As downturn intensifies, Oman contractors brace for project spending cuts

Muscat: Contractors undertaking large projects for various upstream Oil & Gas, refining and petrochemicals companies in the Sultanate, are girding for painful cuts to their corporate bottom-lines as clients weigh the impact of collapsing oil prices and the global economic downturn on their investments in ongoing projects.

A foretaste of the anticipated hardship ahead came at a meeting hosted by Petroleum Development Oman (PDO), the country’s largest producer of hydrocarbons, which has committed billions of dollars in a number of upstream projects across its Block 6 license. Underscoring the importance accorded to the issue, PDO Managing Director Raoul Restucci chaired the proceedings, with his high-level colleagues in attendance as well.

Also represented at the event, which took place at PDO’s Learning & Development Centre, were senior executives from an array of leading local and international contractors currently executing a number of projects for the majority state-owned energy firm. The list includes Al Turki Enterprises, Petrofac, Carillion Alawi, Arabian Engineering, Bahwan Engineering Company (BEC), GPS and STS, among others.

According to a number of executives who spoke to the Observer, the discussions broadly centred on two key issues: (a) ensuring that the Omani government’s measures for COVID19 prevention are implemented at project sites where sizable numbers of workers are currently deployed, and (b) preparing for a new era of spending cuts stemming from the intensifying global economic downturn.

In recent weeks, international oil prices have fallen to lows unseen since the 1991 Gulf War, with Oman’s benchmark crude currently trading at roughly half its 2020 peak values.   With the oil price feud between Saudi Arabia and Russia unlike to abate for some time, and with COVID19 continuing to roil the global economy, the outlook for the Sultanate is expected to remain challenging in the short term, say market pundits.

The deliberations began with PDO officials outlining COVID19 countermeasures adopted by the company across its operations. The contractors, for their part, were asked to submit their business continuity plans, as well as their strategies for safeguarding their respective workforces from possible exposure to the novel coronavirus.

However, dominating the proceedings was the issue of cost-cutting measures to mitigate the effects of slumping oil-based revenues and the deepening downturn.  In particular, the contractors were invited to propose options for reducing manpower and thereby cutting project costs for PDO.

“In a nutshell, based on the manpower reduction and other cost-optimisation proposals that we submit, PDO will then communicate their feedback on the next steps for the delivery of the projects currently under implementation,” said an executive.

Another executive added philosophically: “For many of us operating on wafer-thin margins or just struggling to keep our heads above water, the impending cuts are going to be a big blow. But there is general understanding and acceptance that we need to come together to find ways to stay in business together by taking on this new hardship equitably. We have been down this path before — in 2014-2015 — when oil prices crashed and PDO and other clients began paring budgets projects as the time. So we need to stay hopeful and positive.”