TUESDAY 29 NOVEMBER 2016 upstreamonline.com

OFFICIAL SHOW DAILY PRODUCED BY UPSTREAM

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Today

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IN THIS ISSUE• OSEA2016 is a tailwind for the oil and gas industry p7• Oil price volatility brings unexpected challenges for firms p8• Embrace ‘FEED’ for Project Cost Optimisation p9• Condition based risk management for greatest sustainable value p10• Chee Fatt’s new branding and core industrial products push p10

China gas pushNew gas exchange launched in Shanghai. Page 3

More timeSwiber gains six-month extension to file financial results. Page 4

Vietnam drivePhu Quy Petroleum Company plans to drill in Cuu Long basin. Page 5

Indonesia hopeReport says PSCs due to expire could spur new opportunities. Page 6

Taking stridesLNG projects making headway at Darwin in Australia. Pages 14 to 16

Supportive: Singapore Trade & Industry

Minister S Iswaran Photo: BLOOMBERG

Get up to speed with the latest news from the world of oil and gas. Visit us at Stand 1J6-04 or log on to www.upstreamonline.com

Singapore backs industryGovernment announces measures worth upwards of a billion dollars to help

support the nation’s ravaged offshore and marine industry. Page 2

2 Show Daily Tuesday 29 November 2016

SINGAPORE

THE Singapore government has announced targeted measures worth upwards of S$1 billion dol-lars to help support the nation’s ravaged offshore and marine in-dustry.

The government’s initiatives include boosting trade develop-ment agency International Enter-prise Singapore’s Internationali-sation Finance Scheme (IFS) — and the reintroduction of government backed bridging loans.

Shipyards, contractors, explora-tion and production companies, oil and gas equipment and serv-ices suppliers are among those that will be able to avail them-selves of the government’s help-ing hand.

The Ministry of Trade & Indus-try said these measures will help facilitate marine and offshore en-gineering companies’ access to

working capital and financing, and address the intensifying financing challenges faced by the industry in recent times as it experiences a “unique and prolonged slowdown”.

The Spring Singapore’s Bridging Loan scheme will allow local com-panies to borrow up to S$5 million (US$3.5 million) for up to six years to finance their operations and bridge short-term cash flow short-falls.

The IFS, which provides project and asset financing support for companies, will have its maxi-mum loan raised to S$70 million per borrower group from the cur-rent S$30 million per borrower group for marine and offshore engineering companies.

The government will take on 70% per cent of the risk for both the bridging loans and IFS, which will be available from December.

The ministry added that the schemes could catalyse about S$1.6 billion of loans over a one-year period.

“While there has been a general slowdown in economic growth, the impact has been uneven. The marine and offshore engineering industry, in particular, is facing a deep and prolonged downturn due to cyclical and structural forces,” said Minister for Trade & Indus-try, S Iswaran.

“Consequently, the industry’s financing challenges have inten-sified in recent months. Some industry consolidation is inevita-ble as companies restructure.”

Ho Meng Kit, chief executive of the Singapore Business Federation said: “It is uncommon for the gov-ernment to target financial sup-port for a specific sector.”

“That it is doing so now for the

marine and offshore engineering sector reflects the gravity of the situation and the importance of this sector to Singapore.” How-ever, he added that companies must look for growth in new mar-kets and new sectors.

“The industry should view these latest government measures as providing some welcome relief but they are not the silver bullets that will solve the industry’s woes,” said Ho.

Data from the Economic Devel-opment Board (EDB) showed that output from Singapore’s marine and offshore engineering sector in October was down 46.9% year-on-year.

This brought the sector’s cumu-lative slide in output for the first 10 months of 2016 to 31.5% com-pared to last year, according to the EDB.

Flying the flag: Singapore is taking steps to help its offshore and marine industry Photo: REUTERS/SCANPIX

Singapore in drive to support offshore sectorGovernment unveils initiatives to boost trade development agency’s Internationalisation Finance Scheme and reintroduce government-backed bridging loans

SINGAPORE’S Keppel Corpora-tion has reaffirmed its support for locally headquartered inde-pendent KrisEnergy, which is restructuring financially with the aim of not defaulting on an interest payment due on 9 De-cember in respect of the 2017 notes.

“We wish to reiterate our support for KrisEnergy’s pro-posed preferential offering of the zero coupon secured notes with free detachable war-rants,” said Keppel.

Wholly-owned indirect sub-sidiary, Keppel Oil & Gas, is currently in discussions with KrisEnergy to subscribe for its pro-rata entitlement of the notes with warrants, and sub-scribe for all the excess notes with warrants that are not suc-cessfully subscribed for by the other shareholders of Kris-Energy.

The operator on 17 November said that the proposed restruc-turing offers the only option available for KrisEnergy to pre-serve value for all stakeholders.

KrisEnergy’s ability to pay the 2017 notes interest pay-ment, due next week, depends on the company being able to access US$35 million of bridge commitments provided by its revolving credit facility lender.

“Without access to the bridge commitments, the company is at risk of not being able to pay the 9 December 2016 coupon,” admitted KrisEnergy.

“Should that occur, an event of default would be triggered. Any such event of default will lead to cross-default and/or cross-acceleration under the terms of the group’s other ex-isting indebtedness.”

KrisEnergy added: “Along with significant business dis-ruption, risk of losing custom-ers and suppliers, loss of key employees and technicians, and a shortage of cash to con-tinue to meet our business needs and operate as a going concern, an event of default may also lead to winding up proceedings being taken against us by our creditors.”

Meanwhile, KrisEnergy has been working with financial institutions for almost one year to try to raise project lim-ited recourse debt for the Block A gas fields development on-shore Aceh, Indonesia.

The upstream player also needs funds for its planned phased exploitation of its Block A (Apsara) project offshore Cambodia.

However, to date no financial institutions have been engaged for this project.

Keppel this month agreed to increase its stake in KrisEnergy from approximately 39.99% to a majority 67.33% through a pref-erential share offering.

Keppel boost for indie

AMANDA BATTERSBY Singapore

The official OSEA2016 show daily is published by Upstream, an NHST Media Group company, Christian Krohgs gate 16, PO Box 1182, Sentrum, N-0107 Oslo and printed by Markono Print Media Pte Ltd, Singapore. This edition was printed on 28 November 2016. © All articles appearing in the Upstream OSEA2016 show daily are protected by copyright. Any unauthorised reproduction is strictly prohibited.

Yard group in support for KrisEnergy

JAPAN’S largest exploration and production player Inpex has de-cided to establish a wholly-owned finance subsidiary in Singapore.

Inpex said the rationale behind the decision is that the new entity would create a more efficient and

centralised system to manage the group’s intercompany finance op-erations.

The Singapore subsidiary would also strengthen the framework to support the financial administra-tion of Inpex’s projects in Asia and

Oceania. Inpex Finance Singa-pore, which will have a market capitalisation of US$1 million (S$1.42 million), is scheduled to be established in December.

The company today is involved in some 70 projects in more than

20 nations, including the Ichthys liquefied natural gas development in Australia.

“The impact of the establishment of the finance subsidiary on the consolidated financial results is ex-pected to be minimal,” said Inpex.

Japan’s Inpex set to establish subsidiary in Lion City

Tuesday 29 November 2016 Show Daily 3

GAS MARKET

CHINA has launched a trading tool for market participants to buy and sell conventional and uncon-ventional natural gas as well as liquefied natural gas, in part to establish a China-based gas price but also to develop the coun-try into an international trading hub.

The shareholders aim to develop the Shanghai Petroleum & Natural Gas Exchange (SHPGX) into an international gas trading platform on par with Henry Hub in the US and National Balance Point in the UK, and establish itself as the benchmark for gas in the Asia Pacific region within five years.

Currently only domestic spot and physical gas cargoes are being traded, with paper contracts and other gas directive contracts expected to be developed later.

At the exchange, spot transac-tions will be reported upon their completion.

Registered in 2015 with 1 billion yuan (US$145 million, S$206.5 mil-lion), the exchange has up to 10 shareholders, including the coun-try’s top three national oil compa-nies — China National Petroleum Corporation with 10% equity, Sinopec with 10% and China Na-tional Offshore Oil Corporation with 10% as well as national broadcaster Xinhua News Agency with 30%.

Independent gas distributors and power utilities ENN Energy Holdings, Shenergy Group, Hong Kong & China Gas, Beijing Gas Group and China Gas Holdings each have a 7% interest, while Huaneng Power International has a 5% stake.

It already had 269 registered members by the end of October, including 260 trading companies. Since the official inauguration on Saturday, following a 16-month test run in Shanghai, the SHPGX has started publishing China Ex-plant LNG Price Index and South China LNG Price as well as indices for some oil products such as gasoil.

The SHPGX will initially trade natural gas, with volumes to be traded this year expected to reach 30 billion cubic metres, account-ing for 16% of China’s total gas consumption.

