Saipem Wins $5.42bn Contract for Zabazaba-Etan Devt Project in OPL 245

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Italian engineering, construction and drilling contractor, Saipem has won $5.42 billion contract for chartering, operations and maintenance for a Floating Production Storage Offloading (FPSO) tanker facility for the Zabazaba and Etan development project in Oil Prospecting License (OPL) 245, THISDAY has learnt.

THISDAY, however, gathered that the $2.96 billion of the contract price, which is expected to be spent in Nigeria in line with the provisions of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act of 2010, is under threat.

This followed concern that the contractor is allegedly planning to use sister or affiliated companies to execute the local content scope of the project in violation of the NOGICD Act and the recommendations of the Nigerian Content Development and Monitoring Board (NCDMB).

Nigerian Agip Exploration (NAE) Limited and Shell Nigeria Exploration and Production Company (SNEPCo) signed the production sharing agreement at the ratio of 50:50 for the development of Zabazaba and Etan, where NAE is the operator.

NAE is developing Zabazaba field which has proven reserves of 560 million barrels of oil, as a standalone development, while Etan field, which is also in OPL 245, will be developed as a tie-back to Zabazaba.

The Zabazaba Deepwater field is a Greenfield offshore licence block in the eastern portion of the Niger Delta with water depths ranging from 1,200 to 2,400 metres.

Shell and Agip acquired the controversial OPL 245 from Malabu Oil and Gas in 2012 for $1.3 billion.

The acquisition has been the subject of a corruption probe and prosecutions in Italy and Nigeria but has not deterred Shell and Agip, which have both maintained their innocence, from going ahead with the field’s development.

Agip plans to achieve first oil in 2020 and is determined to start execution of the project in the first quarter of 2018.

THISDAY gathered that following the completion of the technical and commercial evaluation of the bids for the main packages in the development of the $13.5 billion Zabazaba deepwater oil field by the NCDMB and NAE, Saipem/Bluewater emerged as the winner of the $5.42 billion contract for chartering, operations and maintenance for a FPSO tanker facility for the Zabazaba and Etan development project.

The bid documents obtained exclusively by THISDAY at the weekend showed that of the three companies that submitted bids for the OPL 245 project, Saipem/Bluewater submitted the lowest bid of total lump sum of $5,426,500,714.00 out of which the bidder pledged to execute $2,966,993,161.91 of the work scope in Nigeria, in line with the provisions of the Nigerian Oil and Gas Industry Content Development (NOGICD) Act of 2010.

The bid documents also showed that Malaysia-based international offshore energy facilities and services provider, Bumi Armada submitted bid of a total lump sum of $7,622,412,019, out of which $2,740,108,326.84 is the price of work to be executed in Nigeria in line with the NOGICD Act.

The third bidder, Norway-listed BW Offshore, reputed as a leading global provider of floating production services to the oil and gas industry and the world’s second largest contractor with a fleet of 15 FPSOs, submitted a bid with total lump sum of $7,630,575,309, out of which $3,434,801,972.83 is the price of work to be domiciled in-country in accordance with the Nigerian content.

Though the NCDMB has only recommended the three contractors to Agip to select the winner of the contract, a source at Agip told THISDAY at the weekend that Bluewater/Saipem has emerged the winner as their $5.426 billion bid was even $244 million lower than the $5.670 billion, which Agip had estimated in-house, as the cost of the project.

THISDAY, however, gathered that the $2.96 billion, which is expected to be domiciled in Nigeria in line with the provisions of the NOGICD Act, is under threat as the winner is allegedly planning to award the local content scope of the project that is worth $2.96 billion to sister or affiliated companies.

“Saipem may be heading for another collision with the NCDMB because they are contemplating awarding the local content scope to firms affiliated to them so that all the money will go back to their country. The ES (Executive Secretary) has put his foot down that the contractor must adhere to the recommendations of NCDMB on Nigerian content requirements,” said a top official of NCDMB, who spoke off the record.

THISDAY gathered that Saipem was the first foreign contractor to be sanctioned by the NCDMB for violating the NOGICD Act.

In letter dated February 28, 2014, the NCDMB had suspended Saipem from participation in Nigerian oil and gas projects for “abuse of expatriate quota and procurement processes” after the agency had issued several caution notices to the Italian company in a bid to steer it into compliance to the NOGICD Act but the notices were ignored.

The letter had listed Saipem’s violations of the NOGICD Act to include “preponderance of expatriates on Egina project team without provisions for Nigerian understudies; discriminatory use of Nigerian Content Equipment Certificate (NCEC) to the detriment of Nigerian companies with in-country facilities”.

NCDMB had listed other acts of violations to include “Your plan to execute 2,900 tonnes of fabrication outside, while only 700 tonnes shall be executed in-country; your plan to source for all 31 Cladded and SS Pressure vessels from China contrary to the requirements of the schedule of the Act and your company’s plan to source for Globe Control Valves and Panametric Analysers on Shell’s SSAGS Project despite in-country capacity for such services”.
Saipem was also accused by the NCDMB of procuring goods and services directly from abroad whereas some Nigerian companies had the necessary capacities for the jobs.

The company was also said to be dealing directly with foreign Original Equipment Manufacturers even when those companies had Nigerian partners and representatives.

The company’s action was said to be against the federal government’s Equipment Components Manufacturing Initiative, (ECMI) which was geared towards promoting local manufacturing of oil and gas components.

But in another letter dated April 7, 2014, with reference number NCDMB/MED/69/14/002, which was signed by the then Executive Secretary of NCDMB, Mr. Ernest Nwapa, the agency lifted the ban on Saipem, saying it had reviewed the company’s actions, commitments and introduction of new practices.

