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.

A strong underlying market will also help heal the wounds a little faster. After all, while CB&I are a bit more specialized than average, plenty of large engineering and construction firms like Fluor and Washington Group are reporting encouraging order outlooks. So as long as companies like ExxonMobil or BP need new infrastructure, and the cash flow to fund it, CB&I should be in decent shape -- provided the company can keep its margins in order.

Smaller awards followed for the next three months and then in August a $1 bn LNG Terminal was awarded by Sabine Pass LNG for EPC + Fabrication and one week later their financials appeared to be back on schedule and moving ahead strongly - still as we say in the E & C industry ‘one swallow does not make a summer’. However by Q3 their credit facility had been increased to $ 850 m and global staff numbers up to12, 000 and the financial numbers looked pretty sound. Their base storage tank business continues to look strong and by October and November the industry press was confirming that the company was working with Hunt Oil and its partners on a cost estimate for the planned Peru LNG project with a view to a potential EPC award during the early part of 2007. (Which has now been confirmed - although the scope coupled with the final project costs make some interesting reading. Heady times indeed and the opportunity to make the big breakthrough and become a fully fledged member of the ‘LNG Club’ only time will tell so watch this space! There may a lesson to be learned here (something our industry has often failed to take on board over the years) - it's a complex job designing and building large plants for Lump Sum prices and if you were once a Tank Vendor with very good construction experience it is still a another giant step to become a competent major international EPC contractor and successfully execute projects even if your slice of the competence can be 70% of the TIC , which is alright in LNG Receiving Terminals but maybe more tricky in other areas of our business. It’s not the first time and I am sure it won't be the last time this will happen.

The UK (and Manchester based) minnows, Costain and Simon Carves (were part of Sembawang but both have been sold to that ‘up and coming’ Indian Company, Punj Lloyd) both struggle on, albeit at higher levels that one year ago. There have been some major awards for both in the past year, but as is often the case the big jobs take a little bit of extra effort to bring to realisation. Still staff numbers are both higher but Costain has continued to trade at a loss and posted a recent serious profits warning linked to losses on a Lump Sum project in Mexico - never a country that has been a happy hunting ground for International E&C Contractors!

Staying in the UK Day and Zimmerman continue to make little impact from their Stockport office and with barely 150 staff stay close to the industrial market... the same message I gave to you last year.

The rumours I mentioned last year relating to the acquisition of Davy Process Technology by Johnson Matthey was finally announced in late January with a purchase price of $71m although rumour has it that the actual figure was somewhat less - well that’s what you get when dealing with the Russians - mystery! The combination of Johnson Matthey's process catalyst businesses with DPT will present new opportunities to exploit the research capabilities of both organisations. The company said the acquisition will give Johnson Matthey new opportunities to grow its sales of catalysts into both existing and new emerging markets. The acquisition of Davy Process Technology is a further significant step in growing our Process Catalyst and Technologies business. The combination of DPT's process technology and engineering design capabilities with our expertise in catalysis will substantially strengthen our leading position as a catalyst and technology supplier to the world's chemical and energy industries. Since then DPT have continued to be very busy winning a number of front end packages across the broad spectrum of their product areas.

We continue to see the Indian conglomerates moving gradually up the food chain as they are able to take on wider responsibilities on EPC projects. Dodsal are one such company, winning a $951m contract, including long lead items, by Qatar Petroleum for an EPIC of Common Cooling Seawater System Phase-II at Ras Laffan. With this EPIC contract, Dodsal Group’s order book is approximately $2 bn.

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