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.

Last year I focused heavily on the offshore industry and its (relatively) short history but huge influence it had on the UK E & C industry. Well last year saw it slip a little further down the League table- sure there still a few bright spots, namely the Caspian remains a happy hunting ground for KBR in Leatherhead where the work has flowed solidly through their office leafy Leatherhead. AMEC appear to have lost a bit more ground and CB&I are now a subcontractor to that new ‘Offshore Titan’ AkerKvaerner. Although one must believe, however that their future lies in the LNG Business (now Liquefaction as well as a growing reputation in the Receiving Terminal area where they continue to expand their global reach with a recent major award in (far away) Chile. Aberdeen is now clearly the centre of the offshore industry in the UK and will remain so until the industry begins its long slide to oblivion in the next 50-100 years. There will always be an opportunity in London with those smaller niche players like Petrofac, SLP and Genesis keeping the flag flying - however for KBR and to a lesser extent CB&I their long term offshore future must be clouded with uncertainty. The days of the Offshore Contractor with the full list of kit - Yards, Pipe lay Barges, Heavy Lift Vessels and the full Surf capability is perhaps long gone - although some of the players are making a go of it in some of the sectors - one recovery situation has been McDermott (one of the two famous old names of the offshore Industry).

So back to today's current boom - how does the global international community measure up to the massive pressures coming from different directions?

ABB (with Lummus still within their stable) have been through the asbestos process and come out of the other side. ABB resolved asbestos claims against its U.S. subsidiary Lummus, putting an end to its asbestos woes and paving the way for the sale of the unit. Lummus, which filed for bankruptcy earlier this year to give it a chance to settle its asbestos liabilities, has now exited Chapter 11 protection. ABB said the U.S. District Court affirmed a settlement plan which became effective on August 31 and would cost the company around $40 m in compensation payments to claimants who had been exposed to asbestos. The move came five months after a U.S. court confirmed the company's $1.43 bn settlement plan for its larger U.S. unit Combustion Engineering.

In olefins they have no EPC offering and utilise Snamprogetti or others as the EPC Contractor in the Middle East and Toyo in the Far East (Shell Singapore also recently awarded). Lummus was also awarded (with Sinopec) the first stage of the Fujian Integrated Ethylene / Refinery project. They also continue to pick up refining projects in Europe and the Middle East. So as they say there is ‘life in the old dog yet’! Also ABB said it is likely to sell its US subsidiary ABB Lummus Global in the medium term following the recent resolution of asbestos claims. 'Medium-term, a sale of the Lummus is likely, but ABB is in no rush getting rid of its subsidiary,' an ABB spokesman said. He confirmed previous comments that Lummus was not part of ABB's core business, but said the group would continue to develop the unit and then assess the best option for the group, its clients and its employees. "This is positive because there is nothing blocking the sale of ABB Lummus any more’’. Well that was four months ago and there appears to have been no real positive news that a disposal was underway although it was once again mentioned in the 2006 accounts!

Their appetite or capability for any real risk has long since gone, as a result of some grievous losses on fixed price work - they have suffered heavily in both Holland and the USA with heavy losses on the Lyondell PO/SM, Essar Refinery, India and the Brazilian Ethylene Complex there are others of a lesser magnitude.

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