During the trial run in 2015, 13.3 Bcm of gas was traded at the exchange, including 12.9 Bcm of pipeline gas and 315,000 tonnes (465 million cubic metres) of LNG.

Xu Shaoshi, the chairman of the country’s economic decision mak-ing body the National Develop-ment & Reform Commission (NDRC), said at Saturday’s inaugu-ration that SHPGX will help China improve its gas pricing mechanism and push the country to become a member of the international gas trading commu-nity.

The exchange is being launched

China launches gas exchangeAim to develop Shanghai Petroleum & Natural Gas Exchange into international trading platform on standing with Henry HubXU YIHE Singapore

at a time when China’s gas demand is about to peak during the winter and the NDRC has encouraged consumers to seek their supplies from the trading tools available at the SHPGX.

According to a decree issued by

the NDRC late last year, the gas being traded at the exchange will be largely for non-residential con-sumption.

China is now the world’s third largest gas consumer, with demand this year expected to

reach 205 Bcm, 60% of which is for non-residential use.

To facilitate the trading at the SHPGX, China’s top three national oil companies, which control more than 90% of the country’s

gas infrastructure, disclosed detailed information about their gas pipelines, storage tanks and LNG terminals so as to enable access for independ-ent players under fair competi-tion.

4 Show Daily Tuesday 29 November 2016

SINGAPORE

SINGAPORE-based offshore con-tractor Swiber has been granted a further six-month extension by the Singapore Stock Exchange for announcing its quarterly results.

Swiber now has until 6 May 2017 to announce its financial results for the two recent financial quar-ters, ending June and September this year.

Swiber sought a further exten-sion this month from the Singa-pore exchange on the grounds it has “been engaging with creditors, potential investors and other stakeholders, identifying and safe-guarding property and assets”.

The company claimed it was “negotiating on ongoing projects, managing litigation matters and mapping out proposals for a re-structured group”.

Swiber had also said its judicial managers are still in the process of reconciling significant inter-company balances and accounts with various parties, and will need more time to review and understand the group’s financial affairs.

Industry sources said the move by the Singapore exchange to

Extension: Swiber’s shipyard in Singapore REUTERS/SCANPIX

Deal: BP chief executive Bob Dudley

Photo: KAIA MEANS

Swiber wins more time to release its resultsSingapore contractor now has until 6 May 2017 to report as it negotiates ongoing projects

AUSTRALIA’S Tap Oil has settled its legal dispute with major share-holder Chatchai Yenbamroong and his Northern Gulf companies related to the Manora field off Thailand.

Tap revealed yesterday that it had agreed to settle its disputes with Northern Gulf for a zero set-tlement sum, with both parties agreeing to pay their own legal costs and cease arbitration and

any further legal action.Tap has also agreed to pay

Northern Gulf a lump sum of US$2 million ($S2.85 million) for all existing and future obligations owing by the company by way of earn-out payment.

Tap’s dispute with Yenbam-roong and Northern Gulf related to acquisition payments due un-der the sale and purchase agree-ment, when it bought a 30% stake

in the G1/48 concession in the Gulf of Thailand.

The parties were at odds over the calculation of amounts paya-ble by Tap to Northern Gulf in re-spect of the proven plus probable reserves deferred payment under the agreement, as well as the pay-ment of carried costs by Northern Gulf to Tap.

A hearing related to the dis-putes was set to take place on

5 December, but Tap chief execu-tive Troy Hayden said yesterday that the board felt the company’s ongoing relationship with its sec-ond largest shareholder could have been “adversely impacted” by the result.

“The settlement of the dispute and the cancellation of the ongo-ing earn-out remove any potential future conflicts over these pay-ments,” Hayden said.

BP buys stake in Eni’s ZohrUK SUPERMAJOR BP has agreed to buy up to a 15% stake from Italian giant Eni in the concession containing the gi-ant Zohr gas field off of Egypt, writes Josh Lewis.

BP will pay Eni US$375 mil-lion (S$535 million) for an ini-tial 10% interest in the Shorouk concession and also reimburse the operator once the deal clos-es for its share of past costs, which Eni currently estimates at US$150 million.

BP also has the option to in-crease its interest by a further 5% before the end of next year under the same terms.

“This interest in a truly world-scale asset will comple-ment our existing Egyptian business,” BP chief executive Bob Dudley said.

“Beyond Zohr, the first phase of our major West Nile Delta project is on schedule to begin production next year and the fast-tracked development of the Atoll gas field is expected to come on stream in 2018.”

The announcement con-firmed earlier reports that Eni had been courting a number of majors in the hope of farming down part of its 100% interest in the Shorouk concession, with ExxonMobil, Total and Lukoil also reportedly ap-proached for up to a 20% stake.

Eni made the Zohr gas dis-covery in the concession in 2015 and has so far drilled six successful wells at the field which lies in the Mediterra-nean Sea, about 190 kilometres north of Port Said.

The Italian operator places the estimated total gas re-sources in place at Zohr at roughly 30 trillion cubic feet and is looking to fast track the development, with first gas currently expected by late 2017.

Tap and Northern Gulf settle dispute over Manora field

NISHANT UGALSingapore

grant Swiber more time to release its results should provide more flexibility to the contractor, which was placed under judicial man-agement earlier this year.

Swiber was earlier awarded a similar three-month extension by the Singapore exchange in August this year.

The offshore contractor claimed

this month that its indirect whol-ly-owned subsidiary Swiber Atlan-tis had disposed of the Sea Horizon vessel for US$10.25 million, a move that could ease some of its cash flow problems.

The company said that, as of 6 October 2016, the total sum of claims received stands at US$246.1 million. Swiber is seeking legal

advice on the claims, and its interim judicial managers are verifying the accuracy and com-pleteness of all information.

Singapore has unveiled meas-ures to help the nation’s offshore, marine and engineering contrac-tors weather the economic woes resulting from the protracted oil price slump.

Tuesday 29 November 2016 Show Daily 5

VIETNAM

VIETNAM’S Phu Quy Petroleum Company is likely to return to drilling action next year in its off-shore block in the Cuu Long basin that hosts at least two oil discoveries.

The Phu Quy Petroleum Com-pany owns Block 15-1/05 and is comprised of PetroVietnam E&P, US independent Murphy Oil and South Korea’s SK Innovation.

Block 15-1/05 contains the Lac Da Nau oil discovery from Novem-ber 2009 and the Lac Da Vang oil find from August 2010.

Previous joint venture partner Total had described Lac Da Nau and Lac Da Vang as significant dis-coveries in a grabens and rifts play with potential for up to 900 million barrels of oil equivalent.

That type of potential lured Murphy to take up a 35% interest in the play one year ago, and the US company is very optimistic about the block.

Murphy chief executive Roger Jenkins said progress with Block 15-1/05 had been “a little slower than we’re used to in Malaysia, but we’re very, very senior at working in that region and under-stand what we’re doing there”.

Drilling of a well next year is “highly likely at this time, and we’re very happy about that project and very happy about the running room in that block”.

He added that a field develop-ment plan process is under way.

At the time of Murphy’s en-trance into the permit, Jenkins told analysts the oil play charac-teristically had a finding cost of US$2 and a find and develop cost of about US$15.

“This is a block that has success on it. This is not some new entry, rank wildcatting block in the mid-dle of nowhere,” Jenkins said at the time.

“This is one of the bigger oil-fields anywhere in offshore. It was discovered in the 1970s by Mobil. They make almost 300,000 barrels per day in this area of Vietnam (the Cuu Long basin).

“This is the key crown jewel of Vietnam and we are very fortu-nate to be invited to be in it.”

Flag day: a roadside vendor sells a Vietnamese flag to a motorist in Ho Chi Minh Caity

Photo: AP/SCANPIX

Phu Quy in Cuu Long drill planCompany aims to drill in offshore block that contains Lac Da Nau and Lac Da Vang oil discoveries next year

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6 Show Daily Tuesday 29 November 2016

INDONESIA

CONSULTANCY group Wood Mac-kenzie has highlighted mature opportunities in Indonesia which will become available in the near future, with close to US$10 billion worth of production sharing con-tracts due to expire over the next 10 years.

In a recent report, Wood Mac-kenzie highlighted that Indonesia had 35 PSCs that accounted for more than 1 million barrels of oil equivalent per day that would be expiring over the next decade.

It warned the lack of clarity on licence extensions and the amount of production at risk made expiring PSCs one of the largest issues fac-ing Indonesia’s upstream sector.

However, the group expects na-

tional oil company Pertamina to play a key role in the expiring PSCs as it looks to increase pro-duction from a target of 863,000 boepd in 2017 to 2.2 million boepd in 2025.

