Treasure Chest: Tender Opportunities For E&C Contractors

This story features FORTESCUE LIMITED, and other companies. For more info SHARE ANALYSIS: FMG

By Greg Peel

The most successful sector in Australian stock market over the past twelve or more months has been that of the Engineering & Construction service companies which have been awarded a plethora of high dollar service contracts at resource sector projects. With commodity prices now relatively stagnant, the Australian resource sector has been all about capex, capex and more capex and cashflow is funnelled back into new and expanded projects.

The miners and energy companies awarding those contracts have battled with rising costs and the strong Australian dollar and have seen little share market appreciation recently, while many contractors, which simply pass on rising costs and currency problems and are able to charge high margins due to strong demand for service, have seen their share prices surge.

For contractors it is, of course, all about winning contracts, and share price re-rating comes as result of announced contract wins. Traders can therefore potentially benefit from knowing which companies are in the running for upcoming valuable contracts, and to that end Goldman Sachs has identified where the action is in the sector at present.

Three structural, mechanical & Piping (SMP) contracts are up for grabs at BHP Billiton's Rapid Growth Project 6 (RGP6) – the Jimblebar mining operation in WA. Goldman suggests Monadelphous ((MND)) is well placed to win the two of three the company has bid for while United Group ((UGL)) looks likely to pick up the third having previously won a key SMP contract on RGP5. "Mona" has won key SMP contracts on all of RGP1-4.

A decision is expected in the coming few weeks.

Fortescue Metals ((FMG)) has contracts out for its Christmas Creek 2 and Solomon iron ore projects in WA. Goldman believes all of Downer EDI ((DOW)), Leighton Holdings ((LEI)) and NRW Holdings ((NWH)) are bidding on Christmas Creek, and while Downer holds the contract on Christmas Creek 1, underperformance to date could see Leighton or NRW win the new deal.

Meanwhile the broker believes Leighton's Thiess division is the lone contender for the Solomon contract.

Decisions are expected in a few weeks.

Exxon Mobil is looking to award a contract at its Hebron Offshore Platform off the Atlantic coast of Canada. WorleyParsons ((WOR)) won the front end engineering design (FEED) contract for Hebron in 2010 and is thus a good chance to win this new, larger contract, in a joint venture with Fluor.

A decision is expected in the next month or so.

There are three further tenders Goldman Sachs has identified but for which a decision is a couple of months away.

Woodside Petroleum ((WPL)) is looking to award an Operations & Maintenance (O&M) and minor capital works contract at its Pluto LNG project in WA. It's the sort of work one would expect UGL and the Transfield ((TSE)) -Worley joint venture to bid for but both companies have worked on Pluto construction and the project has been beset with delays and cost overruns. They may not thus get a look in this time, Goldman suggests, which leaves Mona and a handful of foreigners as tenderers.

Another O&M contract is coming up for renewal at the North West Shelf and the broker expects Mona to tender along with the existing contract holders UGL and Transfield/Worley.

Worley is also well placed to win the FEED contract for the expansion of Chevron's Tengiz field in Kazakhstan, having previously been awarded the design work. Worley also worked with Fluor in the past on this project and the broker would expect the same to be the case this time.

A decision is expected sometime around mid-year.
 

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