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.

As well as awards Jacobs also signed a Letter of Intent with Kovoprojekta Brno a.s. (TKB), a top-tier engineering services firm based in Brno, Czech Republic, establishing formal cooperation to jointly execute projects in Central and Eastern Europe. The firms have worked together over the last 10 years on various projects, many involving sulphur technology. Through this new arrangement, Jacobs and TKB will provide a wider range of services for larger projects to their clients in the petrochemical, refining, manufacturing, buildings, and infrastructure sectors. TKB has over 200 employees engaged primarily in refining and chemicals, automotive manufacturing, and civil and infrastructure projects.

Wherever you go these days you bump into Jacob’s people and I have to say they cut a fine show - proud of their company and its achievements - fantastic international expansion and the way in which it has move progressively up the food chain. Old Joe would be very proud to see the result of his labours that started in a shed in Alhambra in 1947!

Petrofac is cashing in on strong demand for new facilities with half-year profits up by two-thirds and management predicting buoyant conditions are set to continue. Net profits in the six months to June jumped 67% to $52.6m from $31.5m. Sales rose 34% to $927m. "Market conditions continue to be strong and we believe are likely to remain so as the relative under-investment in the oil and gas industry in recent years is addressed," Petrofac said. Petrofac took new orders worth $1bn in the half to increase its order book to $3.3bn, up from $3.2bn at the end of 2005. The stock has continued to strengthen during the year and closed the year just shy of £4 - a major increase during the year. The office in Woking continues to expand and now numbers over 500 staff and is undertaking EPC/ EPCM projects. With this sort of growth in both volume and capability promotion to the premiership seems a good opportunity, which will be well deserved. In fact they are the first newly promoted company for many years - I suppose you would compare them with Reading FC (who may go a lot farther than we thought).

I got quite excited about the recovery at the UK branch of the Shaw Corporation - Stone & Webster during 2005 - this has continued at a good pace in 2006. At the start of 2006 there were 450 staff in Milton Keynes and by the end of December they were back up to 750 - levels not seen since the late 1990’s, just before the great crash which saw the company owned by Jacobs(almost) and Shaw , all in a couple of months. They have two ethylene projects in execution and this will remain the base load work for the office over the next couple of years or so. It’s not all Ethylene though with new areas like carbon capture appearing and that old S & W standby Power also featuring. With a balanced workload and some major new hires to strengthen their global operations maybe this time they can maintain these levels for more than just a couple of years - however it is not all blue skies. I hear a claims team is already deeply involved on a major project - don’t hold your breath! Their margins overall are still not what we would call ‘healthy’ - again there is a bit of the CB& I here, although they are much further along the road than our friends in ‘The Woodlands’. Leaving the old legacy behind is never easy, the conversion to full EPC (with all the bells and whistles) takes more time than you would imagine - with Shaw there is still a the pipe fabrication legacy ( it’s a construction legacy as well) that you have to merge with the Technology and Power legacy of S & W. Let me say this takes more time than you could possibly imagine. We saw it with KBR and have seen it with Shaw and CB& I - it’s a very tricky situation. Margins are generally lower than the market average (in the 2-3% with Shaw and CB& I) much higher with KBR E & C (if you can get the execution right).

For Snamprogetti, Technip and Saipem this has been another ‘very’ interesting year. The three of them are similar types - tied in with major energy companies (either officially or unofficially) strong in both onshore and offshore. Now onshore projects are generally Lump Sum, risky and take place in Brazil and the Middle and Far East - so with a bit of luck you might expect margins of 3 / 4 % - unless you have some real differentiation and then 6-8% might be expected. So that’s the picture for both Technip and Snam. Offshore is very different where the word SURF (basically Subsea) can mean margins of 15% and more. Now this is where both Technip and Saipem (more about them shortly) are the global leaders. Now for many years both Snam and Saipem have been (sort of) independent companies owned by the state energy company ENI. This can mean many things, but as with Technip, Snam and Saipem have always been flagship contractors for their national energy industries. So it came to pass in April... the inevitable happened.
Saipem agreed with Eni the purchase of 100% of the equity of treatment of hydrocarbons and the monetization of natural gas.

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