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• 
  Favourite emerges for Lower Zakum offshore project

  8 May 2024

  

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  Abu Dhabi-based NMDC Energy has pulled ahead in the race to win the main contract for a project to boost oil production at the Lower Zakum offshore hydrocarbons concession in Abu Dhabi.

  The offshore arm of Abu Dhabi National Oil Company (Adnoc Offshore) holds the majority 60% stake in the Lower Zakum asset. Foreign partners include a consortium of Indian companies led by ONGC Videsh (10%), Japan’s Inpex Corporation (10%), China National Petroleum Corporation (10%), Italy’s Eni (5%) and France’s TotalEnergies (5%).

  The Lower Zakum hydrocarbons zone is 65 kilometres northwest of Abu Dhabi in the Gulf’s waters. Adnoc Offshore and its partners in the Lower Zakum concession intend to sustain oil production from the asset at its current level of 450,000 barrels a day (b/d) until 2025, and then increase output to 470,000 b/d.

  This target will be achieved through the Lower Zakum early production scheme 2 (EPS 2) and the Proved Developed Producing (PDP) project.

  Adnoc Offshore received technical bids for engineering, procurement and construction (EPC) works on the Lower Zakum EPS 2/PDP project by 11 September last year, as MEED previously reported.

  Contractors submitted commercial bids for the project on 19 December.

  Following months of bid evaluation, negotiations and discussions with bidders, NMDC Energy has emerged as the favourite to win the main EPC contract for the Lower Zakum EPS 2/PDP project, sources told MEED.

  The following contractors, among others, are understood to have submitted bids for the project:

  • China Petroleum Engineering & Construction Company (China)
  • McDermott (US)
  • NMDC Energy (UAE)

  Lower Zakum EPS 2/PDP project

  The project’s basic scope of work involves drilling 17 additional producer and water injection wells on two new wellhead towers (WHTs) and expanding the gas compression capacity of the Zakum West Super Complex (ZWSC).

  Integrating the Lower Zakum complexes with the onshore power grid at UZ AGI for electricity supply to the EPS 2/PDP project is part of the scope.

  Demolition of structures and as-built documentation and surveying are also included in the scope of work.

  UK-headquartered Wood Group has performed front-end engineering and design (feed) work on the Lower Zakum EPS 2/PDP project. Adnoc Offshore awarded Wood the feed contract in November 2022, according to sources.

  Adnoc Offshore solicited interest for the Lower Zakum EPS 2/PDP project EPC works in December 2022. Contractors expressed interest in participating in the main EPC contract tendering process in January 2023.

  NMDC Energy is already executing EPC works on another project at the Lower Zakum concession.

  In September 2022, Adnoc Offshore awarded the Abu Dhabi government-owned contractor a $548m contract to build a new main gas line at the Lower Zakum field. The line is expected to increase the asset’s gas production capacity from 430 million cubic feet a day (cf/d) to 700 million cf/d.

  ALSO READ: Contractors prepare bids for mega Lower Zakum oil project

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  Indrajit Sen
• 
  Juranah reservoir heads for financial close

  8 May 2024

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  Saudi Arabia’s first water reservoir project to be developed by the private sector is expected to reach financial close in a few months, sources close to the project tell MEED.

  A consortium comprising the local Vision International Investment Company, Kuwait’s Gulf Investment Corporation and the UAE’s Abu Dhabi National Energy Company (Taqa) is developing the Juranah independent strategic water reservoir (ISWR) project in Mecca.

  MEED understands the state water offtaker Saudi Water Partnership Company (SWPC) and the developer team signed a water storage agreement for the project on 31 December.

  The team offered to develop the project for SRhals18.11 ($cents4.83) a cubic metre. 

  The Juranah ISWR scheme has a design capacity of 2.5 million cubic metres. The reservoir project is expected to start commercial operations in 2027.

  ISWR pipeline

  Previously referred to as Mecca 1, the Juranah ISWR project will be implemented using a build-own-operate-transfer model. The scheme includes a water reservoir and associated infrastructure and facilities.

  Juranah supports Saudi Arabia’s goal of increasing municipal water storage capacity to an average of seven days by 2030.

  The government aims to increase water storage capacity to an equivalent of 20 days of Hajj demand in Mecca and 40 days of Hajj demand in Medina.

