Paris-based Technip-Coflexip is a company that understands the benefits of patience. In September, the $319 million contract to build the ethane cracker at Iran's olefins 10 petrochemical facility finally came into effect - 18 months after it was awarded to the French company and its local partner, Nargan Consulting Engineers.
In fact, Technip-Coflexip is growing quite accustomed to waiting. A 13-month period elapsed before the company was able to start work last December on the construction of a similar ethane cracker at the Olefins 9 complex, while the company had to wait five years before finally receiving the go-ahead for the Oman India Fertiliser Company (Omifco) contract.
The raft of projects now coming into force, combined with contracts signed this year, have given Technip-Coflexip a record order intake from the Middle East - $1,800 million so far in 2002. The figure underscores the region's growing importance to a company that has engineered its way around the world.
With an 18,000-strong workforce and annual revenues of Eur 4,500 million ($4,369 million), Technip-Coflexip is one of the world's top five engineering and construction groups in the field of hydrocarbons and petrochemicals. Having gained full control of the French/Norwegian Coflexip in 2001, the group has been able to expand its product portfolio, adding offshore field development to its well-established onshore engineering and construction expertise.
With the consolidation of Coflexip came a restructuring of the group around the three major activities - onshore, offshore and the smallest group, the industries branch. The new group will focus activity on Technip's traditional markets, covering refining, pipelines and the full range of the gas chain from onshore treatment plants down to petrochemical complexes. There are also plans to grow in other sectors such as chemicals and fertilisers, power plants and industrial buildings, with the goal of earning up to 20 per cent of revenues from non-hydrocarbon activities.
The acquisition of Coflexip is the most recent in a long line of takeovers that have helped broaden the company network to give it operational bases in five continents. But even before the company was casting around for new purchases, it had already taken a strategic decision to establish an engineering base in Abu Dhabi, which has expanded as the region has taken on added importance for Technip-Coflexip.
'The Middle East has always represented one of our most important markets, and it is becoming more and more the case,' says Nello Uccelletti, chief executive officer for the Middle East & Southwest Asia. 'We have seen a very active market in the region in 2002 and expect more of the same in 2003 as current FEEDs [front-end engineering and design contracts] move into the EPC [engineering, procurement and construction] phase.'
The Gulf is at the heart of Technip-Coflexip's regional activities and as a result the group's Abu Dhabi engineering office has been steadily growing in significance. Established 16 years ago to service local clients' upstream needs, the branch now has an annual turnover of around $90 million and undertakes about 1 million man-hours a year.
Expansion means the branch is now able to undertake medium-sized lump-sum turnkey (LSTK) contracts for clients across the region, most recently the sulphur recovery unit at the Riyadh refinery. 'We're very proud of our Abu Dhabi office,' says Uccelletti. 'We took a strategic decision back in 1986 to invest in the region, establishing stable partnerships with local companies, suppliers and contractors, in anticipation of the market trend for increased local content. Having a local office is a way of announcing our ability to offer regional clients products that maximise local content and resources.'
The enterprise is not entirely risk-free. 'When you want to sell local offices and services, you must make sure you have the competence to do it,' Uccelletti says. 'You cannot risk spoiling the reputation of the wider company by having a branch that lacks the references and skills that are associated with the mother company.' For this reason, projects over $50 million-60 million are normally passed on to Technip-Coflexip's offices in Rome or Paris. 'The Abu Dhabi office does not have the project management skills for contracts over that size. However, even with the larger projects, specific services may be sourced from Abu Dhabi while the actual project is managed out of Europe,' says Uccelletti.
Despite the economies of scale achieved by having a local branch, Technip-Coflexip has been unable to compete with the cut-price Asian newcomers that have gained control of the Kuwaiti market and, like many other Western contractors, the group has had little success there in the past decade. Fortunately for the group, there remain a number of markets where clients are only too happy to see Technip-Coflexip listed on the bid lists.
Saudi Arabia has proved a particularly fruitful market in recent years, with the group having racked up $1,200 million worth of contracts in the kingdom since the end of 1998. 'We are the number one engineering contractor for Saudi Aramco in terms of number and value of contracts and that's a source of great pride to us,' says Uccelletti. 'The company is one of the most important clients in the region, and one of the biggest investors.' This year, Technip-Coflexip has won an estimated $350 million contract from Aramco to expand the Berri gas plant on the Qatif incremental oil programme, and has been selected by Saudi Basic Industries Corporation (Sabic) to build a pilot acetic acid plant in Yanbu. 'The contract value is small compared to Aramco projects, but it opens the way for us to secure further work with Sabic,' says Uccelletti.
