Fluor Corp. Awarded $6-Billion Saudi Pact
Fluor Daniel, the engineering and construction arm of Fluor Corp., Wednesday landed what appears to be the largest contract in Fluor’s 78-year history--estimated by sources to be worth $6 billion--to oversee expansion of petroleum facilities for Saudi Arabia.
Fluor Chief Executive Les McCraw called the pact “prospectively, the most significant project we’ve had in over a decade.”
The contract, which will run five to nine years, is expected to provide a major boost in the continuing revitalization of Fluor, Orange County’s largest public company. The firm, which was badly hurt early in the 1980s by the collapse of the oil industry, has staged an impressive turnaround in the last three years.
The deal calls Fluor Daniel’s hydrocarbon division to oversee expansion of Saudi onshore and offshore oil and gas facilities, including natural gas plants, pipelines, production facilities and offshore platforms. The work is part of a multibillion-dollar drive by Saudi Arabia to boost its oil production to replace slackening worldwide output.
The contract is not expected to create a significant number of new jobs at Fluor, which has 20,000 employees worldwide and is one of the largest employers in Orange County. But the company, which has about 100 engineers in Saudi Arabia, will eventually relocate about 300 other technicians there from other locales, McCraw said.
In landing the huge contract, Fluor beat five major competitors: Bechtel Corp. of San Francisco, Parsons Engineering of Pasadena, Dresser Industries of Dallas and Foster Wheeler Corp. and Lummis Crest Inc., both based in New Jersey, analysts said.
McCraw would not comment on the value of the contract, saying that the total is not known exactly because the work will be released by Saudi Aramco, the Saudi government-owned oil company, in several phases.
But analysts valued the deal at more than $6 billion, making it the largest deal Fluor has ever landed in dollar terms and one of the most important since the late 1970s.
Fluor’s success was not surprising because of its past ties to Saudi Aramco, analysts said.
While trading in Fluor’s common stock was heavy, with 621,700 shares changing hands, the price surge was only moderate. The stock closed trading on the New York Stock Exchange at $46.625 a share, up 87.5 cents a share.
Fluor, founded in Santa Ana in 1912, has emerged as one of the nation’s major international construction and engineering firms in the last three decades. But it was hit hard in the oil crash of the early ‘80s, when oil prices fell from near $30 a barrel to less than $10 a barrel. Fluor has been rebuilding and refocusing ever since.
As part of the restructuring, Fluor ditched its dependence on oil-related projects--which accounted for up to 85% of its business in the late 1970s--and began aggressively seeking industrial and government work as well.
Fluor Daniel’s hydrocarbon unit now accounts for only about 30% of the company’s total revenue, McCraw said. This will increase with the Saudi Aramco contract, “but it will have a lesser effect in the current fiscal year and become more significant part of our backlog in subsequent years.”
Fluor’s backlog of work--a major measurement of an engineering and construction firm’s business--is now about $9 billion, up from $8.4 billion at the end of fiscal 1989. The company’s backlog peaked at $16.3 billion in 1981.
McCraw said that while the percentage of oil-related business at Fluor Daniel will grow because of the Saudi Aramco contract, Fluor will not repeat its earlier errors. The company’s dependence on the oil industry led to a $633.3-million loss in fiscal 1985.
Employment plunged from a high of 44,000 in 1981 to 14,000 in 1987. It rebounded to a current level of 20,000 after a 1986 restructuring that led to Fluor Daniel’s creation.
In fiscal 1989, which ended Oct. 31, Fluor reported net income of $108.5 million, nearly double the $56.4 million it reported in fiscal 1988. Its gross revenue last year was $6.2 billion, in contrast with $5.1 billion the year before.
In the first six months of its 1990 fiscal year, Fluor said, net income was $66.2 million, up 45% from the year-earlier $45.5 million, while revenue of $3.7 billion was up 23% from $3 billion in the first half of its fiscal 1989.
The company’s largest previous contract, a management agreement to oversee a $5-billion natural gas development program in 1976-82, was also in Saudi Arabia. In the 1980s its largest job was building a $1-billion copper mine in Chile.
