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.

Now each boom brings unlikely candidates to the table, often via a succession of takeovers and mergers that ultimately add very little to the value of the businesses. Recently we have seen a company named ‘Colt’ sold for a king’s ransom in another potential bubble environment. Now Colt’s skills may be limited to Tar Sands, but our friends in Eastbourne Terrace have been always been able to adapt to new trends and new areas of business - as we have seen in the last six months or so - well it will be a couple of years before we know!

As a relative newcomer to our industry said recently "We think it is smarter and wiser to grow organically instead of investing a lot of money in consolidation, integration and costly mergers. Normally, it takes double the time estimated and you get half of the synergies people were projecting." I think this fellow may be right!

Well it’s a brave man who stands up in front of the analysts and repeats those words when the industry is not looking as rosy. I have always been a progenitor of 1=1 will ultimately equal < than 2 (and often much less) - believe me I have studied almost every E & C merger and 1+1= 1 is normally the final result. But they keep saying 1+1=3!

So we come back to Eastbourne Terrace where the general engineering contractor who has inhabited this street since 1957 and has in the last 20 years or so has been involved in six mergers and takeovers - well the answer is still one! I have always had a sneaking regard for this company - adaptable, capable, staff numbers have ranged from 500 to 2300 and back again and are now over 1000 again, I think this alone says so much about the industry and the people who work in our industry and one of the reasons why I am still proud to be part of it. So, after all the to - ing and fro-ing we have the newest member of the LNG Liquefaction Club - welcome aboard and enjoy the ride!

After a little bit of personal local ‘joshing’ let’s get back to the practicalities of our current situation.

It was during 2003-2004 that our industry experienced very large percentage price increases (often as high as 50-65%) in major materials and equipment supply e.g structural steel, piping and electrical. This has stabilised somewhat in the past two years or so but the cost increases have continued albeit at lower rates. With industry demand remaining high, shop loads have remained stubbornly at + 80% and lead times have continued to stretch out in most areas by between 15 and 25% which has constrained the whole supply chain.

The boom has continued throughout this period although it must be said that we seeing a possible slow down as some project TIC forecasts have increased by up to 150 - 200% and schedules by up to 50%. It is interesting to report that there were no new LNG projects awarded in 2006 - even though if you advertise the fact that you have some spare LNG for sale, the phone will not stop ringing.

However there is no doubt that many energy projects are under threat from rising steel and labour costs - and the more ambitious the scheme the more vulnerable it is.

ExxonMobil abandoned its plans last week for its Qatar GTL project. Qatar’s Second Deputy Premier and Energy Minister HE Abdullah bin Hamad al-Attiyah said budget overruns lay behind the decision to scrap the gas-to-liquids GTL scheme.

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