ROD DEAN'S 2006 REVIEW

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E & C Hydrocarbon Review - The Global view from Europe. Looking back on 2006 & ahead to 2007.

The financial restructuring of the company is now complete - with the help of a number of Nordic Banks and Financial Institutions. Metso has purchased the pulping and power business a deal which was finally cleared by the EU before the end of the year. The final pieces of the jigsaw are falling into place.

AK forecast 12 months ago that it hoped to see an (EBITDA) margin of between 6.5% and 7% in 2007 and in a bullish statement in November they confirmed that they were right on target to achieve this - so the recovery continues. AK is continuing to focus on its ’knitting’ whilst like all good contractors picking up some new related tricks on the way in the areas of LNG. Whilst clearly not ready to join the club yet as a full member (and more of that later) it is gaining associate member status with the experience it will have gained ‘helping’ Linde on the Snohvit project and winning two EPC LNG terminal projects in the USA via its sensible partnership with IHI, the respected Japanese Tank contractor. If and when ( I suppose it must be when) the Shtokman LNG project finally gets underway in the next 5 years or so this hard earned experience from the Northern Cape and the good relations that the new O & G Titan Statoil - Hydro has forged with the Russians may begin to pay dividends . It probably will with any offshore work anyway. Add to this the niche areas of business in non ferrous metals contracting and some decent chemicals capability in the UK and Holland and you have a reasonably well balanced portfolio. Offshore Engineering & fabrication will always be its flagship activity, but that is no bad thing into today’s environment where hostile Arctic conditions spell the future challenges for many in our industry. So we leave AK getting on with the things it does well and making good margins to boot.

Before we let AK off the hook totally we must not forget the 32,000 pensioners, deferred pensioners and 1800 current employees in the UK (although I am not sure if the latter are still part of the scheme). As one of the 14,000 pensioners I have a vested interest on the fate of these forgotten people ‘Victims of the dream to create a UK owned E & C Titan ‘This year we heard that the trustee of the £1.3bn Kvaerner pension fund, which has 32,000 members and a £200m deficit, is in negotiations with the directors who bought out the company's UK arm for £1 last year in an attempt to avert the fund's collapse into the Pension Protection Fund.

We are told that the new Kvaerner plc insisted it was "properly positioned to meet current obligations". With a revised investment strategy, more aligned to the current circumstances, a reduction in costs and revised contributions (after 2006) from the participating companies, we believe that the Kvaerner Pension Fund can continue to meet its pension liabilities." They say that the fund "does not need to increase the investment income by many per cent to be fully funded again", and Kvaerner UK would strive to ensure "continued successful operation of all our businesses and the Kvaerner pension fund". So there we have it and I know quite a few of my readers are either existing or deferred pensioners - keep your fingers crossed.

When we left Bechtel in Hammersmith last year they were grappling with three major Middle Eastern Gas processing projects and the start of the next gigantic phase of the Jamnagar Refinery project in India. Since then we have received the 2005 Financial Report for Bechtel Inc who reported gains in revenue and new work orders in 2005, helped by the expansion of LNG projects around the world and revenue rose to $18.1 bn and the value of new bookings increased 18% to $18.5 bn.

Bechtel is executing two natural gas plant and pipeline projects in Abu Dhabi with a combined value of $2.75 bn and it also is building a gas processing plant for Saudi Aramco. Bechtel also will double the capacity of the Jamnagar oil refinery it built in India several years ago. Three of these projects are being executed in Hammersmith with the LNG work is executed in Houston. In its LNG work in 2005, Bechtel worked on new plants in Australia and Equatorial Guinea, expanded a plant in Trinidad, and completed an LNG job in Egypt. It is also developing an LNG terminal in Louisiana.

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