India’s L&T Hydrocarbon bullish on prospects in Saudi

India-based engineering conglomerate Larsen & Toubro, which has set up a wholly-owned subsidiary to focus on the region, is bullish about its prospects in Saudi Arabia.

L&T Hydrocarbon Engineering has already bagged a number of contracts in the Gulf, including projects worth $2 billion from Saudi Aramco. It is now eyeing at least another $500 million from the kingdom’s national oil company, CEO and managing director Subramanian Sarma tells Argaam.

Q: What is the status of Hasbah gas field expansion project?

A: We, along with our partner EMAS, secured the $1.6 billion Hasbah-II project in Q1 of FY 2016-17 under the long-term agreement (LTA) program with Saudi Aramco. The project consists of six wellhead platforms, two tie-in platforms, subsea pipelines and cables; and it is progressing well.

As the consortium has received orders worth over $2 billion from Saudi Aramco, we have assigned a dedicated leadership team to manage this portfolio and though its early days, we have had a good beginning.

In Q3 2016-17, we added two more projects from Aramco – first, supply and installation of four platforms in the Safaniya field and second, upgradation of facilities on 17 platforms in various offshore fields.

Q: What was the impact of lower crude prices and the subsequent decline in oil investments on L&T’s subsidiaries in the Gulf?

A: Capital expenditure certainly has declined significantly (by more than 45 percent) in the Middle East due to the lower crude prices.

However, Aramco continues to invest, seemingly to take advantage of the lower cost of services, particularly in offshore development.

Despite the difficult environment, we have built a reasonable order book, but the market remains quite competitive and we anticipate challenging times for the next 12 months or so.

Q: Do you think investments in oil-related projects will pick up in the Gulf, after the OPEC output cut deal?

A: The OPEC deal is certainly a positive and should help to stabilize the oil prices in $50 to $60 per barrel range. The CapEx cycle should revive, albeit at a slower pace, as it takes time for capital projects to be tendered and finally awarded. We expect the situation to improve in about 12 to 18 months’ time.

Q: How important is Saudi Arabia for L&T?

A: Saudi Arabia has a rising demand, and the drive to modernize Saudi economy dictates that there will be continued investments in social, civil, industrial and hydrocarbon infrastructure. L&T remains committed and wishes to be a preferred partner in this market. It will be one of the core markets for LTHE.

Q: What are the upcoming projects in Saudi Arabia that L&T will be interested in?

A: Under the LTA, Aramco issues tenders periodically. There are four main contractors under the LTA and even if we assume all contractors will roughly get a similar quantum of work, we should have an annual order book of about half a billion dollar.

We are also focusing on upcoming opportunities within the kingdom in petrochemicals, refineries, onshore gas processing and tank farms.

Q: What are the other main projects that L&T is working on within the GCC?

Other than Saudi Arabia, we are executing a project for Kuwait Oil Company. In Oman, we are executing two gas depletion compressor projects for Petroleum Development Oman. Further, we have approximately $2 billion worth of opportunities in the pipeline. 

Q: Are you looking to expand further in 2017?

A: We are already present in all major markets in the Middle East and during 2017 we will be focusing on further consolidation in these existing markets.

Keeping an eye on the future, we are also exploring possibilities to expand in North Africa and the Caspian Region.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com