“Assets such as Offshore Ma-hakam, Corridor and Jabung would be of interest to Pertamina, as these are material gas export-ing projects with exposure to liq-uefied natrual gas and piped gas contracts,” Wood Mackenzie upstream research analyst Alex Siow said.

“Given financial and technical constraints, Pertamina could take on operatorship in cooperation with service companies with the ability to manage and produce un-

On site: an Indonesian flag flies on a worksite in Jakarta Photo: AFP/SCANPIX

Indonesia’s old PSC’s to spur new opportunitiesWood Mackenzie report highlights number of mature production sharing contracts due to expire in country over next 10 years

MALAYSIAN contractor TH Heavy Engineering (THHE) said it continues to explore op-tions for raising the funds it needs to complete the Layang floating production, storage and offloading vessel.

The company was hired in May 2014 to convert the Laurita, a partly converted FPSO, into the Deep Producer 1 FPSO for the Layang field in Malaysia.

Field owner JX Nippon has postponed first production un-til 2017, which is understood to be one year later than initially planned.

THHE said in its latest re-sults: “The group is exploring various ways to raise funds re-quired to complete the FPSO Layang conversion works and to monetise and unlock the value of the group’s assets to generate cash flows and im-prove its working capital.”

The company recorded nega-tive revenue of 17.6 million ring-git ($4 million) for the third quarter of 2016 as compared to 26.2 million ringgit in the previ-ous third quarter of 2015.

The negative balance in rev-enue was due to “the negative disputed change order result-ing in reduction of project scope of an ongoing project”.

For the three months ended 30 September 2016, the com-pany reported a net loss of 102.2 million ringgit compared to net profit of 1.6 million ringgit in the corresponding period of 2015.

THHE did not provide a sta-tus update on the conversion works of the Layang FPSO.

THHE in Layang search

SOUTH Korea’s Samsung Engi-neering has won a US$110 mil-lion engineering, procure-ment, construction and commissioning contract to build a gas compressor station at Wang Noi, Thailand for state-owned PTT.

The project, which is expect-ed to be completed in 2018, will provide an additional 800 mil-lion cubic feet per day of gas for the capital Bangkok, which lies 70 kilometres to the south.

Samsung’s workscope in-cludes gas turbine driven com-pressor trains, inlet filter sepa-rators, ground flare and vent stack together with utilities and the substation.

This award marks the con-tractor’s 16th project for PTT, the former Petroleum Author-ity of Thailand. Earlier projects include Gas Separation Plant 6.

PTT deal for Samsung

JOSH LEWIS Singapore

der an integrated project manage-ment structure.

“Taking up minority interest in more technically challenging projects will also allow it to devel-op the skills needed on its own as-sets as they near end-of-life.”

Wood Mackenzie said the PSCs fell into four categories — mature projects

upside, enhanced oil recovery, late-life fields, and discovered re-source opportunities (DRO).

The mature projects account for more than 80% of the expiring PSCs and already have infrastruc-ture in place, with Wood Macken-zie labeling the mature projects most suited to large, experienced operators.

Meanwhile, it said EOR oppor-tunities would suit companies with specialist expertise and advanced technology to unlock remaining reserves and value via thermal, gas or chemical injec-tion.

Amongst the EOR opportunities is Chevron’s Rokan PSC, which is due to expire in 2021.

The steam injection project cur-rently produces more than

200,000 boepd but Wood Macken-zie said the block required over US$2.7 billion of investment annually to maintain output and mitigate field decline.

Late-life fields come with poten-tial decommissioning liabilities and would suit players that can manage old facilities and improve operational efficiency.

Wood Mackenzie highlighted Sanga Sanga, South East Sumatra and East Kalimantan as three late-life opportunities that are about to come up, with all three PSCs ex-piring in 2018.

Meanwhile it said the DRO opportunities could be the most simple for companies trying to build development experience.

However, it added DRO projects required a commercial solution to either challenging reservoir conditions, difficult project eco-nomics or a lack of market de-mand.

Wood Mackenzie also noted the time needed to recoup investment on such projects could be much longer, especially given Indone-sia’s “bureaucratic regulatory en-vironment”.

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VISIT US ATBOOTH 1R3-01

Tuesday 29 November 2016osea-asia.com Show Section

OSEA2016 a tailwind for the oil and gas industryThe industry’s search for capital

efficiency and business sustainability amid depressed oil and gas prices is evident at OSEA2016, with more than

1,000 exhibitors from 48 countries/regions including 17 international group pavilions, and many showcasing tech innovations and solutions to help with cost management and improve efficiency.

“As the industry adjusts to a new environment of lower oil prices we have seen a major shift to firms streamlining operations and seeking out efficiency to drive costs down and survive in this market. With that in mind, we have ensured that OSEA2016 is a place where businesses can find innovative technologies, sustainable solutions and insights and strategies that will help ease pressure on the bottom line,” says Chua Buck Cheng, Project Director from OSEA organiser Singapore Exhibition Services.

To wade out the downturn, firms are turning to technology to achieve lower reliance on human capital through automation and mechanisation, increase personal safety to reduce risks and incidences, and improve communication and data networks to elevate asset performance. Tapping this, OSEA2016 exhibitors have turned out a host of new innovations that will help with cost savings.

Showcasing a fleet of agile and adaptable robotic inspection tools, Inuktun will launch the MicroMag and Versatrax Vertical Crawler in Asia at OSEA2016. Inuktun’s Multi-Mission Modular (IM3) technology allows for the systems to be repurposed in the field for a variety of different applications in air or underwater currently requiring man-entry or rope access, therefore reducing the risk to human life and the expenses associated with those activities.

Rutledge Omni Services, one of the leading providers of safety services for upstream drilling and exploration activities in the region, will be unveiling an IoT device

Chua Buck Cheng, Project Director at OSEA organiser Singapore Exhibition Services

OSEA2016 Opening CeremonyLevel 3, Begonia Room29 Nov, 9.30am – 11.30am

Market Briefing hosted by Scottish Development InternationalSubsea Presentation Theatre, Basement 229 Nov, 2.00pm – 4.00pm

Industry Networking NightLevel 4, Garden Walk29 Nov, 6.00pm – 8.00pm

Darts @ OSEA IslandBasement 2, BQ5-0629 Nov – 2 Dec, 10.30am – 6.00pm

Business Matching @ The Meeting PointBasement 3, BB5-0129 Nov – 2 Dec, 10.30am – 6.00pm

Tech GarageBasement 2, Hall E29 Nov – 1 Dec, 1.00pm – 4.00pm

OSEA2016 Conference Morning PlenaryLevel 3,Begonia 3103 & 310430 Nov, 8.50am – 10.25am

Key events at a glance

that allows real-time personnel tracking on an oil rig. They hope this device will help operators reduce downtime related to injuries and headcounts during drills, as well as provide automated independent verification of time sheets.

Revamped ConferenceProbably the biggest change to the show this year is the revamped format of the OSEA2016 International Conference. Thirteen masterclass sessions under three tracks titled Asset Optimisation, Operational Excellence, and Sustainable Growth, will delve into technical and business strategies

to help firms be the most cost effective and prepare for eventual market resurgence.

The morning plenary session tomorrow will feature a keynote presentation titled The Overview of the Oil & Gas Market and Tiding over the Challenges by Mark A. Edmunds, Asia Pacific Oil and Gas Leader, Deloitte.

This will be followed by country focused sessions on Norway, Australia, The Netherlands and the UK, spotlighting oil and gas and offshore/marine technology developments and collaborative opportunities with major firms from the respective countries.

#OSEA2018

Show Daily, Tuesday 29 November 20168

Price fluctuations are a part and parcel of every industry. Companies, especially the well-managed ones, factor these in when making future plans and projections so they are able to

respond and react to movements when they do happen. However, when a price fluctuation turns into a plunge, even the best prepared companies can find themselves in a tough spot.

That is exactly what has happened to almost all companies in the oil and gas sector – from small independent ones, to large multinational conglomerates to service providers — over the past couple of years.

Oil prices have fallen more than 60% during the period, from a high of US$115.06 per barrel to the current price of around US$50 per barrel. In fact, the price briefly price fell below US$30 per barrel earlier this year, before recovering.

With most analysts expecting the prices to stay “lower for longer”, this new reality has triggered a whole slew of challenges.

Companies having to re-evaluate the financial viability of new projects are being forced to restructure their operations and their relationships with contractors, suppliers and banks (all built over decades of working together) are being put under strain.

Some companies that haven’t been able to take the strain have already collapsed. Those that are surviving are doing so by improving efficiency and cutting costs. While this may be the right approach in the current environment, it is putting pressure on existing contracts, many of which were modelled, negotiated and signed when oil prices were much higher.

And it is a complicated situation. Companies that are

bound to a contract which is now underwater would no doubt be looking at ways to get out of it, while those who now find themselves getting a better deal than they first thought would do all it takes to keep the contract in force.

