Bearing the standard in a bullish market

20 October 2000
Special Report Oil & Gas Technip

WHEN the oil price surged past $30 a barrel this summer, prompting widespread fuel protests across France, not everyone was out on the picket lines. Indeed, at Technip's head office in the La Defense suburb of Paris, few complaints could be heard.

Rather, the mood was one of celebration, with executives seeing the bullish oil price as the precursor to a robust recovery in worldwide oil and petrochemicals projects.

Technip has good reason to cheer high oil prices. With a permanent staff of 10,000 and annual revenues of nearly Eur 3,000 million ($2,600 million), the group is now Europe's largest engineering and construction contractor and ranks among the top five in the world. In contrast to many of its competitors, it has managed to achieve strong growth over the past two years: in 1999, a tough year for the international engineering industry, revenues surged by 50 per cent, while net income was up by 64 per cent at Eur 173 million ($153 million).

Recent growth has been driven by acquisition. In early 1999, the group acquired for Eur 130 million ($115 million) the engineering division of Germany's Mannesmann Demag, which included refinery, petrochemical and pipeline activities. Fifteen months later, it consolidated its position in the offshore sector by purchasing a 30 per cent stake in Coflexip Stena Offshore (CSO) and forging a strategic alliance with the offshore contractor. Most recently, it took full control in September of fertiliser specialist Krebs-Speichim.

The acquisitions have not only broadened Technip's range of expertise. They have also greatly enhanced the group's global network. The Mannesmann purchase, for instance, resulted in the creation of three new affiliates - Technip Germany, Technip USA and Technip Benelux - and a significant enlargement of the group's client base, particularly in the Americas and Germany.

The group's multinational make-up has already been illustrated on one Middle East project, the estimated $2,000 million Haradh gas development in Saudi Arabia, where three Technip centres are chasing separate engineering, procurement and construction (EPC) packages. Paris is bidding for the process units contract, Italy is quoting for the offsite and utilities package and Germany is competing for the pipeline works.

Who bids what depends on experience and workload.

While Technip Germany is the group's acknowledged pipeline specialist, the product specialisation between Paris and Rome is not so defined. In the case of Haradh, Paris was put forward for the process units, following its experience on the similar onshore gas development (OGD) project in Abu Dhabi. Technip Italy was seen as the natural candidate for the offsites and utilities package, given that it is already working for Saudi Aramco on the Hawiya gas development scheme.

In addition to its European operations, Technip also draws on the resources of its Middle East engineering centre, which is based in Abu Dhabi and now has a staff of 400. Set up 17 years ago initially to meet the Abu Dhabi operating companies' upstream needs, the office has seen its role expand significantly. Since the early 1990s, it has been targeting the regional upstream sector: last year, it completed the basic engineering for phase two of the offshore Al-Khalij oil development in Qatar. In early 2000, another milestone was passed when the office won its first lump sum turnkey contract in Abu Dhabi, for the estimated $90 million upgrade of the Gasco fractionation plant at Ruwais.

The Abu Dhabi office is set to occupy a central role in Technip's regional growth strategy. 'We envisage that medium-sized lump sum turnkey [LSTK] contracts in the range of $50 million-150 million will be undertaken by the office in selected markets such as Abu Dhabi, Qatar and Oman, ' says Jean Deseilligny, Technip's chief executive officer for the Middle East and SouthWest Asia.

The Middle East continues to be Technip's most important regional market, accounting in the first half of 2000 for 34 per cent of group sales and 32 per cent of order backlog. From Libya right across to Iran, it is working on a string of major projects along the hydrocarbons chain, ranging from gas development schemes in Saudi Arabia and the UAE, refineries in Egypt, through to petrochemical complexes in Qatar and Iran (see table).

'We have done well in the region because we have been quite selective and once we have selected a prospect we do whatever we can to get it, ' Deseilligny says. 'The Middle East also suits us, as it is a land of the LSTK contract. Over the past 10 years, the LSTK business has been the basis of our culture and development and so we have gained the experience of managing the risk.'

In the quest for LSTK contracts, Technip frequently uses its engineering services to gain a head start on its rivals.

'Doing the FEED [front end engineering and design] is the best way to position yourself for the EPC phase. But if the client does not allow the FEED contractor to bid for the EPC package, we will not generally do it, as FEED contracts on their own rarely feed the contractor, ' says Deseilligny.

There are exceptions to the rule, however. In August 1999, the firm was appointed the FEED and project management contractor for the west Libya gas development project, which will source gas into the proposed Libya-Italy gas pipeline. The contract, valued at $100 million, is one of the largest of its type to have been awarded in the region.

High oil prices and the number of study and FEED contracts now underway in the region have convinced Technip that 2001 will be a far better year in the Middle East than 2000. Already the company has seen an increase in major project opportunities.

In addition to the Haradh development in Saudi Arabia, the Ras Laffan Natural Gas Company (RasGas) expansion project in Qatar is a target. Here, Technip is prequalified to bid for the downstream package in a group containing Japan's JGC Corporation and the US' Kellogg Brown & Root. The same companies are also bidding together for the more speculative Yemen LNG project, where Technip acted as the FEED contractor.

'The fact that Yemen LNG is willing to compensate the bidders shows it is a serious project, ' Deseilligny says.

LNG is one of the few areas where Technip does not have a regional LSTK reference. One of the reasons is that up until the mid-1990s, the company was offering the less well-known Tealarc technology. However, on projects like RasGas, it is now in bidding groups which are proposing the APCI technology.

Across the Gulf, Iran is seen as offering extensive opportunities for the group, which can draw on more than 15 years of work experience. Petrochemicals, the upgrading of existing oil field infrastructure and the Islamic republic's ambitious gas development programme are all viewed as targets.

One of Technip's shareholders, TotalFinaElf, is also active in Iran on phases two and three of the South Pars development. However, the connection has not led to Technip winning work, a point that has been used by the company to counter accusations that it has an unfair advantage over its rivals on project work with a TotalFinaElf interest.

'The shareholding factor does not assist us as such. But what does is that our office is just 50 metres from TotalFinaElf 's.

We do have the advantage of proximity, but nothing else. It is still the case that we have to be the best technically and lowest commercially to win contract work where TotalFinaElf has an interest, ' Deseilligny says.

In contrast, Technip is planning to introduce to the region companies in which it has recently built up an interest. CSO has largely been absent from the Middle East, mainly because its deep water expertise is not much in demand in the shallow waters of the Gulf. However, the company is looking seriously at developments in offshore Egypt and is holding regular meetings with Technip to ascertain potential opportunities elsewhere.

Technip is today one of the most familiar faces on the Middle East oil and gas scene, having often been the standard-bearer for European engineering in the regional market. Having emerged from a two-year industry-wide recession in remarkably good health, the company is in a strong position to make the most of the anticipated recovery in the months ahead.

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