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| The yard in Sharjah can handle storage, inspection, maintenance and repair of pipes. |
You might think that – if you excuse the pun – a pipe storage facility would be boring.
In fact, it might cross your mind that it is a rather strange investment for Medserv to make. And not just any investment but a $45 million one, doubling its size overnight.
It turns out, however, to be a very smart move indeed. Middle East Tubular Services was founded in 2006 and like the entrepreneurial spirit of Medserv’s executives, its founder Paul Hayward, with Peter Howes, saw opportunity and went for it.
METS has pipe storage yards in Sharjah in the United Arab Emirates, since 2010 at Basra in Iraq and since 2012 in the Sohar Free Zone in Oman, just 4.5 kilometres from a port on the Indian Ocean, employing around 160 people overall.
Drilling requires hundreds of metres of pipe, which has to withstand enormous pressures and temperatures, and sometimes even corrosive environments. There is simply no room for failures that could prove costly and dangerous. But it is also very expensive – and bulky to have in stock on the rig. So oil companies buy pipe from various mills around the world, and send it to storage yards from where it is dispatched as required.
What METS does is not just store the pipe but also inspect it, refurbish it, and repair it – a combination of services which is unique in the area, and which makes it an exciting acquisition for Medserv.
The 82,000-square-metre yard that it took over on a 25-year lease as the first tenant of the Sohar Free Zone is already full, with some 50,000 tons of pipe of various grades and diameters there, worth several dozen millions of dollars. Much of the pipe was previously stored in Sharjah and the extra space freed up there is being groomed to store decommissioned land rigs and steel plate for profiling, in an effort to maximise and diversify revenue streams during this current period of low activity.
On the average day, around 40 trucks of pipe come and go from each yard, and its staff lay them out, check them for damage during shipment and approve them, doing visual inspections of the exterior as well as checks through the bore. Pipes can be dipped into phosphate baths to coat the exterior and even scrubbed of external oxidisation. One of their pipe manufacturers is also hoping to extend METS’s service so that they would handle the pipe all the way to the rig, making stock management more efficient for the oil companies.
The real value-added, however, comes from rethreading the pipes, done according to one of the most sought-after certifications in the industry, known as VAM.
“In Sharjah and Basra we have machine shops with lathes that thread pipes,” METS regional manager Gareth McMurray explained. “As the volumes build up in Oman, a machine shop there would be a natural next step for us.”
METS has two of only 180 VAM licences in the world and must pass an onerous annual inspection, part of the quality assurance required when dealing with tolerances of only a few thousandths of an inch.
The pipes in the yards are stacked with wooden spacers in between, lined up with near military precision to make their accessibility by crane and forklift as efficient as possible, swinging silently from site to trailer bed in the searing heat.
METS, which had revenues of $21.5 million in 2015, is a group with considerable potential for growth – also known as ‘risk’ for the more faint-hearted – but with bold moves come big returns. Being in Iraq right now means that METS is in the ideal place once the big oilfields get going again – particularly Basra where 90 per cent of the country’s oil is produced. And with Iran set to start pumping oil again soon, METS facilities will be in great demand, especially given their location just across the Straits of Hormuz. A number of preparations are already in hand to get the ‘first mover advantage’ there, with a site already earmarked, and a VAM licence already being considered.
This activity as well as potential in the future fit perfectly into the Medserv strategy of geographical diversification – it is looking at the Central Mediterranean, Egypt, Portugal, Trinidad and Tobago and East Africa, at the moment. But the two companies also complement each other. While Medserv concentrates on the offshore oil and gas industry, METS tends to support the onshore counterparts.
And the manufacture of drilling fluids is a core competence of Medserv, but a service not currently provided by METS.
And then, of course, there is Libya, where oil companies would eventually be very interested in having a machine shop in Malta with a VAM licence, which Medserv believes is possible within 18 months.
The timing of the acquisition may not seem intuitive with oil at around $30 a barrel and METS’s operations are dependent on having a turnover of pipe which is directly linked to the number of wells being drilled. But the reality is that oil-producing countries and companies still need to generate as much revenue as possible, so they are focusing on the easier wells in places where extraction is cheapest – in other words, the Gulf has a clear advantage over deep sea rigs in the North Sea, and is hurting much less.
And the more investment there is in the yards’ services and diversification, the more it is able to balance out the impact of oil activity, something Medserv in Malta has already done successfully in spite of the discontinuation of operations in Misurata.
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