$139bn bonanza in pipeline for oil services providers in Middle East

Oil support giants said the international recovery meant customers were moving forward with large projects and increasing exploration for future developments. (Shutterstock)
Updated 07 September 2018

$139bn bonanza in pipeline for oil services providers in Middle East

  • Revival in the price of crude means Middle Eastern producers are spending again — good news for service providers
  • Flurry of deals during the summer has bolstered market sentiment and investment

LONDON: GCC and global oil services and equipment providers are cashing in on an upswing in capital spending in Middle Eastern oil and gas-producing countries, senior executives have told Arab News.
There has been a flurry of deals during the summer, bolstering market sentiment and investment, they said.
Steve Connolly, regional managing director for Altrad in the MENA region, said that the group’s pipeline of potential new business was “probably 25 percent higher than this time last year.”
Infrastructure and expansion projects linked to existing or new wells and refineries were mothballed during the oil price slump, but the cycle has turned, said executives.
Duncan Anderson, CEO at Abu Dhabi-based Gulf Marine Services, said: “Countries that were restricting their production are now accelerating it. Saudi Arabia is producing (more oil) per day and that all needs the support of oil services. It’s a similar story in Kuwait, the UAE and Iraq.”
The executives said that as the oil price picks up, there is generally a time lag of about 12 months before a more robust trading environment transfers to the order book, but that moment was now.
“We have a secured orders backlog of over $120 million and are confident that will increase significantly as we move forward,” said Anderson.
Altrad’s showcase Middle Eastern project links to a deal with Saudi Aramco’s construction of the huge Jazan Economic City that lies on the south coast of the Red Sea. The development, creating thousands of new jobs and involving new refineries and terminals has seen Altrad secure work linked to both construction and maintenance post-construction. “It’s a great endorsement from Aramco,”
said Connolly.


Elsewhere, Weir Oil and Gas Dubai signed $50 million multi-year contracts in Iraq with two international oil companies at the end of August, further cementing its position in the region.
Petrofac clinched deals this summer highlighting a healthy forward order book. It won a
$600 million contract with Algeria’s Sonatrach to help further development of the Tinhert gas fields in the southeast of the country. It also signed a $369 million Iraqi contract with state-run Basra oil company to help build a new crude-processing facility in the Majnoon oilfield that will have the capacity to produce 200,000 barrels per day.
In an emailed response to Arab News, Petrofac CEO Ayman Asfari said he expected an increased focus on downstream and petrochemical projects in the Middle East, and forecast that the company would bid for about $8 billion of “petrochem” projects in the region over the next three years.
“There is a wave of downstream spend both on refining and petrochem developments as MENA economies continue to industrialize,” he said.
Middle Eastern clients were also spending on upstream oil opportunities to offset natural decline and to maintain spare capacity. There was also a “very big push to develop gas resources, particularly in the UAE and Saudi Arabia, which are short of gas, with Saudi planning to double gas production capacity by 2030,” said Asfari.
Jordan’s Cabinet recently approved a pipeline to supply oil and gas from Basra in southern Iraq to the kingdom’s Aqaba port, as Baghdad seeks alternative routes to bring its crude to market.
Spencer Walsh, senior analyst at IHS Markit, told Arab News that the oil market had tightened and that countries which were restricting production were now ramping up.
“As that happens, countries such as Kuwait, Iraq and UAE need the support of oil services and equipment groups, but by far the biggest market for actors was KSA where investment is strong,” he said.
UAE-based oil rig construction and maintenance firm Lamprell is ramping up work at the state-of-the art King Salman Global Maritime Industries Complex, a shipyard in KSA’s Ras Al-Khair which, on completion, will be the largest shipyard in the Arabian Gulf. The nearly 12 million square meter facility will build offshore oil and gas rigs, offshore support vessels and commercial vessels, including very large crude carriers. Lamprell is part of an Aramco-spearheaded consortium whose other members include the National Shipping Company of Saudi Arabia (Bahri), and South Korea’s Hyundai Heavy Industries.
The chief executives of US oil support giants Schlumberger and Baker Hughes said customers were moving forward with large projects and even preparing to increase exploration for future ones, the Wall Street Journal reported last month.
“The international recovery has finally started,” Schlumberger CEO Paal Kibsgaard said during the company’s earnings call with analysts. WSJ cited him as saying that “the backlog on integrated drilling projects is the most we’ve ever seen.”
The global oil field services market is expected to be valued at $139 billion by 2025, according to a report last year by US consultancy Grand View Research. The compound annual growth rate was put at 3.4 percent.


The global oil field services market is expected to be worth $139 billion by 2025, according to a report by US consultancy Grand View Research.

How diamonds became an everyday trend

Updated 45 min 16 sec ago

How diamonds became an everyday trend

“North Riyadh will be the place to be,” declares Selim Chidiac, chief executive officer of L’azurde, Saudi Arabia’s biggest jewelry company and a glitzy reminder that the Kingdom has brands of its own to rival the global icons of the luxury business.

Chidiac was talking of the sudden boom in the Saudi retail business that is seeing malls open at an unprecedented rate. “There are so many new malls going up, like Riyadh Park and others. The prospects for the next 18 months are very exciting and dramatic,” he said.

Most of L’azurde’s shops in the Kingdom are in malls, with only a small number on the street or in souks, so the retail and leisure boom — sparked by the decree to allow women to drive and the re-opening of the Kingdom’s cinemas after a 35-year hiatus — is a direct boost to the L’azurde business.

