Contractors may need to bring cash to table to win oil and gas work, says SNC Lavalin chief

Contractors to the region’s key oil and gas companies could be asked to provide financing options to win new work.

Alan McLean, the executive vice president of SNC Lavalin, the Canada-headquartered engineering consultancy, said that the recent decline in oil and gas and the restructuring of a number of national oil companies meant that many were adopting a different focus.

He cited the recent example of Schlumberger picking up a contract to build early production facilities for Kuwait Oil Company where the oil company offered a fraction of the construction costs upfront, with the rest being paid as rental fees to lease the facility over the course of its lifespan.

“Two years ago, I would have said that [contractor financing] will never happen in the Middle East but the recent tightening, Vision 2030 in Saudi – where they’re actually talking about privatising the state treasure Saudi Aramco – shows things have just changed completely.”

SNC Lavalin completed a £1.2 billion (Dh5.8bn) takeover of its competitor Kentz in August 2014 and the enlarged entity had a cash pile of C$1.6bn (Dh4.5bn) by the end of last year, as well as C$4bn worth of assets.

Mr McLean said that Chantal Sorel, the managing director of SNC Capital, the group’s investment arm, was recently in the region to promote the company’s ability to finance schemes in return for equity stakes.

“She’s really keen on bringing that model here, if our clients want it,” he said. He said the company had already spoken to Petroleum Development Oman about privately financing projects, and after Vision 2030, Saudi Aramco, he said.

“I don’t think they [Aramco] will take it up, but we’ve offered,” he said. “There’s not a lot of contractors who can bring that to the table. It’s a differentiator.”

The takeover of Kentz significantly enhanced SNC Lavalin’s presence in the Middle East, which now generates about 15 per cent of the company’s C$9.6bn turnover – up from just 4 per cent in the prior year.

Although the company’s global employee numbers dropped by 12.5 per cent last year to just under 37,000, the number of staff in the Middle East has actually increased. At the time of the merger, SNC Lavalin employed 500 in the region and Kentz had 7,500, but after a series of post-merger contract wins it now employs 11,000.

Among the deals it has picked up are a US$600m contract for Saudi Aramco to increase production at the Shaybah and Khuraish production facilities by 250,000 barrels of oil per day, an engineering, procurement and construction deal to build the country’s second asphalt plant at Ras Tanaru and a deal to for a production facility at the West Qurna field in Iraq for ExxonMobil.

“If you add all of that up, it’s something like US$2bn. It’s quite considerable,” said Mr McLean. He said that in terms of market share, its biggest operation in the region is in Saudi Arabia, where it employs 6,500. This is followed by Qatar, the UAE and Kuwait, although it is planning to boost its representation in the latter.

“It’s an interesting market. They are still in budget surplus and they are pushing for market share as well.”

Speaking at the Meed Construction Leadership Summit in May, Samer Khoury, the president of Consolidated Contractors Company’s engineering and construction arm, said there are likely to be delays to new projects being tendered in the oil and gas market, especially as Abu Dhabi National Oil Company and Saudi Aramco completed restructuring.

“I think 2016 will see a quiet time, with big projects coming further down the road,” said Mr Khoury.

He identified Kuwait and Saudi Arabia as the most likely active markets next year. “We are still seeing lots of refineries being built in Kuwait and in Saudi Arabia.”

mfahy@thenational.ae

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