to cut our rates by 30%, we may not be able to cover our overheads and basic needs.
Rather than asking for pure reductions, I think the solution should be to harness the potential of efficiency improvement methods. For instance, as a pipe manufacturer, we can replace higher-end products with our technology and allow companies such as PDO to achieve significant cost savings. PDO’s recently announced plans to diversify [through the creation of the Energy Development Oman holding] into new areas – such as renewables, energy management and low-carbon technologies – will create additional opportunities for all manufacturers and services providers and will prompt us to enhance our capabilities.
What one piece of advice would you give to your peers who are struggling to stay in business?
First and foremost, business continuity will depend on the companies’ ability to manage their operating cashflow. My priority is not to make any profit but to achieve business continuity. In order to achieve that, my cashflow has to be managed in a way so that we can pay salaries and suppliers. That is really the single most important element we need to focus on in 2020.
In the long run, nobody understands or knows in which direction the industry is headed. The only thing we can do is be aware of our surroundings, manage our business on a day-to-day basis, mitigate unnecessary risks and capture any new opportunities that may arise.
Which areas should the government focus on to protect the economy in the months to come?
The government cannot provide incentives for everyone. They should focus on helping companies whose revenues have gone down to zero in the past two months. A small, minor form of government support, such as delays to rent payments and other bills amid the coronavirus period, should already be sufficient.
Oman must keep positioning itself as a facilitator on the value chain between China and the Western world. In this context, we need to question what sort of role the sultanate will be able to play in the new reality after the crisis. We cannot aim for the same capability China has in the mass production of oil and gas tools and accessories, but we can be very good at specialising in a small portion of it. That is where the opportunity lies ahead for Oman.