Oil price drop reshapes top 10 contractors

11 May 2015

The decline in oil prices has led to a slowdown in project spending in the region, meaning MEED’s annual contractor survey has seen a big shake up this year

The years of South Korean dominance in the Middle East and North Africa (Mena) region’s hydrocarbons projects market have come to an end. In MEED’s latest annual survey of oil, gas and petrochemicals engineering, procurement and construction (EPC) awards, not one company from the Asian country features in the table of the 10 most successful contractors.

According to regional projects tracker MEED Projects, $27.4bn-worth of EPC schemes were awarded between 1 June 2014 and 30 April 2015. While this is a month shorter than the previous period surveyed, the value of awards is $30.6bn lower than last year’s total. The figures exclude Iran due to difficulties in confirming the data.

Petrofac success

The UK’s Petrofac tops the ranking for the third year running, confirming its status as the most successful contractor in the Mena region. The company was awarded about $2.7bn-worth of schemes in the past 11 months, some $2.2bn less than the previous year.

Such is the slowdown in project spending in 2014 and 2015 that Petrofac’s total would have resulted in a seventh-place finish in last year’s table.

Petrofac’s success comes from being able to diversify its business across several sectors within the hydrocarbons industry as well as operating across a geographical footprint that covers the entire region.

Top 10 contractors *
ContractorsCountryValue of schemes  awarded ($bn)
Tecnimont Italy2.6
Cosider GroupeAlgeria1.5
CTCI CorporationTaiwan1.2
Larsen & ToubroIndia0.8
*=Between 1 June 2014 and 30 April 2015; NPCC=National Petroleum Construction Company. Source: MEED

“Petrofac will work anywhere and is not scared to take risks when it comes to taking on projects,” says a senior executive from a rival contractor. “This is why they have been able to maintain success.”

This is apparent in the fact that all Petrofac’s awards in the past 11 months have been in Kuwait, a country where the firm had not previously won large volumes of work.

Biggest award

The largest award was a $4.2bn contract for the Lower Fars heavy oil development project in north Kuwait that Petrofac shared with Athens-based Consolidated Contractors Company (CCC).

The deal, awarded by Kuwait Oil Company (KOC), was the biggest single award in the past 11 months and means CCC enters this year’s top 10 in fourth place with $2.1bn, due to the sheer size of the contract. 

KOC also awarded Petrofac a $689m contract to build a gas gathering centre in July 2014 alongside Dubai-based Dodsal Group and India’s Larsen & Toubro.

The $756m award to Dodsal helped propel the company into third place on the table, with a total $2.4bn of contract wins between 1 June 2014 and 30 April 2015. Last year, the firm sat in fifth place. 

The fact that Dodsal would have ranked first by a significant margin if it had achieved close to the $3.2bn it was awarded in 2013/14 gives a measure of the state of the projects market. Like Petrofac, Dodsal picked up two large deals from KOC in the past 11 months. Along with the gas gathering centre, it won a $946m effluent water treatment and injection plant in north Kuwait.

Algeria deals

Dodsal’s other contracts came in Algeria, where it was awarded a $600m deal by state-owned Sonatrach to build gas compression and reinjection facilities in the Naili Abdelhamid New Area Northern industrial complex.

Sandwiched between Petrofac and Dodsal, Italy’s Tecnimont is second, with contract awards totalling about $2.6bn. Tecnimont has enjoyed great success across the region in the past, but has spent the past few years consolidating its position as well as enduring a period of total dominance by the South Koreans.

However, in December, Tecnimont was awarded the highest-value contract to a single company between 1 June 2014 and 30 April 2015, when it picked up a $2.3bn deal to construct the third phase of the Al-Dabbiya oil field development in Abu Dhabi.

The EPC contract was awarded by Abu Dhabi Company for Onshore Oil Operations and was followed in February by a $490m deal with Abu Dhabi Gas Liquefaction Company that Tecnimont will execute in partnership with the UAE-based Archirodon.

