Dubai-based Topaz Energy and Marine will supply vessels to Dragon Oil, the upstream unit of Emirates National Oil Company (Enoc), for the development of Turkmenistan’s offshore hydrocarbon resources.
The US$100 million contract is for six vessels, including an emergency recovery and response boat, is for five years with a two-year option. Topaz said that it had already started preparing the vessels for deployment to the Cheleken contract area.
“From our perspective, this contract is a sign of Dragon Oil’s continued operations and plans in the near- to medium-term at Cheleken which remains such a core asset,” said Ashley Sherman, senior Caspian research analyst at Wood Mackenzie.
The Turkmenistan area, which is Dragon Oil’s principal producing asset, is in the eastern section of the Caspian Sea with the extracted oil and gas heading to Azerbaijan and Russia. The company has drilled more than a hundred new wells since the start of its production sharing agreement in 2000, and will maintain its control until 2025, from which time Dragon Oil will have the option to negotiate an extension of at least 10 years or more.
The Dubai company, along with Malaysia’s Petronas, dominate Turkmenistan’s offshore drilling which Wood Mackenzie puts at costing at least $10m per well. And like any operator over the past three years, Dragon Oil has been impacted by lower oil prices.
The oil extracted from the Caspian is discounted of up to $10 per barrel to Brent crude, the international benchmark. Mr Sherman said that drilling was expected to pick up and surpass last year’s activity once oil prices stabilise.
He said: “At the offshore fields, it’s all about keeping that production going via new drilling and operations. And support contracts such as this deal with Topaz are very much a part of continuing those operations.”
This is a welcome sign as the oil services sector has struggled.
Topaz, like many of its peers, felt the pressure of sustained low oil prices, swinging to a loss of $2.4m last year with a fleet utilisation rate of 60 per cent. Mr Kofod-Olsen said in March that he expected this year to be challenging with a pick up in the second half.
The contract with Dragon Oil has helped increase Topaz’s revenue backlog above $1.5 billion which it said was the “highest in the industry”, according to the chief executive of Topaz, René Kofod-Olsen.
“Our solid funding also means that we are able to structure long-term commercial terms which offer predictability and value to our clients at very low counterparty risk,” he said.