Boom Times For Megaprojects
The world's hunger for energy is fueling giant backlogs for engineering and construction firms
From the Persian Gulf to the Gulf of Mexico, huge engineering and construction companies are reaping the bonanza of the run-up in oil and natural gas prices over the past four years. Much of the money that left consumers' pockets is flowing now into steel and concrete-megaprojects to deliver more gasoline, natural gas, and electricity than ever before.
Firms are drawing up plans to expand and boost the performance of oil refineries in the United States and build new ones overseas. They are plotting out massive plants to turn natural gas to liquid in the Middle East and Africa and equally daunting facilities on U.S. coasts to turn it back to a gas. For the first time in years, they will raise smokestacks for burning coal to produce thousands of new megawatts of power across the country. Even new nuclear power plant construction in the United States seems possible-although, as with every other type of large project, at a high price. The boom has so much momentum, industry insiders believe, that it will continue despite the recent falloff in energy prices.
Gold rush. "I'd say the market right now is the strongest I've seen it in my 32 years in the business," says Alan Boeckmann, chief executive of Fluor, a world leader in heavy construction. In the past quarter, Fluor broke records by winning $5.8 billion in new contracts. Its project backlog grew 17 percent in just those three months to $18 billion. A key factor: The Persian Gulf nation of Qatar tapped Fluor to construct one of the largest liquefied natural gas facilities ever, as the emirate seeks to become the world's leading supplier of this crucial fuel.
But there's enough work for Fluor's competitors to share in the explosive growth. As a privately held company, Bechtel doesn't post quarterly numbers, but the engineering giant surely added to the $18.1 billion in revenue it reported for 2005. It was named this summer as joint lead contractor for one of the largest oil refinery expansion projects ever in North America, an estimated $4 billion undertaking in Port Arthur, Texas, by the Saudi-Shell venture Motiva. Bechtel's partner, Jacobs Engineering, saw its backlog increase 12.1 percent to $9.4 billion in the past quarter. Foster Wheeler, near the brink of bankruptcy only two years ago with 10 consecutive quarterly losses, reported record profits in August and saw its backlog swell 85 percent. It landed the front-end engineering job on ExxonMobil's new petrochemical complex in Singapore.
"The health of engineering companies is in direct relationship to the health of their customers," says Mike Dudas, Bear Stearns analyst, while pointing out that each of the industry's major players has from 25 to 80 percent of its backlog tied to oil and natural gas. Although the industry giants have tried to diversify to free themselves from commodity boom-and-bust cycles, no other business is quite as lucrative as energy. Fluor, for instance, is well known for government contracting-nuclear weapons plant cleanup, contracts for the Federal Emergency Management Agency in New Orleans, defense logistics in Iraq. But all that government work added up to only 15 percent of last quarter's net income; oil and gas accounted for nearly 50 percent of profits.