Petrofac wraps up Middle East deals worth $1bn

Petrofac CEO Ayman Asfari said he was committed to a long-term presence in Oman. (Reuters)
Updated 14 December 2017

Petrofac wraps up Middle East deals worth $1bn

LONDON: Oil industry services group Petrofac has ramped up its position in the Middle East with two deals worth nearly $1 billion.
On Wednesday, the London-listed company won a $160 million contract from the Basra Oil Company for its Iraq crude oil export expansion project. The deal is a two-year extension of Petrofac’s role as operations and maintenance service provider at the facility.
The Iraqi operation is responsible for a significant proportion of the country’s oil exports, and is located 60 kilometers offshore the Al-Faw Peninsula.
Petrofac earlier unveiled an $800 million deal with BP to work on the Khazzan phase-two gas development in Oman.
In 2014, Petrofac won a $1.4 billion contract for the first phase of the Khazzan project, which was completed in September. The latest work comprises the addition of a third gas train with a capacity for nominally handling 500 million standard cubic feet of gas per day (mmscfd), which will help drive increased total production capacity from the central processing facility to 1,500 mmscfd. 
BP Oman is lead partner in the Khazzan project with a 60 percent interest. Oman Oil Company Exploration & Production holds 40 percent.
In August, Petrofac announced another contract in Oman, a $2 billion contract to work on the Duqm refinery through a joint venture with Samsung engineering.
London-based stockbroker Kepler Cheuvreux on Wednesday published a note in which it recommended Petrofac’s shares as a “buy,” indicating a 30 percent upside from the current price of about £4.50 ($6).
Petrofac generated revenue of $7.9 billion in 2016, with well over half accounted for by the Middle East and North Africa. The London-listed company has interests in Saudi Arabia, Kuwait, UAE, Qatar and Algeria.
Kepler Cheuvreux said: “Petrofac enjoys a very strong positioning in Oman. The group has signed more than a dozen large EPC contracts in the country (most recently, one related to the Duqm refinery). Its relationship with BP is strong (given the maintenance contract in February 2017), and the award of the phase two of this project is proof of the good execution of Petrofac on phase one, which was delivered bang in line with expectations.”
Petrofac CEO Ayman Asfari, commenting on the latest deal with BP for Oman, said, “We look forward to continuing to demonstrate our commitment to a sustainable and long-term presence in the Sultanate through the safe and timely delivery of this project for BP.”
Petrofac’s shares have underperformed this year after it was dragged into an oil industry corruption scandal by the UK’s Serious Fraud Office. The SFO is probing allegations that Unaoil has been acting as a “middleman” in fixing lucrative service contracts for multinationals for a fee. Petrofac has denied any wrongdoing, but its share price remains 40 percent lower than before the SFO swoop.
In May, Petrofac suspended Marwan Chedid as chief operating officer until further notice. As a consequence he resigned from the board.

Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019

Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”