Integrating operations: Developing local onshore assembly and fabrication capacity

As Nigeria’s upstream mix shifts increasingly offshore, developing onshore assembly and fabrication capacity will be crucial for the floating, production, storage and offloading (FPSO) facilities key to extracting this oil. The local content of FPSOs in Nigeria has gradually increased with FPSOs such as Bonga, Agbami and Usan, yet the Total-operated Egina looks set to become the first FPSO with integration onshore, in compliance with the 2010 Nigerian Content Act. However, the project will be challenging both in terms of developing the required capacity at the new purpose-built Lagos Deep Offshore Logistics Base (LADOL) and in controlling potential cost overruns. In addition, requirements to increase upstream production’s local content are particularly onerous for larger and more sophisticated offshore structures.

INCREASED FPSO CAPACITY: The level of local integration of FPSOs used in Nigeria’s offshore industry has grown in line with regulatory requirements. Since mid-2006, one of the major criteria on which the National Petroleum Investment Management System (NAPIMS), the investment arm of the Nigerian National Petroleum Corporation (NNPC), decides awards of project contracts has been the degree of local content. While all major components continued to be integrated in South Korean shipyards, major structures like Agbami, Usan and Akpo exceeded the local content requirements that had been set at the time.

Akpo, for instance, involved 15m local man-hours of work, with some 90% of staff being Nigerian. With the 2010 Nigerian Content Act, however, the NNPC’s targets were significantly raised, with all front-end engineering and design (FEED), procurement, seismic data processing and mechanical tests needing to be carried out locally.

It also required 50% local integration of FPSO topsides and the fabrication of roughly 13,000 tonnes of the structure, flow-lines, subsea valves and pipe coating in Nigeria. While no single yard has the capacity to handle FPSO topsides of over 15,000 tonnes, a number of local fabrication yards emerged capable of handling smaller project components. Manufacturing facilities were established at the major free trade zone (FTZ) in Onne, near Port Harcourt, but also on Snake Island, the site of Nigerdock, and at contractor-operated facilities like Saipem’s Rumoulumeni yard near Port Harcourt, Acergy’s Globestar yard in Warri and LADOL, which had handled work on Chevron’s Agbami FPSO.

While Onne continued to be the largest zone domestically for both manufacturing capacity and services, a growing share of contracts for offshore developments were shifted to zones around Lagos, driven by security concerns in the Niger Delta, competition over pricing and the equidistance of the Lagos zones from deepwater blocks.

“We are seeing a shift by contractors on deepwater offshore projects from the Onne FTZ towards zones based around Lagos, such as LADOL and Snake Island, as these are equal distance,” said Olusola Ogunsakin, the general manager of Nigerian content development at Mobil Producing Nigeria and the chairman of the Nigerian Content Division of the Oil Producers’ Trade Section of the Lagos Chamber of Commerce and Industry.

EGINA TENDER: The contract for the Egina FPSO, a deepwater block operated by Total, which owns 24% of it, and backed by the China National Offshore Oil Corporation (45%), Petrobras (16%), Sapetro (5%) and the NNPC (10%), was the first major offshore FPSO awarded since enactment of the 2010 law. Located 150 km offshore on Open Mining Licence 130 and only 12 km from Akpo, substantial discoveries of crude reserves prompted Total to develop a standalone FPSO for the project with an investment commitment of $15bn rather than opt for a subsea tieback to Akpo. Following the approval of basic engineering studies and the development plan by NAPIMS in 2009, the French multinational tendered the 330-metres-long, 61-metres-wide and 33.5-metres-deep FPSO connecting 44 wells, with a throughput of 200,000 barrels per day and storage capacity of 2m barrels. With work on the FPSO set to be completed in 2015 and commercialisation in 2017, Total aims for 75% of work-hours to be carried out in Nigeria, with the fabrication, construction and topside integration to be conducted locally.