  SWPC is planning two other ISWR projects in Mecca under its 2022 seven-year planning statement.

  The Mecca 2 ISWR will have a storage capacity of 6 million cubic metres, while the Mecca 3 ISWR will have a capacity of 8 million cubic metres. 

  A team of US/India-based Synergy Consulting, Canada’s WSP and the local Amer Al Amr is providing SWPC with financial, technical and legal consultancy services for the Mecca ISWR projects.

  SWPC plans to develop 11 other ISWR schemes in total. They are located in the Eastern Province, Medina, Qassim, Tabuk, Riyadh and Jizan, as well as in Al Baha, Najran and Aseer.

  

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  Jennifer Aguinaldo
• 
  Firms submit Trojena visitor centre PQs

  7 May 2024

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  Neom has received interest from companies seeking to participate in the tendering process for the Mirage Visitor Centre in the Gateway Cluster of the Trojena mountain development.

  According to sources close to the project, contractors submitted prequalification documents by 17 April.

  The scope of the design-and-build contract consists of the canopy and spire, the arrival plaza, the bowl, the food and beverage area, the time travel tunnel passenger station and platform, landscaping, utilities and associated infrastructure.

  Neom sought firms’ interest in developing the Mirage Visitor Centre in March.

  The Mirage Visitor Centre is a transmission hub located at the development’s lower plateau. Visitors will arrive via automated vehicles and transfer to the funicular, travelling through a tunnel passing the Vault and on to the various destinations within Trojena.

  US-based engineering firm Jacobs and Lebanese Dar Al Handasah are the project consultants.

  Bechtel is the project management consultant.

  Trojena progress

  Neom is advancing its plans to deliver several key components of the Trojena development.

  In April, MEED reported that Neom had issued a notice asking contractors to prequalify for a contract to build The Vault building.

  Neom also issued a tender notice inviting contractors to bid for the concrete works package for Trojena’s Ski Village in March.

  Neom is also close to awarding a contract for the staff and contractors’ camp facilities at Trojena. The contract covers the construction of workers’ accommodation facilities at Camp 4 and Camp 2 at the development. 

  In December, it selected Italian contractor WeBuild for an estimated SR20bn ($5bn) contract to build the dams that will create an artificial lake at the heart of the mountain resort.

  In October, Neom also awarded a SR4.5bn ($1.2bn) infrastructure development contract to a joint venture of the local Al Ayuni Investment & Contracting and Turkish Limak Holding.

  

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  Yasir Iqbal
• 
  Aramco first-quarter profit drops by 14.5%

  7 May 2024

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  Saudi Aramco announced a net income of $27.3bn in the first quarter of 2024, a decline of about 14.5% compared to its profit of $31.9bn in the same period last year.

  Cash flow from operating activities stood at $33.6bn, a year-on-year decrease of 15%, while free cash flow also fell 26% year-on-year to $22.8bn, the Saudi energy giant said.

  Aramco’s gearing ratio was registered at -3.8% as of 31 March, compared to -6.3% at the end of 2023.

  Separately, the state enterprise announced a base dividend of $20.3bn for the first quarter of 2024 and the fourth performance-linked dividend distribution of $10.8bn, to be paid in the second quarter.

  Aramco expects to declare total dividends of $124.3bn in 2024, including a base dividend of $81.2bn and a performance-linked dividend of $43.1bn.

  Looking ahead, Aramco expects its overall venture capital funding to more than double to $7.5bn, “expanding the company’s ability to finance disruptive new technologies in various sectors, including the digital and sustainability fields”.

  ALSO READ: Aramco profit in 2023 drops by 25%

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  Indrajit Sen
• 
  PPP offers budget and efficiency routes

  7 May 2024

  

   

  The procurement of the multi-utility packages for the Red Sea and Amaala developments, as well as for the staff accommodation packages at Neom, used a public-private partnership (PPP) model, opening up an alternative route for Saudi Arabia to finance and ensure the efficiency of its gigaprojects.

  In the case of the Red Sea and Amaala schemes, bundling the utility elements of these greenfield projects – including renewable energy generation, cooling, water desalination and treatment and waste recycling – makes sense for both the procuring entity and the utility developers and investors.

  Instead of dealing with several developers or suppliers, the client – which does not necessarily specialise in providing utility services – only has to deal with the selected developer, which then manages the contractors and operations and maintenance companies.

