Lamprell said it had a bid pipeline of almost $5 billion, refitting existing rigs and building new platforms with additional capabilities. Jaime Puebla / The National
Lamprell said it had a bid pipeline of almost $5 billion, refitting existing rigs and building new platforms with additional capabilities. Jaime Puebla / The National

Oil and gas industries springing back to life



Oil and gas contractors across the Emirates are adding thousands of jobs as producers demand safer and more advanced drilling platforms and restart stalled investment projects.

Lamprell, the UAE oil and gas engineering specialist, said it had a bid pipeline of almost US$5 billion (Dh18.36bn), refitting existing rigs and building new platforms with additional capabilities.

The company has increased its staff to 13,000 to cope, and it may add a further 1,000 by the end of the year.

Petrofac, a UK oilfield services company that operates in Abu Dhabi and Sharjah, also announced its first major contracts with GDF Suez to service its operations in the North Sea.

"It's a bit of a scramble in order to explore and develop these oil and gasfields around the world," said Samuel Ciszuk, a Middle East energy analyst at IHS Global Insight. "Right now, that's all being geared up."

Oil companies are renewing their expansion plans, drawn up as crude hit $147 per barrel in the summer of 2008, after initially scaling back some projects following shortages of rigs, materials and skilled workers, he said.

Although crude fell sharply during the following years as the financial crisis depressed economic growth, oil prices have recovered this year.

Brent crude futures have risen 18.8 per cent since January to $112.07 per contract, reaching highs of $126.74 in April.

Signs are emerging that investment is returning to oil production and exploration, creating significant opportunities for oilfield service companies.

Lamprell reported net profits of $18.6 million for the first half of the year, a decline of 53.1 per cent on the same period last year, with earnings depressed as it bore the cost of acquiring a rival based in Sharjah to cope with the size of its order book.

But the company's sales more than doubled during the same period to $383.6m, boosted by $316m of new contracts.

In May, Lamprell fully acquired Maritime Industrial Services (MIS) for 1.83bn Norwegian kroner (Dh1.25bn) in an effort to expand its facilities and the size of its workforce. The company also announced a $226m rights issue the same month.

Lamprell's management hopes the acquisition will aid the processing of its $869m order book, of which MIS accounts for $110m, and a pipeline of bids potentially worth $4.7bn.

The company was caught by surprise by an increase in orders starting in the second half of last year, much of it related to maintenance and upgrades requested by oil producers following BP's Deepwater Horizon rig disaster, said Nigel McCue, Lamprell's chief executive.

Oil producers were also looking for larger, more advanced rigs capable of drilling in deeper waters, said Scott Doak, the company's chief financial officer.

The company's shares rose as much 5.5 per cent in mid-afternoon trade in London. Lamprell's acquisition had left it well positioned to capture spending on exploration and production in the region, said Ryan Kauppila, an oil and gas analyst at Citigroup.

"The MIS acquisition not only expands yard capacity but offers them a foothold into some select onshore businesses throughout the Middle East, including Iraq, which is a critical geography for the industry this decade," he said.

Separately, Petrofac announced it would provide support and maintenance for GDF Suez's operations in the North Sea, in a move that will create 100 jobs.

Two contracts signed with the French company, the world's biggest utility firm by market capitalisation, are worth a total of £30m (Dh179.2m) over three years, with an additional two-year option.

Petrofac's shares rose as much as 5.95 per cent yesterday.

A State of Passion

Directors: Carol Mansour and Muna Khalidi

Stars: Dr Ghassan Abu-Sittah

Rating: 4/5

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”