But that does not mean Chidiac can just sit back and watch the business come rolling in. Despite the retail boom, the underlying economy is still suffering from the aftermath of the period of austerity ushered in by the collapse in oil prices in 2014.

“The consumer background in Saudi Arabia is still challenging. There have been lots of changes in the Kingdom, such as the removal of subsidies and perhaps some geopolitical concerns. But ultimately, what has been happening is very positive for the economy. Raising salaries and empowering women are good developments, and they will pay off in the medium and long term,” Chidiac said.

The influence of the regional macro-economy was shown in L’azurde’s recent financial figures for the second quarter of 2018. A overall rise of 13 percent in revenues masked a decline in Saudi revenues, compensated by a leap in the company’s important Egyptian business.

“Most of the growth came from Egypt. Saudi Arabia was actually 10 percent down, but the comparison is not entirely indicative — the same period last year was very big, boosted by the resumption of government spending and the Ramadan period,” he explained.

Chidiac is full of praise for the strength of the Egyptian division of the business, which has three factories, 12 shops and 1,200 employees. “Egypt has been a great story. We’ve been there for 20 years and it has seldom looked so strong before. Consumer spending is high and the stock market is strong,” he said.

“The government reforms of a couple of years ago and the IMF deal benefited the economy and stabilized the currency, which has made our exports easier. Better security enabled tourism again, and also helped attract foreign direct investment. There is now a growing middle class in the country with greater spending power,” he added.

The situation in Saudi Arabia is more complicated, but in the long term Chidiac thinks the country is in for a period of expansion.

“Saudi consumers are getting behind the reform program of Mohammed bin Salman, the crown prince. The economic situation is improving. For a while people have been going into shops to look around and ask about products, but slowly they are beginning to spend too.

“The empowerment of women is beginning to be felt. They are more mobile, and actively seeking jobs now. It is too early to judge the impact of allowing women to drive. It is only a few months now since the ban was lifted. But long term it has to be a good thing for the consumer economy,” he said.

The jewelry tastes of Saudi women — overwhelmingly L’azurde’s target customer — are changing subtly. The move is towards more affordable everyday pieces, such as the “Dream collection” — designed by Al-Anoud Badr, the founder of the fashion brand Lady Fozaza — which aimed to have a trendy edge.

“The Dream collection is our most popular line at the moment. They are the fastest-selling items for daily wear, ranging in price from 1,500 ($400) to 5,000 riyals,” Chidiac said.

More traditional lines are still a big feature, however. “Still our bestselling and most profitable pieces are wedding sets — complete ranges of necklaces, pendants, earrings rings. We had a very good Ramadan for these items. These can range from 15,000 to 100,000 riyals, but we’ve sold customized sets for as much as 1 million riyals,” he said.

The global trend toward more affordable everyday jewelry was the spur for the purchase of the Tous chain of jewelry stores, the most significant corporate development at L’azurde since the 2016 initial public offering (IPO).

“With Tous, we are entering the segment of affordable jewelry for the first time — the market for purchases of less than 2,000 riyals. This is the fastest-growing sector in the world at the moment. Women want smaller pieces for daily wear, and they want to change them more frequently. Tous is the leading affordable jewelry brand in Saudi Arabia, with 22 shops and 90 employees in the Kingdom, and we have bought a 10-year Saudi franchise,” Chidiac said.

Illustration by Luis Grañena

There was a second motivation for the Tous purchase. Since the IPO, L’azurde shares are about 50 per cent down from the listing price, and Chidiac has been looking for a long time for a deal that might add some momentum to the share price performance.

“The acquisition of Tous was a major event for us. We’ve been working on it for 18 months, ever since the IPO. The analysis and due diligence took more than a year. The logic of going public was to fund organic growth, and then we began to look at ways to grow non-organically.

“That’s why we did the acquisition of Tous — to give some value back to the shareholders. That has been a major concern. We are not considering share buy-backs. I believe the prospects for the Tadawul are pretty good, as long as there are no major external shocks,” he said.

The logic of the Tous deal should be immediately apparent to shareholders, Chidiac explained. “We paid 188 million riyals for a company that has revenues of 18.8 million riyals, so it is immediately earnings enhancing. We paid in part cash and part debt funded. Now we must consolidate it and grow it, while looking for other opportunities,” he said.

“Tous helps move L’azurde towards being a multi-brand company. We will add more brands, soon, but we should walk before we can run,” he added.

Those other opportunities include opening new stores in Saudi Arabia and Egypt, and perhaps more acquisitions. But there are always challenges in a business as fast moving as jewelry, where taste and fashion can quickly affect demand for the latest goods.

“Customers are becoming very savvy with their spending, looking for discounts and promotions. They are becoming very aware of their choice options. The most common thing we hear from a customer walking into a shop is “what’s new?”. It means we have to manage our stocks effectively.

“There are also challenges with employees — hiring, training and employment conditions. But that has always been the case,” Chidiac said. Most of the 700 employees at the Riyadh factory are Asian, he said, because “Asians have better technical skills in jewelry.”

And, as ever, the geopolitics of the region weighs over business decisions. L’azurde had an operation in Doha that was closed as soon as the confrontation began last summer over allegations of terrorism. Another possible acquisition deal in the UAE was stymied because of Qatari links, he said, without wanting to identify the target company.

Global economic factors also affect L’azurde’s business decisions. The gold price is not a major factor, because the company does not hold stocks of gold beyond its immediate need for manufacturing in Saudi Arabia and Egypt, but it can affect demand.

“It does affect customer sentiment when they see the gold price falling and they see the opportunity for a bargain. The dollar level and interest rates are bigger concerns for the economy and for our business,” he said.