Exclusive: Baker Hughes clinches major integrated services contract

LONDON - 8 August 2017: Baker Hughes, a GE Company has won a major contract to provide a wide range of services to develop Papua New Guinea's first offshore gas field which is seen as a new model to help producers adapt to a world of low oil prices.

The contract, worth several hundred million dollars, contrasts with the traditional model where a company awards various parts of field development separately to different providers.

It comes as the global oil and gas sector slowly emerges from a three-year rout that brought new field development to a near standstill, creating intense competition among oil service providers for contracts.

Under the contract, BHGE will provide services to Australian exploration and production firm Twinza for the development of the offshore Pasca A gas condensate field ranging from the initial stages of well-drilling and appraisal through to production and gas processing, executives from the two companies said.

General Electric completed its acquisition of Baker Hughes last month to become the world's second largest oilfield services company, bringing together traditional drilling and pumping gear with technology such as software, sensors and three-dimensional printing.

Applying the integrated suite of services together with advanced technology can save companies up to 5 percent in a sector where projects often involve billions in investment, according to BHGE Chief Executive Officer Lorenzo Simonelli.

"The price of oil continues to fluctuate. Capex spending is a moving target at the moment so productivity cost per barrel has to be the focus to get projects to a final investment decision," Simonelli told Reuters in an interview.

In an industry historically plagued by cost overruns and project delays, the "fullstream" model removes logistical delays such as late arrival of vessels, the need to hold several tenders or adapt to different equipment standards, according to Visal Leng, head of BHGE Asia Pacific.

Simonelli said there are "hundreds of millions (of dollars) associated with the development of the project", but did not give an exact figure for the contract.

BHGE is already working with some of the world's top oil companies on using its integrated services, including a large project with BP in the Gulf of Mexico, Simonelli said.

DECISION NEXT YEAR

Twinza is expected to make a final investment decision (FID) for the Pasca A project in early 2018 after drilling one more appraisal well this year.

The first phase of the field development will produce 14,000 barrels per day of liquids extracted from gas, Twinza Managing Director Huw Evans said.

The Pasca A development would be profitable "way below the current oil price" of around $52 a barrel, according to Evans.

BHGE will also extend a credit line to Twinza to fund the appraisal of the field ahead of the final investment decision.

A decision to go ahead with the development of Pasca A would make it one of a few projects expected to be given the go-ahead in 2017 and 2018 as oil prices recover slowly despite a decision by OPEC and other producers to reduce their oil output.

"There was a lot of optimism at the end of 2016 with the actions OPEC took. Some of the optimism is being pushed to the right and you're seeing a progressive shift in some of the projects and people waiting a little longer for stability in the context of lower for longer (oil prices) or simply lower," Simonelli said.