Oil prices are still depressed and government budgets continue to be squeezed, but with $1.1bn of new orders secured this year, Canada-based SNC Lavalin’s Middle East head remains upbeat on the opportunities available for large multinational contractors.

“The region is a growth area for us,” says Ziad Awad, senior vice-president and head of Middle East, India and Africa at the firm. “We have about 37,000 people and more than 30 per cent of our [global] workforce is in the region across all business units. Oil and gas is the predominant business and we had significant awards in the first half of this year, despite the challenging environment we are all facing.”

Helpful acquisition

SNC Lavalin has four main business sectors: oil and gas; power; infrastructure; and mining and metallurgy. These operations were boosted significantly when it acquired UK-based Kentz in 2014 for about £1.2bn ($1.56bn). “Much of the new work added this year has been thanks to the Kentz acquisition,” says Awad. ”Just to put things in perspective, the acquisition added a group that is 20,000 employees strong in terms of oil and gas, which is able to address the whole value chain right from concept through the design and build, and then train, operate and maintain.”

The Kentz business also boosts the rest of the SNC Lavalin business at a time when project owners require different services from their contractors. “Client needs are changing, resulting in different models as the situation dictates,” says Awad. "Sometimes it is single EPC [engineering, procurement and construction] business-unit type of work where it is only oil and gas and sometimes it is an integrated need where you get infrastructure, power and sometimes oil and gas involved in one project.”

In 2016, with the depressed oil prices and continued downward pressure on government schemes, financing solutions for projects are becoming increasingly important. “Sometimes it is a PPP [public-private partnership] where [the client] needs to finance the project,” says Awad. "There is increased appetite for that given the challenging environment we are in at the moment. Budgets are squeezed and in many cases they are running fiscal deficits because the revenues coming in are not enough to fund all of these developments that are needed and finance becomes part of that.”

PPP experience

PPPs are not new to the region. “[PPP] started some time ago,” says Awad. “If you compare that with what the rest of the world does, it is still in the infancy stage and I think this is where SNC Lavalin can really add value, given our experience in Canada and globally elsewhere.”

Some PPP opportunities are starting to be developed. “There are some ideas that are floating around and we are entertaining those,” says Awad. “Of course many different moving parts have to be looked upon in terms of risk allocation and the suitability of the different projects.”

Traditional work still exists, and there are future schemes to work on in oil and gas despite the low oil prices. “It is anyone’s guess how the oil price is going to react and whether it stays at a low level or not,” says Awad. “If you look at the Middle East in terms of rig count, it has not been affected at all; if anything it has been stable to growing. We have not really seen the rig count reduction that you have seen elsewhere. That goes hand in hand with the need to maintain production and make sure you produce at maximum output.”

As oil producers focus on maintaining production, contractors expect to be busy maintaining and upgrading infrastructure. “[We expect] more work in the oil and gas sector related to  maintaining potential, and should the demand start to pick up, then you would start to look at the next phase of more development and even exploration after that,” says Awad. "But that is some time down the road."

Another area that will become increasingly important in the coming years is the development of unconventional sources of oil and gas. “It is fair to say the easy oil and gas has already been found and produced and we are now looking at unconventional and more technically challenging finds,” says Awad. "Obviously, unconventional gas goes into that area, and given the need of most GCC countries outside Qatar to really bring on gas, that tells you that gas work will continue for sure and is taking a priority in these countries.”