NPA FINAL REPORT – OFFSHORE OIL & GAS
7.6 UNDERSTANDING CURRENT AND FUTURE OIL AND GAS CLIENTS
In order to understand who the South African hub’s clients might be, it is first necessary to
gain an appreciation of how offshore projects tend to be organised.
The ultimate “client” for any type of offshore installation is the oil and gas field’s
“Operator”. Normally one of the multi-nationals, such as Shell, ExxonMobil, Marathon
and others, ranging from the “majors” to the “independents”, or parastatal organisations
such as Petronas of Malaysia, or Petrobras of Brazil, or PetroSA from South Africa.
However, rarely do such organisations deal directly with the fabrication yards, unless a
yard or hub Operator happens to offer an EPC or EPIC service.
For example, J Ray McDermott, with yards in the USA, the Middle East and SE Asia,
together with engineering offices and major plant resources, does offer such a service
and frequently contracts to major Operators. The developer of a new offshore
hub/fabrication/assembly yard, however, such as the prospective South African facility,
would be extremely unlikely to take the step immediately of setting up a full EPIC service,
since it would be a high risk, costly and complicated exercise and credibility with
prospective clients would be zero.
That is not to say that in the fullness of time, following a period of consolidation and useful
turnover, a new yard/hub might wish to explore ways of expanding its portfolio of
services.
In the oil and gas industry, major onshore and offshore projects are generally managed
and executed by international engineering and construction contractors. The contracts
would range from the role of Project Management Contractor/Consultant, to Lump Sum
Turnkey Contractor. An Operator effectively sets out to distance himself from the people
who will do the actual physical work, by one or more levels in the organisation structure.
Normally in Africa, the Operator would have to form an Operating Joint Venture with the
host Government or agents of the host Government. In Angola it would be Sonangol, in
South Africa it would be PetroSA.
The host Government or its agent would insist that local content is adhered to in line with
Government policies.
Project Management Contractor/Consultant (PMC)
Normally an Operator will appoint a PMC where the Operator does not have the
resources in-house deemed necessary to oversee the engineering, procurement and
construction of a proposed facility, by others. The PMC role can be that of front end
engineer, contracts administrator, monitor, coordinator, checker and advisor, attempting
to ensure that the main execution contractor(s) complete the works on time, in
compliance with the required standards of quality, for the contracted price(s).
A PMC’s scope of responsibilities depends upon the value and complexity of a project,
and/or the Operator’s perceptions of the risk to which his project is exposed, should the
executing contractor fail to perform. In many respects, the PMC becomes the Operator
project manager’s “right arm”, providing the people and other resources which the
Operator does not have at his disposal to manage the project effectively. In other words
the PMC becomes the first level of separation between Operator and the physical
executors of the works. (The PMC normally does not take risk, but forms of penalty for
failure to perform are sometimes incorporated into the PMC’s agreement).
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NPA FINAL REPORT – OFFSHORE OIL & GAS
A PMC’s primary duty at project go-ahead is to advise the Operator on the best method of
contracting out the engineering, procurement, construction and commissioning of a
project and to investigate/advise on a list of potential bidders.
Where a PMC is used by the Operator, the main contractor(s) effectively becomes the
second level of distancing between Operator and the people doing the work of fabrication,
assembly, installation etc.
Engineering Procurement and Construction Contractor (EPC)
Where an Operator does have in-house resources sufficient to manage a project at the
PMC level, he might elect to employ the services of an EPC contractor or Prime
Contractor, who will take responsibility for engineering, procuring the equipment and
materials, and fabricating/constructing the project, but in the case of an offshore platform,
the Prime Contractor will not take responsibility for marine transport and installation of the
jacket and topsides. But the Prime Contractor might manage that phase on the Operator’s
behalf, with the Operator contracting direct to the Installer.