So, what are the options available to a company bound to an “underwater” contract? Should it proceed with the contract or seek to cut its losses? Similarly how can a company preserve a contract which is “in the money”? Either way, a company should look at some of the following aspects:

• Terms of the contract: It is stating the obvious, but companies should comprehensively review the contract to see if there is a way for them to renegotiate, or prematurely terminate in accordance with its express terms. It is critical that the contract, and not any summary of its terms, is reviewed in detail.

• Governing law: This will determine how the terms and conditions are interpreted and the extent to which obligations of parties will be imposed. The same contract could have different implications in different jurisdictions.

• Breach versus comply: Would it be more economically efficient to breach the obligations of the contract, than comply with them?

Simply put, companies need to work out how much it will cost them if they breached the contract, vis-à-vis the cost of complying with it.

However, the calculations aren’t always easy as it is tough to exactly quantify the injury caused by a breach.

Calculating damages is always hard, but how is reputation in the market to be assessed, and valued?

• Termination by repudiatory breach: In simple terms this is a breach by one party that substantially deprives the innocent party of the benefits it would have received under the contract.

This gives the innocent party the right to terminate the contract on the basis that the other party has disavowed the key element of the contract. This option is often overlooked by companies.

• ‘Economic’ force majeure: The purpose of a force majeure clause is to release a party from its contractual obligations upon the occurrence of an event that is beyond its control.

However, most people tend to, often wrongly, think that it is limited to natural disasters like earthquakes or floods.

Companies should carefully study the language used to draft the force majeure clause.

In some cases, there might be an opportunity for companies to claim force majeure due to a wider definition under the clause.

• Frustrated contract: The common law allows a contract to be cancelled when an event that frustrates the purpose of the contract occurs.

A frustrating event is one that is beyond the control of either party, has occurred after the formation of the contract and renders the performance of the contract by any party impossible, illegal or makes it radically different from the original intention of the parties at the time of the contract. ••Catch Ashley today at the ‘Renegotiating & Restructuring Contracts for Business Continuance’ Masterclass, OSEA Conference, 9:30am to 12:30pm.

Ashley Wright, Partner, Pinsent Masons MPillay

Oil price volatility brings unexpected challenges for firmsAshley Wright, Partner, Pinsent Masons MPillay, outlines the key dos and don’ts of re-examining ‘underwater’ contracts for business continuance

Show Daily, Tuesday 29 November 2016 9

Early Involvement and Collaborative ApproachWith the new market reality of “lower for longer” oil prices, it is imperative that owners and contractors work collaboratively to lower the total cost of ownership for the projects to be viable.

This necessitates a fundamental shift in planning and execution, where innovation is no longer an option but a critical necessity — it becomes everyone’s responsibility to challenge the norms and deliver projects with higher capital efficiency and predictability.

This includes looking into other industries for ideas and innovative solutions and discarding traditional assumptions about how to design, procure and construct oil and gas facilities and assets.

This “shakedown” approach to project execution will only be successful if the owner is on board and aligned as early as possible, and then throughout the entire process.

The owner sets the tone for the overall project culture and how to work as an integrated team with the contractor.

There has to be a clear understanding of their business drivers, which will, in turn, dictate the strategies and key performance indicators throughout the project.

This alignment is most critical during the FEED phase; that is, key decisions about how the project will be executed from conceptual design to start-up will have the largest impact at this stage.

The FEED contracting strategy is another important consideration. Often, the owners fail to recognise the value that can be derived from FEED to optimise the overall EPC costs and schedule.

Integrated EPFC Execution ApproachFluor’s Integrated EPFC Execution approach is based

precisely on this model of innovation and early collaboration and engagement, resulting in a robust execution plan that addresses how each moving part (Engineering (E), Procurement (P), Fabrication (F) and Construction (C)) works together seamlessly in order to reduce costs and achieve higher predictability.

Our “Zero Base Execution” concept allows teams to start off with a blank slate (or zero base) of requirements, and make value-driven choices going forward.

Decisions related to plot configuration, use of modularisation/pre-fabrication, material sourcing, construction work packaging, integrated automation tools and risk mitigation all have to be considered during the FEED stage, with ideally only minor “tweaks” during the execution phase.

An example of a proven technology for reducing plot space and material quantities is the “3rd Gen Modular Execution” approach.

This was originally developed for Alberta’s SAGD (Steam Assisted Gravity Drainage) facilities, and is now being applied by Fluor to refineries, petrochemical plants, etc.

Aside from the quantity (and consequently cost) reductions seen in projects where the plot was optimised as a 3rd Gen layout, this approach has also significantly improved safety, labour productivity and eventually resulted in greater cost and schedule predictability.

To further maximise the benefits of this approach, global sourcing should be employed to procure and deliver materials in a timely manner to fabrication yards and construction sites around the world, using vendors and suppliers that have a proven track record of quality and reliability.

A construction-led approach to project scheduling ensures early alignment with engineering and

procurement on what needs to be done when in order to support construction priorities.

This also involves early contracting strategy decisions for critical services such as heavy haul/lift, logistics for transportation, fabrication and the use of modular vs. stick-built construction.

Advanced work packaging is a data-centric approach that integrates design and construction automation, such that drawings and bills of material can be derived directly from the design tool database (i.e. 3D model) by construction workface planners.

What’s Possible?A recent project that utilised the Integrated EPFC approach is the Shell Quest CCS Project in Canada, which was awarded as Global Best Project (Power/Industrial Category) by Engineering News Record in 2015.

Using 3rd Gen optimisation and process simplification, they were able to reduce plot size by 30%, resulting in a 27% reduction of its original Total Installed Cost (TIC). The project was delivered 2% under its control budget.

Another project saw a 42% reduction in plot and was able to lower its TIC by 19%, while registering production efficiency at 107%.

With the right mindset and attitude, early collaboration and integrated EPFC solutions will not only make project cost optimisation possible — it will be a game-changer.

•• Catch Bimal today at the ‘Ideal FEED for Project Cost Optimisation’ Masterclass, OSEA International Conference, 9.30am to 12.30pm

Bimal Parikh, Regional Vice President – Energy &

Chemicals at Fluor

Embrace ‘FEED’ for Project Cost Optimisation Bimal Parikh, Regional Vice President – Energy & Chemicals at Fluor, on the importance of innovative front-end engineering design (FEED) and execution approach to the lifeline of oil and gas projects

Conference Highlights: Tuesday 29 NovemberOPENING CEREMONY — OSEA20169.30am to

10.20am

12.30m to 2pm

NETWORKING LUNCH BREAK AND EXHIBITION VIEWING

9.30am to 12.30am

2pm to 5pm

ASSET OPTIMISTATIONMarina Bay Sands,

Level 3, Begonia 3002

Innovative FEED and Execution

Approaches for Project Cost

Optimisation

Approach to Achieving High

Performance, Acceptable Risk and

Reduced Costs

Understanding and Adapting the

Way Contracting and Managing

Risks for Major Projects

FEED & Asset Life Extension Process Safety and HSSE Contracts Management

OPERATIONAL EXCELLENCEMarina Bay Sands,

Level 3, Begonia 3003

Measuring HSSE Performance for

Incident-Free Operations

SUSTAINABLE GROWTHMarina Bay Sands,

Level 3, Begonia 3004

Renegotiating & Restructuring

Contracts for Business Continuance

Show Daily, Tuesday 29 November 201610

In today’s challenging and uncertain environment there is constant pressure to reduce operational expenditure whilst pushing aging assets for longer periods than originally intended or designed. Such

pressures if uncontrolled could result in potentially major operational problems or even fatal accidents.

Today at the OSEA International Conference, the BMT-led Masterclass will present and demonstrate a framework designed to help operators manage their assets and risks, so that organisations can safely produce greatest sustainable value under challenging conditions.

Possess a clear and realistic picture of risksThe key to achieving success (high performance, consistent quality, no losses, no safety problems and reduced costs) is to begin with a clear and realistic picture of the risks associated with the operation and how these risks are managed.

This requires an approach that goes beyond using generic data and simplistic (time or failure rate based) approaches to maintenance and numerical risk models (Quantified Risk Assessments).

These traditional approaches fail to account for the

changing condition of assets as they age and do not show how integrity of risk controls are maintained and managed on a day to day basis.

To keep a laser focus on business value requires a process that is able to factor in the condition of the assets and the impact of variations in operating parameters, and thus establishes a more realistic picture of the potential risks these pose.

A way of presenting risk controls, its interactions and how the integrity of these controls is maintained with clear links to organisational roles and responsibilities needs to be established.

BMT’s Masterclass will introduce and demonstrate the use of condition based risk assessments that can be presented in the form of bow ties models.

Specifically, the masterclass will validate how such models can be used to clearly identify the controls that are in place to manage risk, the factors influencing the integrity of those controls and the links to organisation resources and maintenance programs.

The approach focuses limited resources on the high risk assets and important risk controls, ensuring the highest returns in terms of reduced operational and safety risk.

This approach delivers high return for operational expenditure through sustained high performance and acceptable risk with ageing assets and challenging environmental conditions.

The Masterclass will also reveal a framework and solution to increasing the asset uptime, reliability and performance, as assets age and operational expenditures are under pressure.

The focus on identifying critical risk controls and how integrity of the controls is maintained provides potential reduced risk even under more adverse conditions.

Participants will be able to prioritise processes and resources, to manage assets in their organisations, by identifying potential improvements based on value opportunity, cost, time to implement and probability of success.

The application of such approaches aligns well with the international standards for assets management such as ISO 55000 and all of the accepted risk management standards. •• Catch Sukhy today at the ‘Approach to Achieving High Performance, Acceptable Risk and Reduced Costs’ Masterclass, OSEA Conference, 2pm to 5pm

A leading distributor of industrial equipment and tools for various industries including marine & offshore and oil & gas in Southeast Asia, Chee Fatt talked to Show Daily about the company’s new corporate branding and OSEA showcase.

OSEA — an effective launch pad and networking platform“OSEA is an excellent platform to showcase our company and our portfolio of products and services to the stakeholders of oil and gas related companies around the region. Being a major O&G show serving Asia, we have gained a great deal of experience and contacts from previous OSEA events, of which some of them are now our key partners,” said Desmond Poh, Marketing Director at Chee Fatt.

“We value the interactions and relationships that we have built with our partners over the years and OSEA allows us to connect with like-minded partners, both new and existing, in some ways “putting a face” to all the emails and phone calls.”

Besides showcasing the core products from key brands, Chee Fatt is also taking the opportunity to launch the company’s new branding and online e-commerce platform.

Visitors at its booth will be able to interact with some of the products and have a go on the new corporate and e-commerce website.

“Without a doubt 2016 has been a challenging year for all of us, we do however see more opportunities to be more proactive in engaging our partners; through various marketing efforts such as our inaugural Open House, EDMs, exhibitions and roadshows. We have also made significant progress in our regional expansion plans during this period,” Poh concluded.•• Visit Chee Fatt at Booth 1G3-01

Chee Fatt’s headquarters in Singapore, comprising of their warehouse, office and logistics facilities

Condition based risk management for greatest sustainable value

Chee Fatt’s new branding and core industrial products push

Sukhy Barkey, Director, BMT Asia Pacific, shared with the Show Daily on the various risk management processes, systems, and frameworks that can be adopted for desired outcomes under cost pressure.

Company Booth

VALSER ENGINEERING & SERVICES SDN. BHD BH4-10SHREE DIGVIJAY CEMENT CO LTD BS3-07GLOBAL OFFSHORE & MARINE SYSTEMS PTE LTD 1H3-10TrustLube B.V. 1M4-02/3WIND 1M4-02/4Feature-Tec Singapore Pte Ltd BP4-10 Alstern Technologies Singapore Pte Ltd 1P4-06Zhejiang Minghe Steel Pipe Co Ltd 1E5-08 Korea Marine Equipment Association BS3-10

OSEA2016 Exhibitor update

Tuesday 29 November 2016 Show Daily 11

IGU REPORT

NATURAL gas has a key role to play in improving air quality ac-cording to a new report by the In-ternational Gas Union (IGU).

According to the report, the combustion of natural gas emits roughly half as much carbon diox-ide as coal, and a fraction of the sulphur oxide, nitrogen oxide and particulate matter of coal or fuel oil.

It also noted that natural gas produced only “negligible” emis-sions of the carcinogen benzoapy-rene when used for domestic home heating.

The IGU report focused on four European cities — Dublin, Berlin, Krakow and Rotterdam — which have been tackling the issue of improving urban air quality.

According to the report, in the 1980s Dublin’s air quality was among the worst in Europe, largely fuelled by the burning of bitumi-nous coal.

However, a ban on the use of smoky coal and the promotion of natural gas as an alternative fuel source in 1990 saw air quality in the Irish capital improve and by 2014 Dublin’s particulate matter emissions less than 10 microme-tres in diameter had dropped by between 80% and 90%.

The government issued a na-tionwide ban last year on bitumi-nous coal burning in Ireland, which will take effect in 2018.

The IGU also claimed in its re-port the shift from coal to natural gas in power and heat generation likely played a key role in cleaning up Berlin’s air since 1989.

The share of natural gas in the city’s energy mix increased from 17% in 1990 to 41% in 2012, while over the same period the share of coal slipped from 34% to 17% and the share of coal burned directly by end-users fell from about 12% to just 0.2%.

Between 1989 and 2015, Berlin’s sulphur oxide emissions fell 95%, nitrogen oxide emissions dropped 76% and particulate matter emis-sions declined by 83%.

While Berlin has taken steps to improve its air quality, it still fac-es air quality issues from neigh-bouring countries.

The IGU report claimed two-thirds of pollution originated from

In the spotlight: the port of Rotterdam is the city’s ‘ground zero’ for its air polluton struggle Photo: REUTERS/SCANPIX

Gas key to improved air qualityIGU report finds natural gas combustion emits about half as much carbon dioxide as coal

JOSH LEWIS Perth

outside of the city, likely in Poland across Germany’s eastern border.

According to the IGU report, fine particulate emissions were estimated to contribute to about 45,000 premature deaths across Poland, with a significant portion of those likely to occur in Krakow.

A 2013 European Environmental Agency survey found that Krakow had the third most polluted air in the European Union, while the IGU stated that particulate matter emissions in Krakow exceeded EU safety limits on 188 days in 2014.

Benzoapyrene concentrations were higher in Krakow than any other major European city, at times exceeding eight times the recom-mended limit.

As well as health problems, the

high pollution levels also have an economic effect on the country, with Poland facing fines of up to 4 billion zloty (US$951.4 million, S$1.372 billion) for non-compliance with the EU’s ambient air quality standards.

Krakow has been making moves to clean up its air, however, with the city council reintroduc-ing a citywide coal ban in January this year and with a deadline of 2019 to completely phase out coal stoves from home heating.

The city is also looking to ex-pand its gas distribution network, modernise its district heating sys-tem and promote renewable en-ergy sources.

It is not just the residential sec-tor where gas can be used to im-prove air quality, with the Dutch port city of Rotterdam becoming

a hub for liquefied natural gas fuelled transportation.

The IGU claimed that in 2014 the lifespan of a Rotterdam resident was three years shorter than the average Dutch citizen due to the high levels of air pollution.

The IGU said the Port of Rotter-dam is the city’s “ground-zero” in its struggle against air pollution and it is aiming to improve air quality by lowering emissions through the expanded use of LNG as a fuel for seagoing and inland waterway vessels.

The IGU said switching to LNG in the port could reduce nitrogen oxide emissions by up to 90%, sul-phur oxide and particulate matter emissions could be reduced by 100%, and LNG’s lower carbon con-tent could also help reduce emis-sions by up to 20% when it replac-

es heavy fuel oil. While LNG adoption has largely been limited to inland vessels, the IGU said port operators had reported significant interest among ship owners in switching to LNG bun-ker fuel, especially for newbuild vessels.

It added LNG-fuelled vessels are already compliant with the strict-er emissions standards that have been in place in the English Chan-nel, the Baltic Sea and the North Sea since 2015, while they will also meet more stringent sulphur requirements post-2020.

Rotterdam started LNG bunker-ing operations in August this year and plans to have three LNG fuel-ling berths installed by the end of the year, while Shell also plans to supply Rotterdam with an LNG bunkering vessel in 2017.

12 Show Daily Tuesday 29 November 2016

CONTRACTING

CANADIAN contractor SNC- Lavalin is looking to secure more work from the offshore sector, having set up shop in Singapore as a global centre of excellence.

“The team that we have in Sing-apore has offshore capability and, in fact, most of their capability is offshore,” said the company’s sen-ior vice president for Asia Pacific, Ian Prescott.

“The team we’ve brought on board here has done a lot of float-ing production, storage and offloading vessel work,” he told Upstream.

“We focus on the process mod-ules, the topsides scope.”

The contractor’s top three cli-ents are supermajors Shell, Exxon-Mobil and Chevron, and these op-erators are changing the way they carry out projects, according to Prescott.

He said that, for example, they are now showing more willing-ness to consider the pre-engi-neered modular solutions that other clients have already been tapping into.

SNC-Lavalin has already landed work on Chevron’s Gorgon lique-fied natural gas project and for the Inpex-operated Ichthys LNG project — both in Australia.

“We actually got a number of projects on Gorgon alone. Firstly we did the 4500-man camp, then we’re also completing all the tele-coms and electronics for the whole site and we’re also involved in the electrical and mechanical contracts in partnership with CB&I,” said Prescott.

