Singapore's SMEs Brace for Challenges in Oilfield Services Sector

Hess To Form MLP For North Dakota Oil, Gas Transport Assets
Small medium enterprises in Singapore are taking steps to deal with domestic and external challenges affecting the oilfield services industry.

Small medium enterprises (SME) offering oilfield services in Singapore are experiencing intense competition. The scramble for such contracts has become more intense as large petroleum firms have been pressured by shareholders to rein in capital expenditure (capex) for exploration and production (E&P).

Despite lacking fossil fuels, Singapore’s petroleum industry accounted for about 5 percent of the country’s gross domestic product, figures from the Economic Development Board showed. Petroleum refining, oil trading and the marine and offshore engineering sector – dominated by rig builders Keppel Corporation Ltd. and Sembcorp Marine Ltd. – contributed significantly to the state’s coffers.

Many local, including SMEs, and foreign firms in the marine and offshore sector based their operations in Singapore in order to capitalize on the latter’s strategic location in Southeast Asia. Using their Singapore base, they support the petroleum industry in the region, which is home to major oil and gas producers such as Indonesia and Malaysia.

Smaller Firms’ Market Share Shrinks

In recent years, smaller companies had contributed less revenue to Singapore’s marine industry, inclusive of those in the offshore sector. In 2011, these firms generated $2.75 billion, or 26.8 percent, of the $10.25 billion in industry revenue, but declined to 17.3 percent last year, when their contribution was at $2.08 billion compared to the sector’s turnover of $12.05 billion.

Hess To Form MLP For North Dakota Oil, Gas Transport Assets
Singapore's Marine Industry Turnover(dollars in billions)Source: Association of Singapore Marine Industries
Hess To Form MLP For North Dakota Oil, Gas Transport Assets
SOURCE: Association of Singapore Marine Industries, Keppel, Sembcorp Marine NB: Smaller firms' revenue includes SMEs and is derived from marine industry total minus Keppel and Sembcorp Marine

SPRING Singapore – a government agency “responsible for helping Singapore enterprises grow and building trust in Singapore products and services” – indicated on its website that SMEs in the marine and offshore engineering industry will face keen competition ahead as this is a key focus sector for many economies globally.

In Singapore, SMEs are defined as companies with annual revenue of $79.1 million (SGD 100 million) or hire less than 200 workers. Unlike major firms operating in Singapore’s offshore sector, most local SMEs are still carving a niche for themselves in the industry. Rigzone spoke to three Singapore SMEs for their views on the issues and challenges they face in the offshore industry.

NuStar Technologies Seeks to Carve a Niche

AC Lim, NuStar MD
AC Lim, NuStar MD. Source: Rigzone
AC Lim, NuStar MD.
Source: Rigzone

NuStar Technologies Pte Ltd., established in 2012, is trying to carve a niche as a subsea equipment supplier in Asia Pacific as the SME sees the offshore industry edging further into deepwater. The company is optimistic about growth in deepwater projects, especially in the region’s two largest energy consumers – China and India.

“National oil companies [NOC] in China and India have been scaling up on deepwater exploration. China for instance is building more rigs for subsea E&P. As more firms move to deepwater, complex technology will be required,” AC Lim, NuStar’s managing director told Rigzone.

To benefit from this growth, NuStar will utilize its knowledge of the Asia Pacific offshore industry to provide appropriate subsea equipment solutions for potential clients in the region. The company hopes to fill the void in this industry segment, currently dominated by U.S. and Norwegian firms. NuStar has to overcome challenges faced by a start-up – product recognition by major industry bodies such as the American Petroleum Institute (API) as well as potential clients.

“We need the API license, otherwise people won’t recognize our product … Our products need to be tested and proven operational in the field ... before we start selling globally,” Lim explained.

Goi Kim Kok, NuStar Sales & Marketing Director
A Goi Kim Kok, NuStar Sales & Marketing Director

Goi Kim Kok
NuStar Sales & Marketing Director
Source: Rigzone

So far, the new industry player has secured contracts from companies like Japan Vietnam Petroleum Co., Ltd. and Premier Oil plc. It has worked with South Korea’s Korean Gas Corp. and has held discussions with Chevron Corp. and Royal Dutch Shell plc to provide subsea equipment solutions.

While the business prospects appear rosy, NuStar emphasized that the biggest constraint to the company’s growth is physical space to test its equipment – an issue that may take time to resolve in land-scarce Singapore.

“Dril-Quip, Inc. was in Singapore for 20 years. Two and a half years ago, Jurong Town Corp. allowed them a big piece of land in Tuas …. Now it’s running. We hope that one day we will be like them [and be given access to a large land parcel for equipment testing],” Lim commented.

