Maersk Oil's project off UK a boost to Singapore's O&M sector

Maersk Oil's project off UK a boost to Singapore's O&M sector

DENMARK-BASED Maersk Oil, in seeking competitive solutions towards ensuring the Culzean field development off the UK remains economically viable even under low oil and gas prices, is undertaking a major part of the project work in Singapore.

This has, in turn, stimulated the job market here, although a sizeable volume of work on the project will also be carried out in Europe.

Maersk Oil chief executive Jakob Thomasen said the development of the gas field - which has been touted as the largest discovery off the UK for over a decade - is designed to be economically viable even at a US$40 oil price. He was speaking at the steel-cutting ceremony for the Culzean production facilities at Sembcorp Marine's Admiralty yard.

To ensure the project remains viable, Maersk Oil has "negotiated for cost savings" when contracting out the different elements of the project, Mr Thomasen said. He was quick to qualify this does not necessarily include the over US$1 billion engineering, procurement and construction (EPC) contract awarded to the then-SMOE - now Sembcorp Marine Offshore Platforms Pte Ltd - announced back in September 2015, although SMOE had put in the most competitive bid in an international tender.

Maersk Oil has worked with Sembcorp Marine Offshore Platforms Pte Ltd since the 1990s and the EPC contractor has proven through the past four projects with its Danish client - three in the North Sea and one off Qatar - the ability to deliver on time and within budget, Mr Thomasen said.

Maersk Oil's two other selected contractors for the Culzean project - MODEC and Hercules Offshore - have also elected to build a floating storage offloading vessel and a harsh-environment jack-up drilling rig in Sembcorp Marine's Tanjong Kling yard. The jack-up rig construction was contracted to Sembcorp Marine at US$236 million, but the value of the FSO contract was not revealed.

"There is no doubt the yard operators in Singapore including (Sembcorp Marine Offshore Platform Pte Ltd) and Keppel Offshore & Marine have proven their capabilities (either with Maersk Oil or its sister companies in the larger AP Moeller Group) in delivering high quality products," Mr Thomasen remarked.

Sembcorp Marine Offshore Platforms Pte Ltd has subcontracted the detailed design of the Culzean production facilities - comprising a central processing facility plus two connecting bridges, a wellhead platform, and utilities and living quarter platform topsides - to Houston-based engineering specialist, KBR. The latter is mobilising its resources in Singapore for the detailed design work.

The execution of the various elements of the Culzean field development in Singapore is understood to be potentially supporting thousands of jobs here, taking into consideration that the construction of Hercules Offshore jack-up rig alone involved about 1,200 workers at its peak.

But Sembcorp Marine Offshore Platforms Pte Ltd has also roped in its associate, UK-based SLP, for EPC work on a power generation module, two bridges and a flare.

In addition, Dutch Heerema Fabrication Group (HFG) was separately contracted for the EPC work on the jackets and substructures of the production facilities in Europe.

The projected capital expenditure (capex) for the Culzean field development is US$4.5 billion, according to Mr Thomasen. Some £1.5 billion (S$2.85 million) of the capex is understood to be designated for capex to be incurred in the UK, and another £2 billion will go to operating expenditure (opex) over the 13 years of production life of the project.

Culzean will provide 5 per cent of UK gas demand at peak production projected in the 2020s following its production start-up in late 2019. Plateau production at the field is expected to range between 60,000 and 90,000 barrels of oil equivalent per day.

The UK government has extended a 10 per cent investment allowance to Culzean, which translates into about the same quantum of reduction in tax payable from the project, according to Maersk Oil North Sea UK's managing director, Morten Kelstrup. This tax reduction is instrumental in supporting the economic viability of Culzean by helping to balance the investment and expected profits, Mr Kelstrup added.

This article was first published on April 8, 2016.
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