In Qatar, Technip-Coflexip has carved out a niche in the downstream sector, having recently completed work on the ethylene dichloride and vinyl chloride monomer plant for Qatar Vinyl Company and the sulphur recovery project for Qatar Liquefied gas Company (Qatargas). It is also on schedule to complete by the end of the year the $1,100 million Qatar Chemical Company (Q-Chem) project at Mesaieed, for which it is working in joint venture with the US' Kellogg Brown & Root (KBR). The company's next major target is the EPC package on the Middle East's first gas-to-liquids plant at Ras Laffan, planned by Qatar Petroleum (QP) and South Africa's Sasol.
Despite its experience in Qatar - and the presence of a small Technip-Coflexip project office - the group has often bid for projects in partnership with other major contractors, in the belief that selective alliances can bring added value and increase access to projects. 'When we entered the competition for Q-Chem, it was clear to us that we were bringing to Kellogg Brown & Root our wealth of in-country knowledge of Qatar,' says Uccelletti. 'It was also clear that it was bringing the habit and the proximity of working with a client like [the US'] Phillips Petroleum, which was one of the two investors. The combination of our strengths worked to the mutual benefit of both parties.'
Risk considerations also came into play. 'Obviously, as Technip-Coflexip we believe we have all the skills, references and commercial strength to be considered alone for most Middle East projects,' says Uccelletti. 'But when you consider huge projects in the range of $1,000 million, these projects have certain challenges in terms of technical complexity and in terms of the risks connected to the realisation of an LSTK project.'
The selective joint venture approach has served Technip-Coflexip well in the past - as illustrated by its involvement in the first two phases of Abu Dhabi's onshore gas development (OGD) programme. The group has won more than $2,300 million worth of contract work on OGD as part of a 50/50 joint venture with the US' Bechtel. As a result, the company is expected to be a strong contender for the next phase of work on OGD, expected to be tendered in 2003.
While Technip-Coflexip is one of the most active LSTK bidders, it is more selective when it comes to FEED assignments. 'It is clear that being involved in a project from the start and having communication with the client from the first phase of the project gives certain advantages later on during the EPC competition,' says Uccelletti. 'It is also clear that we have the skill and the capabilities to manage FEEDs, and therefore we are exceedingly eager to participate in the FEEDs for the huge projects in the Middle East, providing that doing so does not preclude us from participating in later stages of the project.'
The group has a number of FEED contracts under way, ranging from the development of the onshore Salman field in Iran to the debottlenecking of the Qatar Petrochemical Company (Qapco) ethylene plant. The company is also bidding for the FEED on the Ras Laffan condensate refinery scheme in Qatar.
With onshore activities accounting for about 90 per cent of the group's Middle East operations, Technip-Coflexip still has some way to go before the offshore expertise brought on board by the Coflexip side starts to make its presence felt in the region, but Uccelletti is optimistic. 'The fact that Technip has a long-established reputation as a leader in the Middle East brings much to the activities of the former Coflexip part of the business,' says Uccelletti. 'But offshore opportunities in the region are still relatively limited and the fact that the majority of tenders are for shallow water work also limits the group's ability to offer schemes that are in line with our competitive activities elsewhere in the world.'
The group is starting to target projects with a mixed onshore/offshore scope of works - such as phases 9 and 10 of Iran's South Pars and the Dolphin gas project. 'When you have both skills and both competencies and are able to provide integrated facilities from one company, you are able to be more competitive than other groups having to bid in partnership,' says Uccelletti. 'There is added value for the clients too, as they are able to have a single point of responsibility.'
The approach should enable Technip-Coflexip to consolidate its position as one of the leading international contractors in the Middle East oil and gas industry. At a time when many regional governments are stepping up investment right along the hydrocarbons chain, Technip-Coflexip's enlarged product portfolio and increased operational base stands it in good stead to benefit from the wealth of projects destined to come to the market soon. If the past has been bright, the future is looking rosy.