BP could re-tender Mad Dog 2 semi-sub

Singapore

A NEW proposal drawn up for a re-tender of the anchor production structure for BP's US$10 billion Mad Dog 2 field development in the US Gulf of Mexico is understood to include a call for the contest to be opened up to yards in China and Singapore.

The proposed re-tender being evaluated by BP's Houston office was made necessary after first bids from yards in South Korea - Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering (DSME) - came in at above Mad Dog 2's set budget for the semi-submersible production unit, informed sources said.

The proposal under evaluation is said to have called on BP to consider yards in China and Singapore - including Keppel Fels and Cosco Shipyard - for the construction of the production semi-sub.

The re-tender is intended to be issued to main contractors with the required engineering and project management muscles to execute the engineering, procurement and construction (EPC) of the semi-sub. These main contractors are expected to, in turn, propose tie-ups with yards in Asia for the project execution.

The Business Times understands that Keppel Fels - with its proven track record in engineering and construction of semi-sub structures - is so far the only named yard operator to have made the proposed list of main contractors for Mad Dog 2.

Two other engineering companies also named as potential main contractors for Mad Dog 2 re-tender are KBR - the contractor responsible for the front-end engineering and design studies on Mad Dog 2 semi-sub - and Fluor.

The yards being tabled for short-listing towards a re-tender are said to include China Offshore Oil Engineering Company and Bomesc, in addition to Keppel Fels and Cosco Shipyard.

The re-tender is also likely to be extended to either all or some of South Korean yard giants - Hyundai, Samsung and DSME - even though their first bids have exceeded BP's expectations. This is not least because the three yard giants have much more experience over their counterparts in Singapore and China in executing the EPC for large floating production units.

The Mad Dog 2 re-tender - if it materialises as proposed - would stand among the exceptional cases where an international oil company like BP has reached out to yards outside South Korea, analysts have said.

Sizing up the competitive landscape for semi-sub production units, IHS principal researcher Ang Ding Li noted that Singapore yard groups - Keppel Offshore & Marine and Sembcorp Marine - have more experience in executing the integrated construction of such structures, unlike their competitors in China.

Yards in Singapore, however, will have difficulty taking on larger semi-sub hulls that have been delivered from South Korea, Mr Ang noted.

BP, however, is believed to have expanded its yard choices for Mad Dog 2, not least because the semi-sub has already been downsized from what would have been restricted to execution in South Korea, industry sources told BT.

For Singapore, Mad Dog 2 represents a potential breakthrough in the offshore marine space, if Keppel Fels chooses to submit a lone bid - as among the would-be short-listed main contractors - for an EPC contract expected to range in hundreds of millions dollars. But Mr Ang also warned that Singapore yard groups will have to assume the costs in the event of cost overruns and delays, should they choose to take on turnkey EPC of floating production structures. "They will (go through a steep learning curve) and be subjected to high risks of running into large cost-overruns on the first few projects," he added.

BP did not comment on the re-tender when approached by BT, although Cindy Yeilding, vice-president for exploration, maintained at IHS's Ceraweek 2016 in Houston that a second facility at Mad Dog - one of BP's key production hubs in the US Gulf - remains a strong business case despite a low oil price environment.

Joint efforts with industry partners to simplify and standardise Mad Dog 2 have shaved significant costs, according to Ms Yeilding. She added that the project is "very likely to cost less than US$10 billion, around half of its original estimate".

BP in its latest annual report stated that Mad Dog Phase 2 will develop resources in the central area of the field through a subsea development consisting of up to 24 wells from four drill centres.

BT understands that with the re-tender, the EPC contract award for the semi-sub will be pushed into the second half of 2016, the earliest, which will present challenges for Mad Dog 2 to reach a final investment decision this year.