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Research & Analysis

By Sarah Samir

Implementing projects in oil and gas industry requires companies to assign certain tasks to specialists. Project managers and engineers are needed for oil and gas players in order to avoid taking huge risks that may result in loses. In that aspect, oil and gas investors hire engineering and project management service companies, also known as Engineering Procurement Construction Service Companies like Ennpi in Egypt, Amec Foster Wheeler in the UK, and Carmagen Engineering in the US.

Engineering Procurement Companies (EPCs) play a role in any oil and gas project cycle starting from planning to geology of areas assigned to certain projects to crude processing. These companies have faced financial uncertainties in delivering project management and procurement services in the current global market. They are now searching for new ways to tackle issues and counter challenges lying ahead of them.

Risks Implicated in Energy Projects

Oil and gas projects are exposed to a series of risks. Some of them are affected by the geological nature of oil and gas fields meaning that the place of the exploration may have dry holes in which no hydrocarbons can be found. In case this occurs, there might be the risk that contracted service companies would not be able to provide agreed services, which, in turn, weighs stronger on both the contractor and the oil company. Often unpredictable weather conditions may delay production and pose another challenge on project budgets. Financial risks implicated in these scenarios relate to exploration costs as well as to fluctuating price schemes. This scenario then necessarily brings in a difficulty for a service company to gain a capacity to deploy new technologies to projects, no matter how critical this may be.

Moreover, the ways in which the global market tumultuous development translates into overall calculation of these firms can change estimated supply-demand variables. And lastly, companies’ obligation to comply with governmental regulations in any country can create further obstacles for operations. As Total Registration Document 2014 published by the petroleum company Total added, oil and gas industry has to seek ways how to overcome these risks, to which increased taxes and disputes related to property entitlement also belong.

What is more, offshore oil and gas production in particular has further inherent difficulties to handle. The explosion and sinking of Petrobras’ P-36 with the death of eleven workers and the Deepwater Horizon semi-submersible sinking in 2015 are there to remind us of these risks, and they stand as a motivation to pre-engineering processes, as Martin Robb and Gerald Miller wrote in an academic journal article ‘Human Factors Engineering in Oil and Gas – a Review of Industry Guidance’ in 2012.

Another challenge that service companies in the engineering procurement and project management sector face is related to procurement engineers themselves. They are reported to receive low payments for the long time it takes to finalize a proposal, which influences companies’ profitability, Bi-Annual Economic and Capacity Survey published by Consulting Engineers South Africa (CESA) in January 2014 clearly stated.

Last but not least, the socio-economic environment in any country may also further affect oil and gas industry’s performance, more specifically in relation to national strategic drives. Although nationalization of industry’s assets is less of a risk in one country than in another, as mentioned in Oil and Gas Exploration Risk Analysis published on a business consultancy website, Rose and Associates, in relation to engineering and project management companies, this potential ramification of the market may have lesser of an effect on them than on stakeholders.

Nonetheless, face to face with this bulk of potential challenges, oil and gas companies opt for hiring project management specialists in order to decrease negative implications for their operations.

Engineering & Project Management Contributions

As the oil and gas industry is project specific, complexities of each and every single installation require particular managerial competencies and expertise, in order for investors to calculate relevant costs and minimize negative impacts. Engineering and project management service companies provide this specific service. They study the projects before and during their implementation and deploy requirement equipments and proficiency.

In the pre-engineering phase of any projects for both upstream and downstream projects, the service firms offer the so called Front End Engineering Design (FEED), which aims to analyze various technical options for new development, with the objective to more clearly define the parameters of a project, Dr. Martin West explained in a report ‘Assessment of the Engineering Design Capability and Capacity in the Oil and Gas Sector in Western Australia,’ which was commissioned by the Department of Commerce of the Western Australia government.

But the role of the engineering and project management service companies is not limited to pre-studying projects. They also provide procurement services by defining and documenting responsibilities of the project’s contracting parties and setting purchasing plans. In doing so, they seek to diminish unnecessary expenses.

In order to be able to provide the required service, these companies “need to understand more about the costs and value of the goods and services that are being delivered; they need to drive capital productivity,” as Leader of Bain and Company’s Asia-Pacific Oil & Gas Practice, John McCreery, explained.

Coping with the demanding and competitive market under presently tight conditions, oil and gas players would call for simplification and standardization in the business processes. To achieve this, “the best procurement teams work closely with the design teams to ensure the decisions, that affect the long term construction of the business, are taken correctly,” affirmed Bain & Company’s Leader McCreery.

A cost-consciousness culture for procurement teams is thus standing in the center of needed pre-conditions for a success. In order to face the oil low price environment, “procurement teams have to re-build and reset the suppliers’ relationships,” McCreery added. In that sense, procurement companies should integrate all the aspects of their services in order to ensure that “the right trade-offs of value and cost is made” throughout the operations.

Ennpi’s Assigned Projects

Engineering for the Petroleum and Process Industries company (ENNPI) is one of the Egyptian leading engineering procurement construction companies, operating in the UAE, Saudi Arabia, the US, Qatar, Oman, Italy, Jordan, Syria Libya, Sudan, Venezuela, Algeria, and Iraq.

Its recent activities demonstrate the importance of this particular service firm’s contribution to the oil and gas industry. Ennpi’s Magazine Issue 100 published an article entitled ‘Ennpi Exports Its First Shipment,’ in which it explained the company’s inputs into several projects including Yanbu Aramco Sinopec Refinery’s (YASREF) MTBE project in Saudi Arabia. Ennpi performed the MTBE project as an engineering procurement construction entity. The project was seeking to produce a wider range of gasoline products through introducing the MTBE to the gasoline blend. Its assigned work, as reported by Egypt Oil&Gas in August 2016, included a series of activities from completing preliminary designs and required documentation to issuing purchase orders for the necessary equipment to presenting environmental assessment reports. In addition, the company has been expected to be in charge of finalizing studies on hydraulic boom of pipelines.

Another article entitled ‘Petrobel-Deka Subsea Development Project’ added that Ennpi was also contracted by Petrobel along with Eni and Tecnomare to perform the engineering services in this new integrated project. Ennpi’s tasks were to provide technical assistance and issue technical evaluation reports, review and approve the detailed engineering designs performed by subsea and installation contractors, and follow up and expedite services of other subsea contractors. Furthermore, Ennpi was assigned to supervise and test attendance of all main subsea equipments, provide technical advisory and support Petrobel to ensure the presence of committed specialists at the main engineering assembly and testing sites. During the installation stage, Ennpi was also performing offshore support function along with technical incorporate management and updating the detailed field layout based on implemented engineering activities.

A large scope of involved services in a project development conducted by Ennpi suggests that it is almost inevitable for the oil and gas industry to resort to engineering, project management, and procurement service companies to help them in assessment and other subsequent operations. These companies plan projects, evaluate them, and propose suitable techniques for a successful implementation of any energy project, regardless of the external market behavior.

As Bains and Company’s John McCreery, said in a statement, released on Bain & Company website in October 2015, “now is the time we face a longer lower oil price environment for procurement departments to take a most strategic approach and move beyond the tactical.”

In these veins, it is worthwhile to conclude that oil and gas companies are able to minimize unjustified expenses and unprofitable projects, if relevant expertise is delivered by engineering and project management service firms. Hence, these service entities seem to have expanded their relevance in the energy market and in turn have been altering the dynamics of the entire industry.