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M&R accelerates Clough’s globalisation as Australian LNG workflow tapers

Clough CEO Kevin Gallagher

Clough CEO Kevin Gallagher

26th February 2015

By: Terence Creamer

Creamer Media Editor

  

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Engineering and construction group Murray & Roberts (M&R) has signalled its intention to accelerate the internationalisation of its Australia-based oil and gas unit, Clough – a strategy underpinned by a dramatic tapering off of greenfield liquefied natural gas (LNG) megaprojects in Australia and an expectation that future LNG prospects are likely to arise mainly in North American and Africa once the oil and gas cycle recovers.

Already a slowdown in LNG capital projects has resulted in Clough’s construction-related order book falling materially from nearly R4.2-billion in 2013 to only R39-million by the end of December, which resulted in its overall backlog declining to R12.2-billion from over R20-billion in the previous year.

M&R CEO Henry Laas says, while the fall in the oil price has reduced capital expenditure by energy companies generally, the precipitous decline in orders relates mainly to the transition in Australia from the construction of LNG terminals to the commissioning, operation and maintenance of those facilities.

The expectation is for commissioning and brownfield contracts to contribute about half of Clough’s order book in the immediate future, with Clough CEO Kevin Gallagher estimating the yearly brownfield market opportunity in Australia to be between A$2-billion and A$3-billion. Clough aims to capture a 25% share of that market.

“There has been no cancellation of projects on which Clough is working,” Gallagher insists, but clients are shifting their attention from capacity expansions, which are being deferred, to projects designed to boost efficiencies or reduce costs.

Both Laas and Gallagher remain sanguine about the longer-term prospects for LNG, but believe the next wave of developments will be in Canada, the US and East Africa.

Clough has acquired Booth Welsh, of Scotland, and CH-IV, of the US, partly in an effort to position itself for those future investments. In addition, M&R’s marine business has been integrated with Clough to form Clough Murray & Roberts and to target near-shore marine projects outside of Australia.

Developments in Australia have also changed the composition of M&R’s order book, with 48% of the R37.8-billion backlog at the end of December made up of projects in the Southern African Development Community. At the end of December 2013, international orders made up 60% of what was a R44-billion order book.

Laas indicates that M&R remains committed both to the natural resources market, notwithstanding the current weak outlook for commodities, including oil and gas, and to greater international diversification.

But the group’s new strategy, being pursued under the ‘Engineered Excellence’ banner, will emphasise the full construction value chain and will seek to position the JSE-listed company as a project engineering, procurement and construction group in the oil and gas, mining, energy and industrial sectors.

“For a long time Murray & Roberts’ revenue and profit was predominantly earned in the construction segment of the project value chain – that is the high-risk, low return part of the value chain. We would like to expand our involvement in other segments . . . more so on the engineering side and, post-construction, on the operations and maintenance segment of the project value chain,” Laas explained.

He indicated that it would continue to pursue acquisitions that supported that strategy, noting that its own non-core disposal process had been concluded.

Edited by Creamer Media Reporter

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