Petrofac Wins $2.2 Billion EPC Contract for Algeria's Relaunched El Merk Oil and Gas Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Petrofac International Limited (Sharjah, United Arab Emirates), a private oil and gas services firm, recently secured a $2.2 billion engineering, procurement and construction (EPC) contract to develop the central processing facility (CPF) of the El Merk oil and gas processing unit in the Berkine Basin region of Algeria. The firm will execute the order over the next 44 months and expects the facility to commence commercial operations in 2012.

The El Merk plant is a joint venture of state-owned Sonatrach (Hydra, Algeria), Anadarko Petroleum Corporation (NYSE:APC) (The Woodlands, Texas), Maersk Olie Algeriet AS (Kobenhavn, Denmark), Eni SpA (NYSE:E) (Rome, Italy), ConocoPhillips (NYSE:COP) (Houston, Texas) and Talisman Algeria BV (Amsterdam, The Netherlands), a subsidiary of Talisman Energy Incorporated (TSX:TLM) (Calgary, Alberta).

In March 2006, Sonatrach and Anadarko, on behalf of the joint-venture partners, awarded the initial engineering and design contract for the project to Brown & Root-Condor Algerie (Hydra, Algeria), a joint venture between Sonatrach and Kellogg Brown & Root UK Limited (Surrey, United Kingdom). Design work on the project had already commenced and EPC contracts were expected to be finalized by the end of the year, following the successful completion of the initial engineering and design study.

In October 2007, several firms were shortlisted to participate in the bidding rounds for EPC contracts for six packages. Firms shortlisted to bid for the CPF package included Petrofac, SNC-Lavalin Group Incorporated (TSX:SNC) (Montreal, Quebec), Bechtel Group Incorporated (San Francisco, California), and a joint venture of Saipem SpA (BIT:SPM) (Milan, Italy) and Snamprogetti SpA (San Guiliano, Italy) in collaboration with JGC Corporation (TYO:1963) (Tokyo, Japan).

Among those shortlisted to bid for the export pipelines package were the Saipem-Snamprogetti joint venture, Bonatti SpA (Parma, Italy), Techint Compagnia Tecnica Internazionale SpA (Milan, Italy), Bechtel and a joint venture between Willbros Group Incorporated (NYSE:WG) (Panama City, Panama) and National Contracting Company Limited (Al Khobar, Saudi Arabia).

The six firms shortlisted for two off-site packages were the Saipem-Snamprogetti joint venture, Entrepose Contracting SA (EPA:ENTC) (Colombes, France), Techint, Bonatti, the Willbros-National Contracting joint venture, and La Societe Algerienne de Realisation de Projets Industriels (Hydra, Algeria), a joint venture between ABB Limited (NYSE:ABB) (Zurich, Switzerland) and Sonatrach.

The four firms shortlisted to bid for the civil works package were a joint venture between Bentini SpA (Faenza, Italy) and Orascom Construction Industries (CAI:OCIC) (Cairo, Egypt), Butec SAL (Beirut, Lebanon), Consolidated Contractors International Company (Athens, Greece), and Entreprise Nationale de Réalisation des Infrastructures Energetiques SpA (Boufarik, Algeria).

However, the project was stalled in March 2008 following differences between Sonatrach and Anadarko and a drop in oil output forecasts. Firms shortlisted to participate in the bidding process had submitted technical bids, but the process was delayed at the commercial bid stage and no contracts were awarded. In February 2009, Anadarko announced an expenditure program of $4 billion under which 20% of the capital expenditure was earmarked for its large-scale projects, including the El Merk facility. Earlier this month, it was announced that the project is back on track. Although Anadarko has not announced a schedule of contract awards, construction contracts are expected to be retendered and awarded by mid-March. One of these contracts is the $2.2 billion EPC order secured by Petrofac for the CPF package.

According to initial plans, the El Merk facility was to be designed with a production capacity of 108,000 barrels per day (BBL/d) of oil, 75,000 BBL/d of liquefied petroleum gas, and 55,000 BBL/d of condensate. According to recent reports, the facility will now have a production capacity of 98,000 BBL/d of oil, 31,000 BBL/d of liquefied petroleum gas, 21,000 BBL/d of condensate, and 600 million metric standard cubic meters per day (mmscmd) of natural gas liquids. The CPF will also be designed to compress 500 mmscmd of residue gas for re-injection and treat 80,000 barrels per day of water, also for re-injection into the unit.

Anadarko and Sonatrach will operate the El Merk facility, which will consist of a CPF, export pipelines and associated facilities. The CPF will be located in Block 208, about 90 kilometers south of the Hassi Berkine South facility, which is also operated by Sonatrach and Anadarko. Hydrocarbon feed for the CPF will be procured from four fields in Block 208 operated by Sonatrach and Anadarko, Block 212 operated by Sonatrach and Eni, and the unitized El Merk field located partly on Block 208 and partly on Block 405a, which is operated by Sonatrach and ConocoPhillips. The El Merk plant will also use liquid-rich gas from the Hassi Berkine South facility.

Established in 1981, Petrofac is an EPC firm that provides management and investment support to oil and gas producing and processing firms. The firm is currently executing a $600 million EPC order for the In Salah Gas project in Algeria that involves a phased development of eight gas fields in the Ahnet-Timimoun Basin region. In Kuwait, the firm has executed a $680 million upgrade project of nine oil and gas facilities owned by Kuwait Oil Company (Ahmadi, Kuwait).

Anadarko is one of the world's largest independent oil and gas exploration and production firms with proven reserves of 2.28 billion barrels of oil equivalent as of December 31, 2008. This includes proven reserves of 900 million barrels of crude oil, condensate and natural gas liquids, and 8.1 trillion cubic feet of natural gas. The firm has significant onshore operations in Algeria, the U.S., and Gulf of Mexico.

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