Another Italian contractor that has enjoyed considerable success in the past, finishing top of the 2011/12 ranking with $7.3bn, is Saipem. The contractor is a versatile operator with excellent offshore and pipe-laying capabilities to complement its process plant division. This adaptability has allowed it to win a diverse set of projects in recent years in several countries across the region.

Quieter period

But the past 11 months have been quiet in the Mena region for Saipem in comparison with previous years. A $2bn award by Saudi Aramco for the main processing facilities at the Khurais oil field development helped usher it into fifth place on this year’s table.

With Aramco tightening its belt, however, the Khurais scheme could end up being postponed. Saipem looks set to be awarded a long-term offshore contracting deal by the state-owned oil major, which would offset this to some extent.

At $6bn, the combined total of awards to the other five contractors in the top 10 is $5.7bn lower than in 2013/14.

Most of the other entries, such as Algeria’s Cosider Groupe, won a single big project in their domestic market and are unlikely to repeat such large awards in the near future. Others, including China’s Sepco, are slowly building up their reputations as regional players. Sepco built on its success in the power sector with a $1.3bn award from Aramco for two booster gas compressor stations, as part of the first phase of the Master Gas System Expansion in the kingdom.

Averse to risk

The past 11 months have delivered more news about cancelled projects than awards, as a result of the sharp slump in oil prices, which is why this year’s table is something of an anomaly. There is also no doubt that many of the leading contractors are much more risk-averse now, especially as there are far fewer schemes available.

Petrofac’s continued success shows it is possible to be a regional and global power player but, with no indication that capital spending is going to be ramped up any time soon, the next 12 months could be every bit as challenging.

Where have the South Koreans gone?

The most surprising finding in MEED’s latest annual EPC survey is that only one Seoul-based contractor made it into the top 50.

A $350m calcinated coke plant win meant Hanwha Engineering & Construction was the only South Korean company to be awarded any work in the Mena region’s hydrocarbons sector between 1 June 2014 and 30 April 2015. By contrast, six South Korean firms featured in last year’s top 10, with a combined total of $19.59bn.

None of the major South Korean EPC contractors was willing to go on the record as to why they have all but withdrawn from the region in the past 12 months, but the numbers speak for themselves.

The harsh losses made by the likes of Samsung Engineering and GS Engineering & Construction in 2013 and 2014 mean the Middle East is not seen as the attractive market it once was.

Most South Korean companies are still bidding on large projects, but the highly aggressive pricing strategy that was once their trademark has gone and is unlikely ever to return.

South Korean firms are as likely to decline to bid on schemes today, especially if they are deemed to be high risk. This means that others more willing to take a chance are being awarded projects that would almost certainly have been picked up by the likes of Daelim and Samsung in the past.

“There is a lot more caution in the market now and there are several factors involved in this,” says a regional country manager for a large South Korean contractor. “Many South Korean companies have new CEOs and they don’t want to lose their jobs by repeating the mistakes of their predecessors. We are told to bid only on projects that have the best chance of turning a profit. Any others we decline.”

Echoing region

A more positive spin on the situation would be that the South Koreans are only echoing the region in general and that after years of exponential growth, they are now in a period of consolidation.

Whatever the reasons behind the retreat of South Korean contractors, there is an agreement that the days of lowball bidding on schemes in the Middle East are over.

Many of South Korea’s competitors from Europe, Japan and the US have stated that while the strategy did lead to some massive losses, there was still plenty of profit made in 2009-12 to offset this. Another factor is that before 2009 many of the South Koreans were unknown in the region, whereas now they are recognisable brand names that share equal status with long-established players such as Italy’s Saipem, Japan’s JGC Corporation, the US’ McDermott and France’s Technip.

There is no question that the Koreans are still committed to the region, and if Kuwait finally awards the contracts for its $14bn New Refinery Project this year, many of the leading players will reappear in next year’s top 10 contractors table. 

However, there is also no doubt there has been a change in attitude and the much-feared South Korean contracting strategy of executing schemes by bidding low and working fast has run its course.

“We still believe we offer better value than our competitors,” says the South Korean source. “But with so many companies bidding for a much smaller pool of contracts, it just doesn’t make good business sense to bid as aggressively anymore.”

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications