Public companies offered investors optimism about projects in global energy and petrochemical markets moving forward in the next 12 to 18 months, particularly in North America.However, executives at a Credit Suisse-sponsored industry-sector conference in Manhattan on June 6 voiced caution about how tighter labor availability could affect pay rates, margins and contract preferences.
"We expect steady improvement in awards in 2013, building momentum into 2014," said Jamie Cook, Credit Suisse's E&C sector leader. Firms said contract awards on two liquefied-natural-gas projects in Texas and British Columbia would move forward this year, with two more in unspecified North American locations in 2014. Peter Oosterveer, president of Fluor Corp.'s energy-and-chemicals group, said the contractor has partnered with Japan-based JGC Corp. for Canada's Kitimat LNG project and others, which he would not disclose, in the U.S.
Cook also foresees awards for "at least two" ethylene-cracker production facilities to move forward within the next three to six months and another two to four next year. Oosterveer noted 10 global projects on the firm's radar, about half in the U.S. Foster Wheeler Corp. CEO Kent Masters says mining is not a "hot market at the moment," but he predicts a resurgence. "Cycles are never perfect," he said. KBR Corp. is boosting partnering arrangements with Korean contractors to seek growing opportunities in floating LNG projects, said CEO William Utt.
But executives acknowledged tightening craft-labor markets, along the Gulf Coast, in particular, and in Canada and Australia. "We were holding fixed-price contracts as wages rose," said Utt, in reference to recent charges against earnings on some projects. William Lingard, new chief operating officer of URS Corp. and former CEO of its recent energy acquisition, said about 10% of its workforce in western Canada are temporary employees from Poland, the U.K. and the Philippines. He expects the firm's oil-and-gas workforce to rise to 13,000 this year from 10,000 last year and notes 600 positions still to be filled.
According to Cook, wage rates are rising about 6% to 8%. She says Jacobs Engineering "just started raising salaries over the past six to 12 months. If market strength continues, [the firm] could get back to biannual price increases." Added Utt, "the labor issues on the Gulf Coast will radiate to the rest of the U.S."
While the labor squeeze will generate a push for contractors to seek more cost-plus contracts, Oosterveer said global oil firms appear to be favoring lump-sum awards. But according to Cook, "Another contractor noted on a problem project that it was able to renegotiate so that the customer has skin in the game." Acquisition fever may cool in some quarters as firms push more organic growth. Steve Kadenacy, AECOM chief financial officer, said the firm was not looking to get into process work but "would love to provide more infrastructure to support it."