Baker Hughes clinches integrated services contract for PNG gas field

[August 08, 2017]  By Ron Bousso

LONDON (Reuters) - Baker Hughes, now part of General Electric, has won a major contract to provide a wide range of services to develop Papua New Guinea's first offshore gas field which is sees as a new model to help producers adapt to a world of low oil prices.

GE Oil and Gas completed its merger with Baker Hughes last month to become the world's second largest oilfield services company, bringing together traditional drilling and pumping gear with technology such as software, sensors and three-dimensional printing.

The contract in Papua New Guinea (PNG), worth several hundred million dollars, contrasts with the traditional model where a company awards various parts of field development separately to different providers.

It comes as the global oil and gas industry slowly emerges from a three-year rout that brought new field developments to a near standstill, creating intense competition among oil industry service companies for contracts.

Under the PNG contract BHGE will provide services to Australian exploration and production firm Twinza for the development of the Pasca A gas-condensate field ranging from the initial stages of well-drilling and appraisal through to production and gas processing, executives from the two companies said.

Applying the integrated suite of services together with advanced technology can save companies up to 5 percent in a sector where projects often involve billions in investment, according to BHGE Chief Executive Officer Lorenzo Simonelli.

"The price of oil continues to fluctuate. Capex spending is a moving target at the moment so productivity cost per barrel has to be the focus to get projects to a final investment decision," Simonelli told Reuters in an interview.

In an industry historically plagued by cost overruns and project delays, the "fullstream" model removes logistical delays such as the late arrival of vessels, or the needs to hold several tendering competitions for contracts and adapt to different equipment standards, according to Visal Leng, head of BHGE Asia Pacific.

Simonelli said there were "hundreds of millions (of dollars) associated with the development of the project", but did not give an exact figure for the contract.

BHGE is already working with some of the world's top oil companies on using its integrated services, including a large project with BP <BP.L> in the Gulf of Mexico, Simonelli said.

Idle oil equipment is seen in a Baker Hughes yard in Williston, North Dakota April 30, 2016. REUTERS/Andrew Cullen/File Photo

The integrated service model, also used by BHGE's larger rival Schlumberger <SLB.N>, means that national oil companies will become less dependent on the expertise of the world's top oil and gas companies such as Exxon Mobil <XOM.N> and Royal Dutch Shell <RDSa.L> for the development of fossil fuel resources, Evercore analyst James West said.

DECISION NEXT YEAR

Twinza is expected to make a final investment decision (FID) for the Pasca A project in early 2018 after drilling one more appraisal well this year.

The first phase of the field development will produce 14,000 barrels per day of natural gas liquids (NGLs) extracted together with the gas, Twinza Managing Director Huw Evans said. The gas will then be reinjected into the ground until the second phase of the project.
 

The Pasca A development would be profitable "way below the current oil price" of around $52 a barrel, according to Evans.

BHGE will also extend a credit line to Twinza to fund the appraisal of the field ahead of the final investment decision.

A decision to go ahead with the development of Pasca A would make it one of the few projects expected to be given the go-ahead in 2017 and 2018 as oil prices recover only slowly, despite a decision by OPEC and other producers to reduce their output.

"There was a lot of optimism at the end of 2016 with the actions OPEC took. Some of the optimism is being pushed to the right and you're seeing a progressive shift in some of the projects and people waiting a little longer for stability in the context of lower for longer (oil prices), or simply lower," Simonelli said.

(Reporting by Ron Bousso; Editing by Suswan Fenton, Greg Mahlich)

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