Fluor sees potential to double Mid East business
Jose Bustamante says GCC upstream landscape is full of opportunities
Fluor’s chief in the Middle East Jose Bustamante sees the potential for doubling the company’s Middle East footprint
Fluor has long been around for 100 years, and a fixture on the Middle East’s EPC scene since 1947, for a long time, but to speaking to Jose Bustamante, the company’s regional chief, is like tapping the ambition of a start-up company.
“In five years we would like to double the size of the company that we have here [in the Middle East],” Bustamante tells Oil & Gas Middle East. “For our core office, we want 3,000 staff, and in the field we want to have a lot more people on the ground to be even closer to projects.”
Bustamante attributes his outlook for Fluor to the exciting new round of projects in the GCC and an increasing presence in Iraq.
“Our new opportunities we see Kuwait refineries, offshore Abu Dhabi and in Qatar,” he confides. “We would also like to be executing chemical work at Ras Laffan.”
“The complexity of the programs you see in the Middle East now, they are world class,” Bustamante says. “If you look at the projects coming up at SARB, Umm Lulu and ZADCO and you look at the fabrication capacity in Abu Dhabi you clearly need more than what is there.”
Bustamante says the EPC market is now truly global, with national oil companies able to tap labour supply and expertise from anywhere through a huge range of providers. With that globalization comes a new level of competition.
“It’s a global market, you can certainly say that about EPC these days,” he says. “One of our big differentiators is safety, which NOCs really care about. In 2008-2009, when Ras Laffan had over 75,000 people on site, we were executing a c.$17 billion utilities program for Rasgas.
“Despite the busyness of the site, the whole site was overcrowded, we racked up 44 million hours without an LTI. We also finished that demanding project on time.”
As the region turns to brownfield projects which aim not just to prolong but aggressively develop production, the advent of sour gas recovery, and a raft of new downstream projects, technical capacity as well as headcount matters.
“Our depth of resource is a huge factor,” Bustamante explains. “In Kuwait, we’re looking at a refining boom, in Qatar its chemicals, Abu Dhabi is targeting more offshore production and sour gas.
“To have all those capabilities in one company is remarkable, and that’s what we’ve got. We have 45,000 people to draw on worldwide, which is important when you are taking on the kinds of projects happening in this region.”
Maintaining that capacity does not come cheap, and competition in some sectors can drive prices down to a point where procurement and execution capabilities are stretched to the limit.
“It’s a very risky business sometimes,” Bustamante confides. “We have seen Korean contractors enter the region, and sometimes we are amazed by how competitive they can be.”
“One big issue for clients is delivery,” Bustamente explains. “Sometimes the lump-sum price is the minimum that a client will pay, so that has to be considered as well; we’re wrapping up the risk of the project for a client. It’s very difficult to estimate lump-sum projects to make sure that you are competitive, but have a cushion, given you are assuming all the risks over a four-year program.”
Bustamante says that’s where Fluor, drawing on its huge international reach, expertise and resources, can make a difference in vying for the region’s mega-projects. “We have a global reach, with a large centralized program and procurement centre, and this gives us good information of what is the cost of materials and equipment around the world,” he explains. “In our last quarter we reported $6.3 billion of revenue. We buy a lot of stuff, and that gives us buying power.”
“We also have a significant presence in China, with 1,300 people, 300 of whom are in procurement, and a similar function in India,” he continues. “We are competing on every side – on execution, on the procurement. Every project is different, and not every vendor is capable of doing every project.”
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Feed to EPC
As the market shift s to fewer but higher value EPC projects, Oil & Gas Middle East has noticed some frustration from EPC companies about the delay between FEED and EPC project stages.
“The delay between FEED and EPC is a result of the size of the contracts we are seeing in the Middle East, which gives rise to a lot of complexity,” Bustamane explains.
“In Kuwait, it’s definitely taking a long time for them to move forward, but this time they are moving ahead.”
“ADNOC in particular has been very smart in awarding some of the large programs at a time when the market was depressed, when there were lower capital costs, both at Habshan and Takreer,” he says. “Without the need for international finance ADNOC could move quickly and award programs and so benefitted from lower costs from the market.”
Bustamante says that in Saudi, the driver is different. “They need to increase employment and diversify their economy, and we’re seeing a lot of investment there on a continuous basis.”
And what of Iraq? The country remains the place with the most work to do and the greatest potential.
“Security is the bottleneck for some EPC work,” Bustamate says. “As soon as that is sort we hope that we will see improvement very quickly. As soon as more wealth can be created for Iraqis, then we hope to see more security, and that virtuous circle will turn very quickly. But it’s beyond our control.”
Bustamante says that while the Iraq opportunity is immense, the advent of a new project cycle throughout the region – and in the cases of Australia, Libya, Kazakhstan, Russia, Asia, the USA, Canada and Japan’s reconstruction, beyond – means that competition in the EPC market will not all flow one way.
“The risk for Iraq is that the global trend is improving. If the rest of the world has a number of projects going on there’s going to be a lot of demand for EPC contractors. So if you look around and see conditions in Iraq are not improving, there will be delays or less interest,” he says. “The risk is in supply and demand. Let’s hope the security situation improves. If it does, we are going to see a lot of investment.”
In an uncertain world, Bustamante praises the Middle East’s stability as a market, for all its recent upheaval.
“It’s interesting how quickly the market changes,” he says. “In the global context, we’ve seen our clients, on the petrochemicals side, at one time talk about discontinuing investments in North America.
Companies like Dow saying it’s no longer economical: all of a sudden shale gas appears and the cost of gas goes down, crackers start appearing.”
“Comparatively, the Middle East is a very steady market, a very important and a strategic market, and we see that the Middle East will continue like that,” he adds.
More than stability, a new project cycle is under way, which should see an impending wave of upstream investment result in still more downstream EPC opportunities.
“If you look at the latest developments in Abu Dhabi, it gives rise to a lot of oil and gas coming onshore for processing, a lot of scope for downstream investment,” he says. “So the same cycle is starting again. It’s the same with all the offshore investment in Saudi Arabia; that is going to restart more oil and gas for processing. The Middle East is therefore going to continue to be a growth area for us in the next seven years.”
While National Oil Companies are focused on cost, they do so having been charged with stewarding their country’s wealth for generations to come. This means margins still exist where quality and delivery can be assured.
“The attitude of National Oil companies is focused on costs, but they are also focused on quality, as their oil and gas infrastructure is for future generations,” Bustamante says.
“When they have marquee or milestone projects, they want to make sure that execution is flawless, and that’s good for companies like Fluor. I think we have a very successful track record in the region.”