To strengthen the firm’s service offerings, NuStar – as a new SME – had applied for and received a grant from SPRING to purchase certain research and development equipment to boost its capability.

On the issue of manpower, NuStar is not unduly concerned about the general shortage of experienced workers. As an SME, the firm is prepared to train new hires and transfer knowledge over to new staff, Lim added.

ROS Offshore Solutions Pte Ltd. (ROS), a provider of modules for the floating production, storage and offloading (FPSO) sector as well as engineering services to the offshore petroleum industry, has been in business for a decade.

The company, which has worked with established FPSO operators, including Japan’s MODEC Inc., Norway’s BW Offshore Ltd. and Malaysia’s Bumi Armada Berhad, hopes to extend its services to cover emerging albeit smaller FPSO operators.

Eli Xanthopoulos
Eli Xanthopoulos, MD of ROS Engineering. Source: Rigzone
Eli Xanthopoulos, MD of ROS Engineering.
Source: Rigzone

Even as ROS seizes opportunities in the FPSO sector, the Singapore-based SME is widening its services to other segments of the offshore industry such as the provision of mobile offshore production units (MOPU). Rising interest in marginal and mature fields in Southeast Asia, including Malaysia where state-owned Petroliam Nasional Berhad (Petronas) had planned 10 enhanced oil recovery (EOR) projects at a cost of $14 billion, provides growth potential for the firm.

“There are good solutions for these marginal or mature fields that require enhanced recovery techniques such as a gas lift, water injection or gas injection, etc. So this fits right in with our growth strategy … We see more of those types of projects [MOPU] in the future,” Eli Xanthopoulos, ROS Engineering’s managing director told Rigzone.

As it charts a path towards becoming a billion dollar company, the SME faces challenges in its growth, including getting recognition and acceptance from potential clients for their products, vying for a slice of the business in a fiercely competitive market and reining in escalating costs. Manpower is another critical issue that ROS has to deal with.

“As a small company, attracting talent is always a challenge. But once they come on board, keeping them is another challenge. So you get hit both ways … It’s a Catch-22 situation … It’s a whole lot of challenge … locally and regionally, we lost some staff,” to other firms, Xanthopoulos elaborated.

Looking ahead, ROS indicated that it would require skilled engineers, proposal and procurement staff, project managers as well as project engineers if the SME secures a pipeline of offshore projects.

Aluminium Offshore Consolidates Position as a Major Helideck Builder

Unlike the other two SMEs, Aluminium Offshore (AO) has been in business longer, having been established in 1986 before it operated under its present name in 1992. AO focuses on the design and production of aluminium alloy structures, including helidecks, support structures and living quarters, for customers seeking to switch from steel or concrete to a lighter and more corrosion resistant metal.

Hess To Form MLP For North Dakota Oil, Gas Transport Assets
Helideck and Support Structure at Statoil’s Gudrun Platform in Norway.

AO is positive about its business outlook amid greater utilization of aluminum in the offshore industry. The main drivers for aluminium are its low weight, high strength and corrosion resistance. The firm has installed more than 400 helidecks globally, underlining greater interest in aluminium alloy structures. Oil and gas companies such as Royal Dutch Shell plc, Exxon Mobil Corp. and Petronas as well as rig builders Keppel FELS Ltd. are among its clients. AO is the world’s largest aluminium helideck design and build company and its geographical location in Singapore has helped to raise the firm’s profile immensely, AO CEO Neelesh Uppal told Rigzone.

Although AO has been in the international markets for decades, venturing into new markets are somewhat more challenging, Neelesh added. For instance, in markets such as Brazil, where there is high local content requirement, operating successfully requires a different subset of skills and alliances. AO is bullish about Europe and has opened a Norwegian office to tap business opportunities in Norway, Northern Europe, Scandinavia and Europe. The firm is also considering establishing an office in the United States, possibly in Houston.

Even as the company seeks to grow its overseas business, AO has to deal with issues that most SMEs encounter in their daily operations. Rising labor and operating costs have resulted in higher cost for design, fabrication and project management, while skilled manpower is another concern for AO.

“One of our biggest resource issue is talented structural engineers ... Many large companies hire on a contract basis but we have to peg it to SME rates as we have to be competitive and yet profitable,” Neelesh said.

To keep its lead in the business, AO focused greatly on research and development (R&D). Through continual R&D, the company creates new products and builds a buffer against competition.

“In many cases, the secret to running a business of this nature profitably is to realize that you will be overtaken in time. So we take some profits out from being an early adopter and then drop the product to more commodity level and then move on ... you ensure that the pack behind you doesn’t have super profits to subsist on,” AO CEO explained.

While each of these three SMEs in Singapore are at different stages of development, they share a common ambition in trying to entrench their presence as reliable services providers for the offshore oil and gas industry, both regionally and globally.



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