Although SNC-Lavalin tied up with CB&I for Gorgon, CB&I and others such as Amec Foster Wheeler also compete against the Canadian contractor for EPC jobs.

Despite many contractors de-serting Singapore for lower cost bases such as Kuala Lumpur, SNC-Lavalin is happily settled there.

Prescott said that being based in Singapore still allows the com-pany to bid competitively, not least against Australian compa-nies for projects there, where the cost of labour is higher.

Prescott said that SNC-Lavalin recently competed on a project for “a significant oil and gas client” in Australia and its tender was half the price of the next lowest sup-plier.

“(Compared to Singapore costs) KL is cheaper, Mumbai is cheaper,

Projects: SNC-Lavalin has set up shop in Singapore as a global centre of excellence Photo: REUTERS/SCANPIX

SNC Lavalin’s Singapore base looking offshore for businessContractor has established a centre of excellence and now seeks FPSO topsides workscope

AMANDA BATTERSBYSingapore

but you’ve always got to balance the productivity,” he said.

Earlier this year, SNC-Lavalin acquired Valerus and today, under the auspices of SNC-Lavalin’s Pro-duction & Processing Solutions, they offer modular equipment on a turnkey basis.

In the US, the company holds more than US$100 million-worth of inventory to offer fast-track so-lutions, and SNC-Lavalin is trying to bring that “value proposition” into Southeast Asia.

Prescott said there was nothing to stop the company storing such kit regionally in the future.

To help keep on top of the chal-lenging business climate, SNC-Lavalin is today “applying lots of its offshore techniques” to on-shore projects across the world.

Being able to reduce costs and carry out projects with substan-tial savings to operators, without comprising safety, is key to SNC-Lavalin’s business model.

Looking to the future, Prescott says that the dearth of FPSO awards during the last couple of years does not mean the sector has shrunk forever, though changes are afoot as floater players review the way they carry out projects.

He added that, although there have only been a handful of FPSO awards in 2015 and 2016, “there’s still a lot of activity in the back-ground where the floater guys are talking to clients, they’re doing studies, they’re optimising pric-ing”.

“We’ve actually seen a bit of an improvement in that (FPSO) mar-ket in the last few months, where there seems to be more activity and definitely more interest.

“Right now, we’re working on three [such projects] in our office. It’s not paid work, we’re effec-tively talking to clients about the opportunities they’ve had, and effectively lining up for the next

phase, which would be bidding — hopefully next year.

“We see an improvement in that (FPSO) market next year,” Prescott said.

Potential regional floater projects in the market in 2017 in-clude a revival of JX Nippon’s stalled Layang development off Malaysia, the FPSO conversion contract for which was awarded to Malaysia’s TH Heavy Engineering (THHE).

The hull is still in Dubai Dry-docks and THHE is trying to in-vigorate construction of the top-sides, for which GPS did the design, and the topsides integra-tion.

There are also a couple of mar-ket enquiries for projects in Indo-nesia and for an FPSO for Chevron and PTTEP’s Ubon field develop-ment off Thailand.

Meanwhile, Prescott also has his sights on potential business in India. “India is an interesting

proposition for us… there’s still a lot of spend going on in India. It’s definitely a market we’re looking at,” he said.

Also SNC-Lavalin has a 600-strong design office in Mumbai that the company uses to deliver “high-value engineer-ing” for projects in other coun-tries.

“So projects in India give us an interesting dynamic. Because, one, we’ve got an entity there so we can trade as an Indian com-pany; two, we’ve got a very strong capability there — so we’re not an international coming into a foreign market,” he said.

Prescott added that, in the cur-rent economic climate, “more and more companies are looking for innovative ways to fund their projects”, and SNC-Lavalin at times takes an equity stake.

However, the contractor is not about to start taking reservoir risk.

Tuesday 29 November 2016 Show Daily 13

RIG MARKET

WOODSIDE Petroleum has con-tracted a deep-water drillship for its next major exploration and appraisal campaign off Myanmar, and Total has hired a jack-up rig for its next drilling assignment off the same country.

A spokesperson for Woodside confirmed it has hired the Trans-ocean-owned drillship Dhirubhai Deepwater KG2 for its upcoming programme in Block AD-7 and Block A6 in the Rakhine basin.

The campaign is scheduled to begin by February next year and covers four firm wells, with op-tions for three more, said the spokesperson.

The combined duration of both the firm and the contingent wells could account for 375 days.

Water depths in Block A7 range from 800 metres to 1300 metres, while water depths in Block A6 are

between 2000 and 2500 metres.The Australian operator made

two big discoveries in the two per-mits in its inaugural Myanmar drilling effort earlier this year.

The Shwe Yee Htun-1 discovery in Block A-6 and Thalin-1A in Block AD-7 contain 2.4 trillion cu-bic feet of gas on a best estimate gross basis.

Woodside has already indicated that the AD-7 joint venture aims to define a development concept for Thalin by mid-2017, with a tie-back to Daewoo International’s producing Shwe gas field facilities considered a logical option.

Daewoo is Woodside’s partner in Block AD-7 — the Australian player has a 40% operating inter-est with Daewoo owning the rest.

The Shwe Yee Htun-1 discovery in Block A-6, where Total of France and MPRL E&P are its partners,

has both tie-back and standalone development options.

One option is a tie-back to the Total-operated Yadana gas processing facility, although a standalone development with gas piped to shore is also a possibility.

Woodside has identified devel-opment options to produce its gas for pipeline sales into the domes-tic Myanmar market and for other nearby growing Asian gas mar-kets.

The company said it is process-ing and evaluating more than 31,500 square kilometres of high-quality seismic data acquired across its acreage position in the Rakhine.

Meanwhile, Total has hired the jack-up rig PV Drilling 1 for its up-coming campaign off Myanmar.Total has had a presence in Myan-mar for many years, and is the

operator of the large Yadana field, which produces gas primarily for delivery to Thailand’s PTT for use in Thai power plants.

Yadana produced an average 745 million cubic feet per day of gas in the first nine months this year, and also supplies the domestic Myanmar market. It is understood the drilling campaign will take place at the Yadana asset.

Joint venture partner PTTEP in-dicated in its recent results that exploration and development wells are planned at Yadana.

Total’s only other acreage in My-anmar is its 100% operating stake in deep offshore Block YWB, and its non-operated stake in Block A-6.

In demand: the Transocean drillship Dhirubhai Deepwater KG2 Photo: TRANSOCEAN

Woodside and Total hire rigs for Myanmar drivePlayers take on drillship and jack-up for drilling campaigns in country’s offshore arena

GLOBAL liquefied natural gas markets are “less flexible than is commonly believed”, warned a report from the International Energy Agency (IEA).

The Global Gas Security Re-view report, which will now be published annually by the Par-is-based agency, showed that the LNG markets are well sup-plied today, but this supply could be less secure in future.

“A growing share of LNG capacity is offline — mostly because of a lack of enough gas to feed into the system but also because of security and techni-cal problems — meaning the market has less extra capacity than assumed,” the IEA said.

According to research, be-tween 2011 and 2016, the level of unusable export capacity has doubled, disabling about 65 bil-lion cubic metres of gas, which is equal to the combined exports of Malaysia and Indo-nesia, the world’s third- and fifth-largest exporters.

“A period of low oil and gas prices could further worsen the situation,” the agency warned.

However, the report also found that LNG contract struc-tures are becoming less rigid, therefore increasing market liquidity.

“In 2015, about 40% of LNG contracts had fixed destination terms, down from 60% for con-tracts signed up to the year 2014,” the IEA said.

“While shorter term con-tracts are gradually becoming more common, buyers are also accepting longer contracts in exchange for increased flexibil-ity in the final destination in order to better respond to mar-ket conditions.”

“Flexible contractual struc-tures are important for gas security as they enable to aggregate gas volumes at a low-er cost from various regions,” it said.

IEA executive director Fatih Birol added: “The growth ain the global gas trade, along with the diversification of supply sources, is improving the secu-rity of supply.”

“But there is still a need to be vigilant on gas security as the changing nature of the market means that regional demand and supply shocks may now be felt in more distant places than ever before,” Birol said.

Flexibility needed in LNG scene

RUSSELL SEARANCKEWellington

Search the archive:

Myanmar

Report: IEA chief economist Fatih Birol Photo: APPEA

14 Show Daily Tuesday 29 November 2016

FEATURE

CONOCOPHILLIPS and Inpex are putting their foot on the pedal in the Timor Sea off northern

Australia, where they are develop-ing offshore gas resources as feed-stock for their LNG facilities in Darwin, while also looking at ex-ploration opportunities and third-party gas supplies.

ConocoPhillips is well into the early engineering phase of its Caldita-Barossa development, while Inpex is immersed in peak construction of the huge offshore facilities and onshore LNG plant for its Ichthys project.

