The turn of the screw: A high-tech approach to offshore EgyptJanuary 27, 2015
Despite setbacks, Egypt’s oil and gas industry kept running in 2011 and the tumultuous years that followed. Zane Ahmadein, director of operations at local engineering services provider and shipbroker Marinetech Egypt, suggests Egyptian marine services companies can stay afloat by finding gaps in the market.
Any company, depending on the products and services it provides, can be more elastic or inelastic in reaction to market forces. As an agent for international maritime services companies here in Egypt and their local financial and legal contact point, Marinetech had stable relations in place where business could continue through the volatile period the country has experienced since 2011.
SHELVED AMBITIONS: Some plans had to be cancelled after the political unrest that began in January 2011, including plans for our partner companies to add foreign direct investment to capture more market share through asset acquisitions. Other business development initiatives also had to be dropped, such as building office facilities and warehousing space, as well as expanding business lines for maritime services.
With Egypt’s political upheaval, strategic expansion plans had to be put on the back burner, even though business operations in the maritime sector continued unabated. We realised that payment terms were becoming more and more stringent. Foreign partners would no longer accept outstanding dues lingering for more than 100 days.
These strict procedures put pressure on brokers and local representatives such as Marinetech to change our financing terms. In some cases we would pay an international operator up front for its services and then wait for local collection to be processed for us to generate revenue.
This lag had a negative impact on cashflow, and we noticed that money was not cycling back to small services companies. The net effect was a lack of investment and growth in the services sector despite market opportunities for equipment, maintenance and other activity offshore.
STAY BUOYANT: In our business, it is key to stay optimistic and attentive to new gaps in the market. Despite cashflow problems, business kept going. The oil and gas industry is not as simple as a tap you can just shut off, especially in the field of offshore infrastructure maintenance and servicing.
Few new projects or investments, such as new platforms or replacements to existing infrastructure, are being brought online to boost production. Therefore, oil and gas companies continue to use existing assets, which require a lot of maintenance to keep functioning at an optimal level.
So while the demand for product-related services decreased due to declining production, maintenance and services needed to support platforms, pipelines and related infrastructure were still required.
NUTS AND BOLTS: The key to staying relevant in the market is to find solutions to problems that either need to be fixed or that have been solved for decades with an outdated approach. This applies to almost every sector, even if you are just talking about tightening a bolt.
All over the world, bolts are still installed manually. You can over-tighten or under-tighten a bolt and, depending on the asset you are managing, the effects can be detrimental. We are the first company in the Egyptian market to offer controlled bolting. Now the position of joint integrity specialist is dedicated to ensuring adequate torque and control for different bolting applications. This is a prime example of securing a niche as a services company.
ON THE UPSWING: Many offshore concessions were granted in 2014 and more will be assigned in 2015 with the conclusion of the Egyptian Natural Gas Holding Company bidding round. The proposed projects that will accompany these concessions include spudding new wells and construction of additional offshore infrastructure by major players, such as the UK’s BG Group, and the UAE’s Dana Gas.
If the number of production facilities increases, then the number of pipelines laid will rise accordingly, increasing the work for pipe and cable-laying companies, as well as maintenance requirements. Service needs are directly proportional to upstream activity, so a resurgence in offshore exploration and production is universally beneficial to service providers in the maritime industry.
A fundamental change in the Egyptian mentality that cheaper startup prices do not necessarily correspond to lower operational costs in the long run is still needed. In fact, many tenders specifically reject Chinese parts for critical applications, because of the perception that they are low quality.
Tender processes should consider the cost of spare parts and repair, the likelihood of needing replacements and long-term expenses related to maintenance and upkeep. In this way, the market will remain competitive for niche services providers that concentrate on quality service and products.