O&G construction firms turn to infra jobs

But Saudi Aramco has said that none of its projects will be cancelled.

As construction work in Saudi Arabia’s oil and gas sector dries up, contractors say they are shifting focus towards billions of dollars worth of government infrastructure projects to stay afloat during the financial crisis.

“You can say about 90% of our business six months ago was in the oil, gas and petrochemicals industry,” said Consolidated Contractors Company (CCC) general manager for Saudi Arabia Mazen Qaddoura.

“I think for the next two years or so the ratio will be about 80% infrastructure, power and water projects, while in oil and gas will make up only 20% – it’s a big shift.”

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The financial crisis and a drop in oil prices to around US $40 (SAR150) a barrel has resulted in oil companies delaying and renegotiating contracts on many mega-projects worth billions of dollars to the construction industry.

Meanwhile, the Saudi Arabian government is undertaking a massive expansionary budget for 2009 with a planned expenditure of $126 billion.

“The government is trying not to defer big infrastructure projects since they have enough cash from previous budget surpluses and high oil prices,” said Qaddoura.

“Infrastructure projects are really needed by the public in Saudi Arabia – hospitals, universities, utilities – these are vital and I think they will continue. That’s why we have switched our focus.”

Qaddoura said CCC is anticipating the award of a $2 billion contract for a civil project in Riyadh.

Gulf Consolidated Contractors (GCC), another major contractor in Saudi Arabia’s oil and gas industry, say they too are turning to public infrastructure projects during the financial crisis.

GCC spokesman Ibrahim Al Mohaish said the government now offers a less risky option and has become more professional in its business practices.

“In the past we were not looking at it at all,” he said. “The mechanism is different, if you deal with Saudi Aramco as an oil company it is different from dealing with the government sector – the delivery, the understanding, the language, the payments – it is totally different.

“But now (the government) have become more logical, more understanding, they are giving better terms and conditions, better timeframes and becoming more professional in terms of giving projects to people with experience.

“Saudi Aramco is often brought in as consultant now to organise and supervise infrastructure projects and this adds a level of professionalism.”

Al Mohaish said GCC is currently bidding for several government projects which will help them sustain its workforce.

In the meantime he said they have had to send around 200 of their 4000-strong employees on extended vacation due to the slowdown in the oil and gas sector.

Likewise, Qaddoura said CCC has redistributed some of its workforce to projects in Africa, Turkmenistan, Azerbaijan and Kazakhstan. 

“There is not as much work as there was before, so all of the companies will have to shrink their workforce and go back to where they were four or five years ago,” he said.

“The boom was a very sharp boom, suddenly the oil prices shot up, projects were available for everybody and contractors were not able to do the projects that were lined up.

“Now contractors have built up huge resources which they cannot utilise anymore and unfortunately they have to cut down and tailor their business to whatever is available in the market.”

But at an executive council meeting last week, Saudi Aramco unofficially decided that none of its projects would be cancelled.

“They announced that all projects, regardless of size or cost, will be exclusively executed in the Kingdom,” said a source who attended the meeting.

“This really is a very courageous step from Saudi Aramco and a very big economic stimulus for the growth of the industry.”

The manager of Aramco’s project support and controls department, Motaz Al  Mashouk, was also present in the meeting but would not confirm the announcement.

He said, “The direction is indeed to move towards executing all projects in the Kingdom,” but any announcement would be delayed until early March when they plan to hold a public forum.

Last May Aramco revealed plans to pump $129 billion into new energy projects over the next five years in an effort to boost crude gas refining and petrochemical capacity.

A professor of economics for the Oil and Gas Petroleum Institute in Abu Dhabi, Dr Dalton Garis, said he believes new projects in the oil and gas industry will proceed but at a much slower pace.

“Up until now money was not a problem and time was a problem,” he said.

“Now it is reversed, they don’t care if it takes a little longer because the capacity that is being built will not likely be used for some time.

“We know we’re going to need it, but it’s going to take two or three years for the world to get out of this crisis before we see increases in resource demand. Until then we need to keep costs in line.”