PLAYERS: The tender attracted keen competition from Asian-led consortia. South Korea’s Hyundai Heavy Industries (HHI) and Samsung Heavy Industries (SHI) both placed competing bids, for a reported $3.8bn and $3.3bn, respectively, while China’s Dalian Shipbuilding Industry Company in consortium with China Offshore Oil Engineering Corporation and France’s Technip reportedly placed the lowest bid, according to local news reports.

In January 2013 NAPIMS, which conducts all procurement for oil and gas through the online Nigerian Petroleum Exchange, awarded the contract to SHI. The award elicited a reaction from HHI, over the levels of local content between the various bids. “Tensions between Hyundai and Samsung following the Egina FPSO award were clear given the vocal protests by Hyundai,” Austin Ume Zurike, the general manager for Nigeria operations at BW Offshore, told OBG.

SAMSUNG-LADOL: To meet local content requirements, Samsung’s bid involved significant investments in building up LADOL’s capacity. Similar to competitor Daewoo Shipbuilding and Marine Engineering’s equity investments in fabrication yards in Angola to win an FPSO tender from Total, Samsung committed to invest $350m in building an integration facility at LADOL.

But while the 2010 Nigerian Content Act requires 13,000 of the 17,000 tonnes of the structure to be built in Nigeria, the Samsung-LADOL facility will see only some 10,000 tonnes constructed in country. Additional investments will total $500m over construction prices in traditional centres like South Korea, according to estimates in the local press.

By October 2013, LADOL reported having invested $102m in its general facilities and $62.5m in its FPSO fabrication facilities thus far, and said the total project will create 5000 jobs in LADOL and 15,000 auxiliary jobs for fabrication outside LADOL. In the same month LADOL had gained all necessary approvals from the Nigerian Ports Authority.

Despite significant investment commitments, the NCDMB has raised doubts on LADOL’s capacity to execute the project, focusing specifically on human resources. In August 2013 the board warned Total the work scope for fabrication and integration of the FPSO was not compliant with the 2010 content act. While Samsung stills plans to outsource work to the Ascot and Nigerdock yards in Lagos, to avoid delays and overruns, it proposed reducing the number of locally fabricated modules from seven to three and supplying the rest from its shipyard in South Korea. In addition, the joint venture has invested $10m to establish a Samsung Nigeria Technology Academy at the zone in 2012, with capacity for 250 students annually, to address a lack of skilled staff. The school brings together the Nigerian Content Development and Monitoring Board (NCDMB), international vendors and oil firms, and newly graduated students for work both within LADOL and beyond.

FEED & EPC: Samsung contracted Australia-based engineering firm WorleyParsons to design the FPSO locally for over $100m, and a consortium of Nigerian engineering firms, including Delta Afrik, the National Engineering & Technical Company and International Energy Services, to integrate it. The work will include the 34,000-tonne topsides’ crude oil processing and natural gas compression facilities, and power generation, compression and metering systems, and various other support infrastructure.

On the FEED front, work on Egina will be fully domesticated. In June 2013 Total contracted Eni subsidiary Saipem for the $3bn sub-sea engineering, procurement and construction on Egina, covering 52 km of production and water injection flow lines, 20 km of gas export pipelines and 80 km of umbilicals with installation due in 2016 and 2017, while US-listed FMC Technologies was given a $1.2bn equipment order through its operation at Onne. With extensive technical experience in Nigeria, Saipem had already carried out similar work on Total’s Usan field from its Rumoulumeni yard in Port Harcourt.

Despite concerns over the terms of the contract with Samsung for the FPSO, Egina represents the largest effort thus far to increase the local value-added of major deepwater offshore projects. While the investments required to build this capacity domestically in Nigeria are significant, the key to amortising these new facilities will be a consistent pipeline of similar large FPSO projects.

Establishing a strong track record of transparency and clear guidelines for tenders is key for the credibility of the process – in this sense conflicts between bidders and the NAPIMS over the terms of the contract award to Samsung are not helpful.