Strong partnership in a crisisJuly 7, 2020
Ray Richardson, Oman country manager for Petrofac, talks to The Energy Year about how the company is navigating the Covid-19 and oil price crises and potential opportunities for Oman when the pandemic is over. Petrofac provides EPC and EPCM services for Omani energy projects such as BP’s Ghazeer gasfield, OQ’s Sohar Refinery and PDO’s Yibal Khuff and Marmul Polymer projects.
How has Petrofac coped with the challenges of the crisis?
This crisis is more significant than previous economic slumps as we have a pandemic coupled with a crisis in the oil industry. We need to protect the health and wellbeing of our staff first and foremost, and continue to advance our projects while at the same time dealing with the challenges of the oil and gas industry from a business positioning and development standpoint. We also have to work with our clients, NOCs and IOCs, who are in many cases looking to reduce costs significantly.
At the outset of Covid, we were able to move rapidly to home working and video conferencing procedures and this has allowed us to continue with our projects virtually uninterrupted and achieve a reasonable amount of progress. It has also allowed us to communicate effectively with our supply chain vendors and buyers, without the need for travel, and of course also with our clients around the world. The availability of reliable videoconferencing has been pivotal.
This move to home working has been a sort of revolution. In the oil industry, the previous perception was that working from home was more suitable for companies like Microsoft, Google and other tech firms, but the current crisis has shown that it is a realistic possibility for many in the oil and gas industry and I am sure it will change the shape of our industry going forward.
How have current developments been affected by the pandemic?
The major effect has been related to the supply chain. This goes back to January 2020, when China was first affected, followed by others. China and Italy are key sources of oil and gas equipment supply and those two countries were hit first. This has been a major challenge. Fortunately, China is now building its industrial capacity back up. However, there are still some delays that will affect the progress of projects.
Will this disruption in the global supply chain offer opportunities for local suppliers?
The whole idea of localisation and diversification is wonderful, but it obviously takes time, resources and finance. It is not an overnight panacea, especially now, given the current challenges of Covid-19. The push carries on, but there will be challenges related to unemployment and other factors.
Are rate reductions inevitable for the services sector?
Compared to previous years when the oil industry was in a downturn, this time around, the overall impact is deeper and broader. For example, in previous situations the airline industry remained active and there was some demand for oil products, but this time demand destruction has been much more severe, whilst strategic oil storage levels have reached capacity.
It will take time during the current summer months and well into the winter before we see any significant level of demand restoration. The initial reluctance of some countries to cut production triggered a vicious cycle and it is also not clear whether we are out of that cycle yet.
Will PDO’s transition to Energy Development Oman present opportunities for contractors in the renewables sector?
It is probably too early to assess that accurately. The PDO transition follows on the heels of the integration of Oman Oil Company with Orpic into OQ and I am not sure at this stage that the likely impact is clear, particularly bearing in mind the wider circumstances and environment.
What challenges and opportunities will be there for Oman when the pandemic is over?
The first and foremost challenge for Oman, like many other countries, is its economy. The pandemic and subsequent reduction of the oil price have served to weaken things. Oman has to look to the future, and the overall blueprint may shift, but His Majesty Haitham bin Tariq is clearly making rapid inroads into restructuring the Omani administration whilst promoting a strategy of cost reduction and efficiency.
At the moment, it seems to be more about dealing with day-to-day near-term challenges rather than the longer-term issues. This is expected due to the current environment and is the same with many other economies – focus on the present near-term internal situation on a priority basis, then on laying the building blocks of long-term future development going forward.
Fortunately, many existing and exciting projects are continuing which will create many new opportunities, whilst there are also a number of future project deferrals. Moving ahead, finance and liquidity will remain two of the challenges of the day.
What will be Petrofac’s level of commitment to Oman in the coming years?
We are managing the current challenges and remain well positioned. Our longevity and investment in the sultanate, deep understanding of industry needs and the many strong partnerships we have formed stand us in good stead here for the future.
Oman has been a very beneficial business partner for Petrofac, and you always support good friends despite the many challenges life and business bring. In 12-18 months, we would hope to see some level of increase in the oil demand and price that is needed, so we should begin to see things turning around and a growth of opportunities.