A top official of NCDMB told THISDAY at the weekend that the Zabazaba and Etan project would be a litmus test for Saipem in the area of Nigerian content compliance.

However, an official of Saipem, who opted to speak off the record, told THISDAY that Agip has not officially communicated any decision to award the Zabazaba and Etan project to Saipem, adding that all the bidders are still waiting for the official announcement of the winner.

He added that even if his company is the lowest bidder, it does not mean that it has automatically emerged the winner.
According to him, Subsea 7 was said to be the winner of Shell’s Bonga South Project three years ago, having submitted the lowest bid but the company did not win the contract at the end of the day.
Responding to the allegation that his company is planning to flout local content, he stated that Saipem had included its Nigerian Content plan in its bid, stressing that if the company emerges as the winner, it means that its Nigerian Content plan has been accepted.

“We have not been awarded the contract. We just submitted a bid and all the bidders are waiting for the results. Agip has not announced the winner and Agip has not given us any letter that we are the winner. You are the one telling me that we are the lowest bidder. But even if we are the lowest bidder, it is not automatic that we will win. About three years ago, everybody was saying that Subsea 7 was going to win the Bonga South West project because they submitted the lowest bid but they did not win the job at the end of the day,” he explained.

In a letter dated August 30, 2017, obtained by THISDAY and addressed to the Managing Director of Nigerian Agip Exploration Limited, the Executive Secretary of NCDMB, Mr. Simbi Kesiye Wabote had warned that non-fulfillment of Nigerian Content commitments in the Zabazaba and Etan project shall lead to the outright project/contract cancellation and disqualification of the contractor from participation in future projects.

“Therefore, operator (Agip) must ensure that the recommendation to award (RTA) to the successful bidder is accompanied by a duly approved Nigerian Content Compliance Certificate. The law holds the operator responsible for compliance to all the provisions both in the award of the contract and during contract execution,” Wabote said.
THISDAY gathered that the Agip-operated project is expected to set a new record in local content development as the three contractors that bidded for the project had submitted competitive costs and concrete plans to fabricate and integrate over 50 per cent of the topsides of the FPSO in the country.

Wabote in the letter with Ref: ES/NCDMB/NAE/MMD/08/17, noted that “based on their submissions and in conjunction with the ITT requirements for Nigerian Content on this package as well as NCDMB no Objection letter to NAE ref: ES/NCDMB/NAE/05/17 dated June 9, 2017, all the bidders have provisionally complied with the minimum Nigerian Content requirements for the above-subject project as prescribed for in the NOGICD Act 2010.”

In his letter to Agip, Wabote listed the conditions to be met by the successful contractor to include “demonstration of in-country investments in the development of their own fabrication yards with lifting capacity or investments in ownership of functional existing yards, having the capacity to execute 9,000 tonnes (Topsides 7,000 tonnes and Appurtenances 2,000 tonnes) of fabrication; finalisation of MOAs with the nominated local vendors/suppliers and in-country service providers, representing their firm Nigerian Content commitment.”

The letter also added that “Nigerian content commitment inside out-of-country SoW Tenderers shall identify the COREN-registered, that is, with practicing license, indigenous engineering company participating in the execution of the SoW and confirming the allocation of 50 per cent of the total man-hours out-of-country to that entity for Nigerian Content.”

Wabote also stated that in line with “Section 16 of the NOGICD Act 2010, the award of the local content scope of the contract shall not be solely based on the principle of the lowest bidder where a Nigerian indigenous company has capacity to execute such job”, noting that “the company shall not be disqualified exclusively on the basis that it is not the lowest financial bidder, provided the value does not exceed the lowest bid price by 10 per cent.”

Samsung Heavy Industries (SHI) had raised the stake in Nigerian content development when it locally fabricated six out of the 18 modules, representing over 30 per cent of the main packages of the $3.3 billion Egina FPSO being constructed in South Korea for the Egina deepwater field
The Egina deepwater field is currently being developed at the cost of $18 billion by Total Upstream Nigeria Limited (TUPNI).

For the first time in history, six FPSO topside modules for Egina FPSO were fabricated in-country across fabrication yards and will be integrated into the main FPSO when the FPSO arrives at the Samsung Yard (SHI-MCI yard) in Lagos.

THISDAY gathered that the Egina FPSO has since left the quay side at Samsung Yard in Geoje, Korea and it will take about 90 days for it to arrive at the SHI-MCI FZE quayside (Samsung Yard) in Lagos where it will be integrated before the vessel sails away to the 200,000 barrels per day Egina field located in Oil Mining Lease (OML) 130.
However, for the Zabazaba deepwater project, the NCDMB has stipulated that the contractors must fabricate and integrate over 50 per cent of the topsides of the FPSO in Nigeria.

Apart from Total’s Egina field that is under development, Nigeria currently has five other giant deep offshore oil fields that are producing – Shell’s Bonga, ExxonMobil’s Erha, Chevron’s Agbami and Total’s Akpo and Usan fields but Wabote said the Zabazaba field would impact the Nigerian economy much more than previous deepwater projects.
The Managing Director of Total Nigeria E & P, Mr. Nicolas Terraz told participants at the recent 7th Practical Nigerian Content conference held in Uyo, Akwa Ibom State, that his company achieved 44 per cent Nigerian Content in Akpo project in 2006, 60 per cent Nigerian Content in Usan project in 2008 and 77 per cent in Egina project.

But Wabote had also stated that the NCDMB carried out detailed scoping of the Zabazaba project to ensure that the targets exceed the accomplishments achieved for Total’s Egina.