SNC-Lavalin writes down $910m in oil assets amid Saudi trade doubts

Montreal-based SNC-Lavalin Group was appointed by Saudi Aramco last April to work on a gas processing facility in the Kingdom’s Eastern Province. (Reuters)
Updated 23 February 2019

SNC-Lavalin writes down $910m in oil assets amid Saudi trade doubts

  • SNC-Lavalin also expecting lower annual revenue from its metals and mining business
  • The company is in the middle of a political crisis that has enveloped Canadian Prime Minister Justin Trudeau

LONDON: Canadian engineering firm SNC-Lavalin has written down $910 million in oil and gas assets amid continuing uncertainty over trade relations with Saudi Arabia.
The Canadian engineering giant had picked up a string of major contracts in the Kingdom before a diplomatic dispute between the two countries last summer clouded the outlook for future orders.
The firm said on Friday that near-term prospects for the business were worsening in the face of rising trade challenges in the Kingdom.
“We disclosed back in August the potential effects of the Canadian- Saudi issue, and I think that in itself doesn’t affect the work we do today and the backlog we have,” said SNC-Lavalin CEO Neil Bruce in a video presentation accompanying the company’s full year results. “But it does put a lot of uncertainty into the future prospects because Saudi have been pretty clear that they are looking wherever they choose to maybe omit us from bidding things that traditionally we would have bid,” he said.

 

The writedown contributed to a C$1.6 billion ($1.2 billion) fourth-quarter loss at the contractor. The engineering company also faces headwinds in Latin America, where it reported a
C$346 million loss related to what analysts understand to be Chilean state-run miner Codelco’s Chuquicamata copper mine.
As a result, SNC-Lavalin expects lower annual revenue from its metals and mining business.
Closer to home, the company is also in the middle of a political crisis that has enveloped Canadian Prime Minister Justin Trudeau, leading to the recent resignation of one of his key aides and a minister, Reuters reported.
The crisis follows allegations that Trudeau’s officials pressured a former minister to allow SNC to escape with a fine and avoid a trial over charges of bribing Libyan officials.
Saudi Arabia has been a lucrative market for the Canadian engineering giant.
Last April the contractor was appointed by Saudi Aramco to install additional facilities for a major gas processing facility in the Kingdom’s Eastern Province.
The following month it also bagged a contract for a major district cooling plant in Makkah.

FASTFACTS

$1.6bn - SNC-Lavalin has reported a C$1.6 billion 4Q loss.


Tankers defer retrofits to cash in on freight rates

Updated 52 min ago

Tankers defer retrofits to cash in on freight rates

  • The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week

SINGAPORE: Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalize on an unexpected surge in freight rates, three trade sources said.

US sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the US Gulf to China cost around $6 million-$8 million.

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

“We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates,” said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called “clean” or refined fuels like gasoline to “dirty” cargoes that include crude oil, despite the costs of having to clean them later.

“Current rate levels are a no-brainer for pushing back scrubber retrofitting,” said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulfur limit of 0.5 percent, down from 3.5 percent currently, significantly inflating shippers’ fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulfur from emissions, will be allowed to continue burning cheaper high-sulfur fuels.

Ships must be sidelined for up to 60 days for fitting these, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

“One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date,” said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

“With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note,” Kapoor said.