As oil-and-gas markets struggle to recover, publicly owned construction industry firms with ties to the sector tried to paint the best possible outlook for investors at a June 2 conference, held in New York City by investment firm Credit Suisse. Despite signs of “green shoots” in related mining, power and infrastructure markets, executives acknowledged delays in large energy projects and noted competitive steps being taken to right-size and diversify.
“Broadly, customers are looking for some stability in crude prices before revisiting projects,” said Jamie Cook, company managing director and lead engineering and construction-sector analyst. “Awards expected for 2016 were pushed to the right, although there is still a high degree of confidence that companies are still bullish that petrochemical projects will progress.” She predicted “the next wave” of ethylene-cracker plants moving in North America and, to some degree, the Middle East.
CB&I Executive Vice President Michael Taff said the company’s Gulf Coast projects in LNG and petrochemicals “were on schedule” and that, as projects ramp up, the firm expects to hire up to 9,000 employees in the region this year. The firm anticipates a contract award in the fourth quarter on its Cameron LNG project in Texas and a final investment decision for one in Mozambique in early 2017, he said.
Fluor Corp. Chief Operating Officer Peter Oosterveer predicted LNG demand would lag until at least 2022 but said abundant and inexpensive feedstock would fuel cracker facilities in the U.S. He said the firm is tracking $60 billion in potential energy project awards by early 2018 and $10 billion in power and infrastructure. “We’ve not seen any cancellations,” he said.
Steven Demetriou, who joined Jacobs last year as CEO, said the firm’s oil and chemical construction markets are “stabilizing” and that its win rate for front-end design work has grown in 2016 over the previous year.
Four days after the conference, Jacobs disclosed it was awarded the engineering, procurement and construction contract to build material handling facilities and surface and below-ground infrastructure for the estimated $5.3-billion Oyo Togoi underground cooper and gold mine in Mongolia. According to an online Seeking Alpha report, the award and mine development had been delayed since 2013 by a dispute between mining giant Rio Tinto and the Mongolian government, which along with mining firm Turquoise Resources, are partners in the project.
Fluor predicted "a light at the end of the tunnel" in the sector and said it was tracking $8 billion in projects in mining by 2018.
But declines in commodity prices have dampened work in Middle East private development for Hill International, although the firm may benefit from an infrastructure push in Saudi Arabia and growth in construction claims work, said CEO David Richter. Volume in the firm’s Asia-Pacific region rose 19% in the first quarter, mostly from its work in construction claims.
Firms stressed that diversification into areas such as technology and government services will remain a key strategy. KBR’s just-announced buy of government tech services firm Wyle Inc. is the latest example of streamlining since CEO Stuart Bradie took over in 2014. The $570-million deal, to close later this year, “fills a strategic hole in KBR and allows us to be more selective in the hydrocarbon work we take on,” he said.
Companies are taking steps to improve competitive positions. Noting Jacobs’ major restructuring, Demetriou said, “We took out $70 million in costs, which more than offset the decline in volume.” He said more cuts are planned “across all business units,” affecting 230 global offices and including moving its California corporate base to Dallas later this year.
As of June 1 when he took over as AMEC Foster Wheeler’s new CEO, former Halliburton executive Jonathan Lewis “has focused on driving a more efficient workforce,” says Cook, noting the “velocity of head-count swings” at the firm in the past year.