  Complex infrastructure takes a long time to procure. This is a fact, particularly when quality is a focal point"

  Cost and operational efficiencies are also incentives, given that each component of the project is relatively small and may require a bigger budget if they were to be procured as separate contracts.

  PPPs serve both as a solution and challenge to perceived budget and liquidity issues that are facing the official gigaprojects as they enter the execution phase, not to mention their tight delivery timelines.

  Neom, for instance, is pursuing both PPP and conventional procurement models for the renewable energy and water desalination facilities it requires for the SR1.9tn ($500bn) development.

  “Complex infrastructure takes a long time to procure. This is a fact, particularly when quality is a focal point," note Jason Gouveia and Joanna McGuire, senior associates at UK-headquartered legal consultancy Ashurst. 

  "There will, therefore, always exist a natural tension between urgency and procurement duration in the context of PPP deals, and it is important to keep a tight handle on the efficiency of the procurement process.”

  This requires procurers and their advisers to carry out feasibility assessments before going to market, and to address any issues that bidders and their lenders are likely to raise as part of their due diligence on a PPP project, they add.

  The kingdom's gigaprojects are contending with 200 other infrastructure schemes that are being planned by various ministries through the National Centre for Privatisation & PPP (NCP), the state PPP procuring authority.

  Among the schemes in the NCP’s pipeline are airports, seaports, roads and healthcare facilities, which all cater to Saudi Arabia’s growing infrastructure needs as the population and economy expand.

  This pipeline will only grow, as it is anticipated that the procurement models for some aspects of the gigaprojects will be changed in response to budgetary cuts, and more lenient execution timelines may also be adopted, potentially extending the deadlines from 2030 to 2040.

  Liquidity squeeze

  Some experts cite the overall liquidity of local banks and the willingness of international lenders to participate in future projects in response to the growing PPP pipeline.

  “The liquidity levels of local banks are not readily ascertainable. However, given the rate of progress on projects within the kingdom, which assumes committed financing is in place, it seems that local banks, together with the support of their international counterparts and institutional investors, are able to meet the liquidity demands of projects,” say Gouveia and McGuire.

  The pair adds that an efficient, robust and safe monetary policy is key to attracting international banks to the Saudi PPP market.

  “On the projects we are advising on, international lenders and development investment funds are a common feature, as the international lending market seeks to diversify their books of debt.

  “Depending on the complexity and capital intensity of a PPP project, there may be no other option but for the lending market to be a syndication of local and international lenders, to ensure that capital requirements are met.”

  Lenders are also most likely to target the more lucrative projects – such as the gigaprojects and those schemes initiated by the Saudi sovereign wealth vehicle, the Public Investment Fund (PIF) – over others in the PPP ecosystem.

  “Given that the capacity of the market is naturally limited in terms of resourcing, there is a potential danger that the NCP's PPP programme may find itself suffering in comparison to those other market segments,” the two lawyers warn.

  A senior PPP transaction expert does not entirely agree, noting that PPPs account for only a small percentage of the pipeline of gigaprojects.

  The impact of the budget shift and the scope for the gigaprojects to move parts of their projects to a PPP model remains limited.

  He agrees, however, that developers do tend to prefer to be associated with the gigaprojects over the NCP projects.

  Within the gigaprojects sphere, concerns about who ultimately bears the payment risk in a PPP project become relevant. Ashurst’s Gouveia and McGuire say it is always preferable for the entity with the greater financial wherewithal to bear the burden of payment.

  "Often, there may be certain governmental-level letters of comfort or support provided by the finance ministry that are added as a supplementary means of payment protections and credit support," they explain.

  

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  MEED's April 2024 special report on Saudi Arabia includes:

  > GVT & ECONOMY: Saudi Arabia seeks diversification amid regional tensions
  > BANKING: Saudi lenders gear up for corporate growth
  > UPSTREAM: Aramco spending drawdown to jolt oil projects
  > DOWNSTREAM: Master Gas System spending stimulates Saudi downstream sector
  > POWER: Riyadh to sustain power spending
  > WATER: Growth inevitable for the Saudi water sector
  > CONSTRUCTION: Saudi gigaprojects propel construction sector
  > TRANSPORT: Saudi Arabia’s transport sector offers prospects

   

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  Jennifer Aguinaldo