New integration: Can Nigerian engineering companies weather a downturn?

The decision-making process on investments and projects in the country’s offshore market has definitely slowed down. Possible contributing factors in the lack of investments comes from the delayed passing of the Petroleum Industry Bill, funding issues in upstream joint ventures, uncertainty over the political climate with the upcoming elections now scheduled for March 2015 and softening of global oil prices, which have dropped to $43 per barrel of Brent crude as of the middle of January 2015.

As a result, this will lead to a filtering out of companies across all sectors in the industry that do not have the financial ability or technical competency to operate in the market.

How are local engineering companies expanding?

Many engineering and construction companies are looking towards niche markets as a means of coping with the downturn in activity. Companies are looking to provide engineering support for the manufacturing, installation and refurbishment sectors. While these areas may not be as profitable as subsea jobs, they provide a consistent, sustainable mainstay of activity and revenue.

Many domestic operators are taking over existing assets that have ageing infrastructure. Traditional significant market models must change and adapt in order to conduct engineering activities at older sites that require maintenance and upgrades.

Which sector in Nigeria has the greatest shortage of engineers, and what have been the challenges in training them?

Qualified engineers are needed in the manufacturing, installation and refurbishment sectors. Manufacturing and refurbishment requires hands-on experience rather than purely conceptual training that is undertaken in front of a computer by structural engineers.

To bridge this gap, local companies have partnered with manufacturing companies such as the US-based GE Oil & Gas, London-headquartered subsea engineering, construction and services company Subsea 7 and Nigeria’s Petrolog Energy to conduct site visits and hands on training. This process facilitates a forum for engineers to receive practical training.

What is causing the transition to the holistic engineering, procurement, installation and construction (EPIC) view, instead of just concentrating on engineering?

One of the major shifts in the engineering sector is the emergence of integrated local EPIC companies. A few key players have positioned themselves to compete along the whole EPIC value chain. While this could allow local companies to compete directly with international companies for bundled EPIC services packages, this evolution also allows them to be flexible and adapt to the best opportunities that the market has to offer.

In the future, some of these companies may be less involved in engineering and more active in installation, construction and procurement, leaving the bulk of the former to operators that purely concentrate on engineering. This transition is primarily about estimated profitability and revenue. Engineering may be profitable, but revenue-wise it is small in comparison to procurement and installation and has thinner margins.

Since 2014, the market has witnessed local companies with complementary abilities come together as consortiums and bid for EPIC packages as an integrated project team, using each other’s proficiencies to become stronger contenders in the market.

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