As Kuwait seeks to boost the capacity of its oil sector, Europe’s largest oilfield-services provider has won a deal in the country that represents its largest consulting contract to date.
France’s Technip yesterday announced the US$400 million contract with Kuwait Oil Company (KOC) to support the renovation and development of its oil and gas infrastructure.
The announcement came on the same day as Technip’s shares plunged in response to a profit warning for the first quarter of 2014.
The project management and engineering deal is to last for five years, with a possible extension of a year thereafter.
The agreement will involve Technip’s teams working with KOC at a specially constructed office at the oil major’s headquarters in Ahmadi, Kuwait, while receiving support from Technip teams in the wider Middle East and in Milton Keynes in the United Kingdom.
Technip announced the deal with KOC the day after warning that profit margins in its subsea division are expected to narrow next year.
In its preliminary market view, released on Tuesday, the company warned its subsea operating margin was forecast to drop to about 5 per cent in the first quarter of 2014, before recovering to at least 12 per cent for the full year.
The subsea division was likely to make a 14 per cent margin for 2013, the company said.
“Another round of earnings downgrades will hamper confidence for [Technip] and we cannot rule out near-term multiple contraction from the relatively elevated levels this year,” JPMorgan said in an analyst note issued last month.
Technip shares, listed on the Paris stock exchange, fell by more than 10 per cent in early trading yesterday in response to the news. The shares had recovered by afternoon to €61.16, a drop of 8.7 per cent that pegged the company’s market value at €6.96 billion (Dh35.17bn).
KOC’s contract with Technip is the third of its kind to be signed in the past two weeks, as the Kuwaiti oil giant looks to modernise its facilities to boost production.
The spate of contracts signals that Kuwaiti government companies feel more confident to move forward on projects that had previously stalled amid wrangling in the country’s fractious parliament.
Australia’s WorleyParsons announced its own $400m contract with the Kuwaiti oil major on December 11, for the provision of services over a five-year period.
The WorleyParsons contract was followed two days later by an almost identical contract signed with the British consultant Amec, worth 118m Kuwaiti dinars (Dh1.53bn), which will also last for five years with a possible one-year extension.
Kuwait’s oil production hit an all-time high of 3.67 million barrels per day last month, said Mohammad Al Busairi, the country’s oil minister.
However, the increase in production has fallen short of many analysts’ expectations, leading to lower growth forecasts for the country.
The Economist Intelligence Unit last month lowered its forecast for Kuwait’s economic growth for this year to 2.7 per cent from 4.4 per cent previously, citing the modest growth of Kuwait’s oil production.
The unit said GDP growth was likely to reach 3.1 per cent next year and would accelerate to 4 per cent in 2015, bolstered by projected higher oil prices.
Kuwait aims to reach a production capacity of 4 million bpd per day by 2020, and is also targeting an output of 4 billion cubic feet of gas output per day by 2030.
Kuwait Petroleum, KOC’s parent entity, announced in November 2012 that $100bn had been earmarked by the government over a five-year period for oil projects inside and outside the country.
jeverington@thenational.ae