Both companies recently re-vealed their latest ideas and aspira-tions for the region.

ConocoPhillips unveiled plans to deploy two large floating produc-tion, storage and offloading vessels over its Caldita-Barossa and Great-er Poseidon resources.

One, or possibly both, will pro-vide backfill gas into ConocoPhil-lips’ Darwin LNG plant.

Steve Ovenden, ConocoPhillips Australia’s vice president for growth, told a recent conference audience the VLCC-sized floaters are being designed to separate gas, condensate and water, and to re-move bulk carbon dioxide.

Lean gas from Caldita-Barossa will be exported via a 260-kilome-tre 26-inch subsea pipeline to a tie-in point on the Bayu-Undan pipeline, also operated by Conoco-Phillips.

The FPSO for Greater Poseidon will be almost identical, with gas to be exported to Darwin LNG via a 640-kilometre 26-inch subsea pipeline to a tie-in point on the Bayu-Undan line.

Timing of first gas from both de-velopments will be dictated by the availability of spare capacity at Darwin LNG, said Ovenden, adding that capacity should come up in 2022 with the tail-off of production from the Bayu-Undan field.

For cost reasons, the US operator is prioritising backfill into Darwin, rather than the construction of a second LNG train.

Whether both fields are needed for backfill is uncertain.

“It’s a good time to progress with a new upstream development dur-ing a downturn to capitalise on market deflation,” said Ovenden.

The operator intends to move into the FEED phase on Caldita-Barossa in late 2017.

Before that happens, the com-pany and its joint venture partners will use the semi-submersible drilling rig Atwood Osprey to drill two appraisal wells starting in early 2017.

ConocoPhillips says it has also identified five other third-party gas discoveries in the Bonaparte and Browse basins that could be

Host: the Darwin LNG plantPhoto: CONOCOPHILLIPS

Evolution is speeding up at Operators in developments push in Timor Sea to feed LNG facilities

RUSSELL SEARANCKE Darwin, Australia

brought into Darwin LNG. A new LNG train is currently not econom-ic, but is very much an option in the future “and will be key to monetising further stranded gas beyond the backfill resource”, said Ovenden. ConocoPhillips has gov-

ernment approvals to expand Dar-win’s capacity to 10 million tonnes per annum, up from the current 3.5 million tpa. The Caldita-Baros-sa field is located in the Bonaparte basin in water depths of an aver-age 250 metres. The field owners

are operator ConocoPhillips and, SK Energy each on 37.5% and San-tos with 25%.

The Greater Poseidon fields are in the Browse basin in average water depths of 500 metres.

The co-owners are Conoco-

Phillips and Origin Energy each on 40% and PetroChina with 20%.

Inpex, meanwhile, is working at a very intense level on its US$34 billion Ichthys LNG project.

Hitoshi Okawa, Inpex’s direc-tor of corporate co-ordination, told a recent conference audience the project has reached the 88% completion stage, and that many components are in the commis-sioning and pre-commissioning phases.

“People talk about the Ichthys project coming to an end, but that couldn’t be further from the truth, we are in fact racing to the start,” says Okawa.

There are more than 8000 workers at the LNG plant site at Bladin Point near Darwin, where a milestone was recently achieved with the delivery of the last of the 230 modules from the project’s four fabrication yards in Thailand, China and the Philip-pines.

Construction in South Korea of the two massive offshore facilities is ongoing.

Again, a milestone was recog-nised recently with main power generators starting up on the cen-tral processing facility and the floating production, storage and offloading vessel.

Inpex said the project is on track for first production in the fourth quarter of 2017.

Projected peak rates are 8.9 mil-lion tonnes per annum of LNG from two trains and 1.6 million tonnes per annum of liquid petro-leum gas, plus more than 100,000 barrels per day of condensate.

Okawa says the company’s fo-cus is firmly on the safe and suc-cessful execution of the final 12%

BONAPARTE AND VULCAN OFFSHORE EXPLORATION WELL COMMITMENTS

Permit Operator Work commitment Estimated cost

AC/P21 Eni Before 12/01/2017 (year five) one well A$30 million

AC/P32 Bounty Oil & Gas Before 23/06/2019 (year five) one well A$25 million

AC/P36 Inpex Before 7/02/2019 (year five) one well A$60 million

AC/P41 Shell Before 23/04/2019 (year five)

Geological and geophysical studies

including exploration portfolio update

AC/P45 Finder Exploration Before 25/08/2018 (year four) one well n/a

AC/P50 Vulcan Exploration Before 18/05/2019 (year four) one well A$20 million

(MEO Australia)

AC/P51 Vulcan Exploration Before 18/05/2019 (year four) one well A$20 million

(MEO Australia)

AC/P52 Shell Before 25/05/2017 (year six) one well A$35 million

AC/P54 PTTEP Before 06/01/2019 (year six) one well A$35 million

AC/P55 Finder Exploration Before 03/05/2019 (year six) one well A$17 million

AC/P56 Finder Exploration Before 10/07/2019 (year six) one well A$17 million

AC/P57 Murphy Oil Before 13/04/2019 (year five) one well A$60 million

AC/P58 Murphy Oil Before 22/06/2020 (year six) one well A$60 million

AC/P59 Murphy Oil Before 19/03/2021 (year five) one well A$60 million

AC/P61 Finder Exploration Before 22/06/2022 (year six) one well A$15 million

NT/P73 Alpha Natural Resources Before 30/05/2018 (year five) one well A$50 million

NT/P82 Magellan Petroleum Before 12/11/2017 (year six)

1000 square kilometres 3D seismic survey

NT/P84 Origin Energy Before 02/07/2019 (year five) one well A$40 million

NT/P85 Santos Before 08/10/2019 (year five) one well A$35 million

WA-403-P Total Before 11/07/2017 (year four) one well A$40 million

WA-407-P Goldsborough Energy Before 18/11/2017 (year six) one well A$15 million

(Octanex)

WA-420-P Goldsborough Energy Before 12/11/2017 (year six) Geotechnical studies

(Octanex) Before 12/11/2016 (year six) Seismic inversion

WA-454-P Origin Energy Before 08/12/2017 (year six) one well A$20 million

WA-459-P Santos Before 07/11/2017 (year six) no well commitment

WA-488-P Finniss Offshore Before 21/11/2017 (year three) one well A$20 million

(MEO Australia) Before 21/11/2020 (year six) one well A$20 million

WA-522-P Woodside Petroleum Before 03/04/2022 (year six) one well A$18 million

WA-523-P Carnarvon Petroleum Before 26/05/2022 (year six) one well A$40 million

Tuesday 29 November 2016 Show Daily 15

US INDEPENDENT Murphy Oil is a great believer in the oil exploration potential of the Vulcan sub-basin in the Timor Sea off northern Australia, and there are plenty more operators which share that view, writes Russell Searancke.

Murphy has been investing in Australian offshore exploration for several years, but has not yet made a commercial discovery.

Chief executive Roger Jenkins said recently the Vulcan sub-basin — where it is the operator of three exploration permits — is one of the company’s main focus areas.

“We have a very nice acreage position in the Vulcan basin, north of Australia,” said Jenkins. “The Vulcan basin is a very under-explored place, where we have a very large new seismic data set and we’re on to a new play there with some 100 million barrel-type opportunities that are very inexpensive to drill.”

The company has commitments to drill one well each in blocks AC/P57, AC/P58 and AC/P59 before 13 April 2019, 22 June 2020 and 19 March 2021, respectively.

There are several top-tier companies with offshore exploration permits in this region, including Shell in AC/P41 and AC/P52, Total in WA-403-P and Eni in AC/P21, while mid-tier Woodside, Inpex and PTTEP have one permit each.

Australian companies also have an exploration exposure, including Santos and Origin Energy with two permits each, Melbana Energy (formerly MEO Australia) with three blocks, Finder Exploration with four blocks, Octanex with two permits and Carnarvon Petroleum and Bounty Oil with one apiece.

Oil is the main objective, but there are also sizeable gas opportunities in this shallow-to-mid-depth water region.

Shell, for instance, has identified a very large gas condensate prospect in AC/P52 called Cronus, and joint venture partner Finder says the well should spud within the next 16 months.

“Shell is operating and with success will commercialise (Cronus) either as a standalone

floating liquefied natural gas project or as feedstock into Prelude FLNG,” said Finder. The company has identified several big oil prospects in its acreage including Alpha and Bonza, as well as the large Zeta prospect.

The Vulcan contains a host of discoveries, but is also a geologically-complex area.

That has not deterred the likes of Melbana, which has two exploration permits and multiple oil targets.

The company said it has “identified the material Ramble On and Jur’maker oil prospects in a proven petroleum system defined on modern 3D seismic data”.