Oil
Company
Host
Government
Operating
Joint Venture
Prime
Contractor
Other
Yards
Local
Yard
Allocation of Contracts in Africa
(Prime Contractor undertakes all the
work)
Figure 1
An EPC contractor might take a lump sum for all of his scope, or perhaps parts thereof,
with the remainder being managed on the same basis as a PMC would perform. For
example, the EPC contractor might obtain firm lump sum bids for jacket and module
fabrication, select the best and incorporate that bid into his lump sum to the Operator, or
he might undertake fabrication on a construction management (CM) basis, where the
EPC contractor calls for bids on Operator’s behalf, recommends the best and the
resulting
contract(s)
is
between
Operator
and
Fabricator,
with
EPC
managing/administering.
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NPA FINAL REPORT – OFFSHORE OIL & GAS
Engineering Procurement Installation & Construction Contractor (EPIC)
Alternatively, an Operator might decide to employ an EPIC contractor for an offshore
project, either through the services of a PMC contractor, or direct. The term EPIC is
sometimes confused with EPCI, but fundamentally both terms mean that the prime
contractor will take total responsibility for the engineering, design, procurement,
fabrication, assembly, transportation, installation offshore, hook-up and precommissioning of the entire platform, whether that be a jacket, spar, TLP or FPSO, with
topsides, preferably on an overall fixed price, lump sum basis.
Normally an EPIC contractor will sub-contract significant portions of his scope of works,
retaining in-house only those disciplines in which he possesses particular expertise or
resources. An engineering contractor might do the design and procurement in-house and
manage the fabrication, assembly, transport, installation and hook up through subcontracts. Conversely, which is a growing trend, the prime contractor might be a transport
and installation specialist, sub-contracting the engineering, procurement, fabrication and
assembly, and hook up, to others.
Oil
Company
Host
Government
Operating
Joint
Venture
Prime
Contractor
Sub
Contractor
Sub
Contractor
Yard
Yard
Sub
Contractor
Local
Yard
Allocation of Contracts in Africa
(Prime Contractor using sub contractors)
Figure 2
Relationships between the Operator, his Prime Contractor, and the Fabricator.
Operators rarely deal directly with fabrication yards for major projects, preferring to work
through a contracting organisation that will either act on behalf of the Operator in some
capacity, or take total responsibility. However, in all cases an Operator will always take an
interest in where his jacket, topsides etc are to be fabricated and assembled, whether his
interest is direct in the form of a comprehensive approvals process, or on a monitoring basis
through an EPIC contractor. Certainly the Operator will always wish to know where the riskier
elements of his project are being placed and a right of veto is usually incorporated into his
contracts.
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NPA FINAL REPORT – OFFSHORE OIL & GAS
Host
Government
Oil
Company
Operating
Joint Venture
Prime
Contractor
Threshold = Best Price
Local Subcontractor
Local
Yard
NPA
Other
Contractors
RSA
Contractor
RSA
Yard
Other
Yards
Allocation of Contracts in Africa
(Prime Contractors using subcontractors)
Figure 3
In summary, the South African yards/hubs direct clients would most likely to be the major EPC
or EPIC contractors of the world, such as KBR, Bechtel, Fluor, Aker Kvaerner, ABB, Heerema,
J Ray McDermott , requiring that marketing efforts be focused on these companies wherever
they may be located, however marketing would also have to be directed extensively at all the
operating companies, such as Shell, Exxon, BP, Pioneer, Marathon and Petronas, because
they either strongly influence or control the selection of fabrication/assembly facilities by their
contractors, wherever they might be proposed.
Importantly, most marketing would have to be directed into the home offices of the above
companies, for example in Houston, London, or Kuala Lumpur, far more than into the countries
where offshore facilities are destined to be located.
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NPA FINAL REPORT – OFFSHORE OIL & GAS
Prime
Contractor
Host
Government
International
Subcontractor
RSA
Contract
or
Oil
Companies
RSA Port
Facilities
Marketing Focus
Figure 4
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