Melbana said the potential of its permits was highlighted by Shell’s Auriga West-1 discovery from 2015 “in a similar play type”.

The company’s near-term aims are to carry out 3D seismic reprocessing, update the area’s prospectivity, seek a farm-in partner in 2017, and move toward drilling if a farm-out is successful.

Australian battlers Octanex and Bounty Oil are also bullish about their positions in the Timor Sea.

Octanex has a gas discovery straddling its two permits called Ascalon, which it reckons contains a best estimate contingent resource of 3 trillion cubic feet of gas.

Octanex believes the most likely market for Ascalon’s gas is LNG, but this would necessitate having access to pipeline and LNG infrastructure.

Ascalon’s close proximity to other discoveries including Petrel and Tern, and the Bayu-Undan and Ichthys pipelines to Darwin, means it could be developed as a tie-back to another development, said Octanex.

Bounty is a true believer in the potential of the Vulcan, having been awarded its block 15 years ago.

It drilled the Wisteria oil prospect a few years ago, which was dry, but continues to view Block AC/P32 as its “major growth project”.

The Azalea prospect has the potential to contain 500 million barrels of oil in place, of which 100 million barrels would be recoverable.

Bounty is seeking a farm-in partner to drill Azalea and a follow-up appraisal well.

Explorers signal that Vulcan potential is high on the agenda

Broome

Darwin

Source: Government of Western Australia Department of Mines & Petroleum

W E S T E R N

A U S T R A L I A

N O R T H E R N

T E R R I T O R Y

BrecknockBurnside

Prelude

Cornea

LibraCrux

Tahbilk

Padthaway

SwallowSkua

PuffinSwift North

Montara-Bilyara

T i m o r S e a

Talbot

TernMarina

Blacktip

Frigate

Turtle

Barnett

Petrel

Bayu-Undan pipeline

Ichthys gas export pipeline

to Darwin

Bonapartepipeline

Challis-Cassini

Jabiru

Katandra

BullerBluff

Elang-Kakatua

Chudditch

Blackwood

Troubadour

Evans ShoalShouth

Evans ShoalNorth

Lynedoch

Heron

Heron South

Joint Petroleum

Development Area

Indonesia

Timor-LesteAustralia

Indonesia

Australia

Territory ofAshmore &

Cartier Islands(N.T.)

Hingkip

JahalKelp Deep

KudaTasi

KrillKitan

BuffaloLaminaria/Corallina

SwanVesta

Cash/Maple

Brontosaurus

TenaciousOliver

Audacious

Gwydion

Argus

Crown

Poseidon

Bayu-Undan

Sunrise

EvansShoal

Caldita

Barossa

Abadi

T I M O R

TIMOR-LESTE

BrecknockSouth

Scott Reef

North Scott Reef

Boreas

Kronos

Proteus

IchtysWest

MimiaConcerto

DiscoveriesGas

Oil

Oil and gas

Abandoned field

Production facilitiesFPSO - oil

Conventional platform

Proposed development- gas

Lasseter

CoralSea

A U S T R A L I A

Main

map

TIMOR SEA OIL & GAS

Darwin

of the project, which “is perhaps the most difficult stage”.

Expansion of the Ichthys project — while premature — is a worthy consideration, he added.

“The Ichthys project is designed with expansion in mind,” he said. “Once constructed it will offer the opportunity to unlock gas resourc-es in the Browse and Bonaparte basins, and also a means of com-mercialising onshore discoveries in the Northern Territory.”

The Ichthys offshore gas pipeline has five hot-tap tie-in points, which will facilitate the develop-ment of more gas, “either ours or third-party gas”, says Okawa.

The LNG site at Bladin Point has sufficient land to support up to four additional LNG trains.

“But let’s not get too far ahead of ourselves. Our focus is firmly on the foundation project,” says Okawa.

Inpex owns a 66.07% operating stake in the Ichthys project; its partners are Total on 30%, while its LNG buyers Tokyo Gas, Osaka Gas, Chubu Electric and Toho Gas split the remaining 3.93%.

Belief: Murphy Oil chief executive Roger Jenkins Photo: MURPHY OIL

People talk about the Ichthys project coming to an end, but that couldn’t be further from the truth.

16 Show Daily Tuesday 29 November 2016

FEATURE

JAPANESE independent In-pex and French joint ven-ture partner Total have moved into the sharp end

of the development of the US$34 billion Ichthys liquefied natural gas project in northern Australia.

Inpex’s director of corporate co-ordination Hitoshi Okawa told a recent conference audience the project has reached the 88% com-pletion stage, and that many com-ponents are in the commissioning and pre-commissioning phases.

He said the company is focused firmly on the safe and successful execution of the final 12% of the project, which “is perhaps the most difficult stage”.

By this he means the hook-up and commissioning of the various production facilities both onshore and offshore, and the introduction of hydrocarbons into the produc-tion systems.

There are more than 8000 work-ers at the LNG plant site at Bladin Point near Darwin, where a mile-stone was recently achieved with the delivery of the last of the 230 modules from the project’s four fabrication yards in Thailand, China and the Philippines.

Some of the modules weighed in excess of 5500 tonnes and meas-ured more than 90 metres long.

Ichthys project managing di-rector Louis Bon said recently that, for the past two years, mod-ules have regularly sailed through Darwin Harbour on their way to the LNG site at Bladin Point.

Bon said the arrival of the last modules signifies the project has entered the final phase of con-struction and the focus is moving to testing, commissioning and start-up.

Construction in South Korea of the two massive offshore facilities is ongoing. Again, a milestone was recognised recently with main power generators starting up on the central processing facility and the floating production, storage and offloading vessel.

Bon said this signals that com-missioning is well under way for the two facilities.

“Starting up the main genera-tors of the FPSO and CPF allows the commissioning to further progress by providing the re-quired power for both massive offshore facilities,” he said.

The focus is now on load test-ing, synchronisation and com-missioning of the power distribu-tion systems for both offshore facilities. This will allow the per-manent utilities on board each facility to be made fully available.

Gas will undergo initial process-ing on the CPF to extract conden-sate and water, and remove impu-rities in order to make the gas suitable for transmission.

Most of the condensate will be transferred from the CPF to the

On track: Ichthys onshore facilities under construction at Bladin Point, near Darwin Photo: INPEX

Ichthys taking big stridesOperating partners Inpex and Total keep pushing momentum as huge LNG development enters pre-commissioning and commissioning phases

INPEX’S name was practically unknown in Darwin when the company selected the remote Australian city as the location for its Ichthys liquefied natural gas facility, but eight years on Inpex and the project are household names, writes Russell Searancke.

Before Ichthys, Darwin was the relatively uneventful and simple capital city of the Northern Territory. Now it has a skyline that features modern and contemporary hotels and buildings, and its infrastructure has improved dramatically.

The Northern Territory had the highest economic growth rates in Australia in 2014-15. I its Gross Domestic Product increased 10.5% to a total of A$22.5 billion.

In the same period, it had the lowest

unemployment rate in the country, and the highest participation rates.

The US$34 billion Ichthys project has been central to this growth. The onshore LNG plant in Darwin has reportedly drawn on one-third of the project’s capital cost.

Hitoshi Okawa, Inpex’s director of corporate co-ordination, said recently there are more than 8000 workers at the LNG site at Bladin Point of which about 4000 are from the territory and other parts of Australia.

More than A$16 billion (US$12 billion) of investment has flowed into the Australian economy as a result of project activity, and A$9 billion of this into the territory economy, he says. More than 1100 contracts

have been let to about 1000 Australian businesses, some large and some small. Inpex has also supported local companies employing indigenous people and Torres Strait islanders with contracts worth A$125 million.

Darwin-based sources said Inpex has invested heavily in industrial infrastructure, including transport infrastructure. This facilitates the workings of its own business, but the infrastructure is available to the public so it has a multiplier effect on the economy.

Large sections of the main Stuart Highway were rebuilt to handle Inpex’s heavy haulage, and that has served to benefit all road users.

Contribution to economy etched in stone

RUSSELL SEARANCKE Darwin, Australia

FPSO for processing, with the re-mainder sent to Darwin with the gas via the 890-kilometre Ichthys subsea pipeline.

More condensate will be extract-ed from the gas at the onshore

plant in Darwin. Inpex maintains the project is on track for first pro-duction in the fourth quarter of 2017.

Projected peak rates are 8.9 mil-lion tonnes per annum of LNG

from two trains and 1.6 million tpa of liquid petroleum gas, plus more than 100,000 barrels per day of con-densate. The Ichthys field contains about 13 trillion cubic feet of gas and more than 500 million barrels

of condensate. Inpex owns a 66.07% operating stake in the project, with Total on 30%. Its LNG buyers Tokyo Gas, Osaka Gas, Chu-bu Electric and Toho Gas split the remaining 3.93%.