Fluor, which maintained a major business relationship with Saudi Arabia in the 1970s and at one time was involved in more that $10 billion in contracts there, was one of six U.S. companies asked to bid on the contract, according to Herbert E. Hart, an analyst with the San Francisco investment banking firm of S.G. Warburg.
The contract Fluor won is the biggest of three related agreements that together could represent $15 billion in work, Hart said. Fluor apparently had a leg up on its competitors for the program management pact because of its longstanding presence in Saudi Arabia.
“We stayed there as a company and maintained our presence there, even after the big oil work ended” in the early 1980s, said McCraw, noting that Fluor helped to build the Saudi state university and did commercial engineering and construction jobs all through the 1980s.
“We were there,” he said, “so it was only natural for them to ask us for a proposal. They asked others also.”
Hart agreed that Fluor has always had a good relationship with Saudi Aramco and had a good reputation for its engineering and construction work in Saudi Arabia: “There will be a lot of subcontracts that will be let to non-U.S. companies as part of all this, and it is interesting that the Saudis only wanted U.S. companies for the three prime contracts.”
Fluor Daniel’s contract calls for it to act as overall program manager for expansion of onshore and offshore oil and gas facilities and to pull Saudi Aramco’s northern onshore and offshore oil and gas plants out of mothballs.
The northern Saudi facilities were shut down in the early 1980s, when overproduction caused the price of oil to collapse. At the time, Saudi Arabia was producing up to 30 million barrels of crude a day.
Hart said the Saudi government has made it known in the industry that it would like to get back up to 10 million barrels from current production levels of about 5.7 million barrels a day.
Production, meanwhile, continues to fall in the United States and Soviet Union.
The Saudis have also reported several recent discoveries of light, low-sulfur crude oil. If that represents a significant oil field rather than several small and undevelopable ones, Hart said, the Saudis will probably want new production and refining facilities to be built to handle the high-priced and highly sought-after product.
Work on the Fluor Daniel contract will begin in July, McCraw said, and will be handled primarily out of Fluor offices in Al Khobar, Saudi Arabia, and in Houston.
FLUOR CORP. AT A GLANCE Location: Irvine. Business: Engineering, construction, maintenance and technical services. Main subsidiary: Fluor Daniel Inc. Top executives: Chairman David S. Tappan Jr., Vice Chairman and Chief Executive Les McCraw, President Vincent L. Kontney Employees: 20,000. 1989 revenues: $6.2 billion. 1989 net income: $108.5 million. Stock exchange: New York. Stock price: $46.625. Recent events: Fluor Daniel on Wednesday won a major contract to oversee what analysts say could be a $6-billion expansion and refurbishing of Saudi Arabia’s major oil production and refining facilities. Source: Fluor Corp.
FLUOR CONTRACTS IN 1990
Fluor Corp. has announced more than 20 new contracts this year. The largest is a $6-billion contract to oversee oil-related plant expansions and projects for Saudi Arabia.
Client: Saudi Aramco Service: Manage petroleum-related expansions and projects Amount: $6 billion 1 Client: Arco Alaska Inc. 2 Service: Engineering, technical services Amount: $17 million Client: Fort Dodge Laboratories 2 Service: Veterinary products manufacturing facilities Amount: $8 million Client: Big Rivers Electric Corp. 2 Service: Maintenance for coal-fired generating units Amount: $5 million Client: Navajo Refining Co. Service: Gasoline production unit Amount: $19 million Client: South Carolina Electric & Gas Co. 2 Service: Nuclear power station services Amount: NA Client: Union Carbide subsidiaries 2 Service: Ethylene oxide plant construction Amount: NA Client: National Aeronautics and Space Administration Service: Johnson Space Center construction Amount: $27 million Client: TU Electric Service: Maintenance contract renewal Amount: NA Client: Pillsbury Inc. 2 Service: Food processing and distribution plant expansion Amount: NA Client: Cape Industries Service: Chemical manufacturing plant improvement Amount: $24 million Client: Augusta Newsprint Co. Service: Recycling plant addition Amount: $23 million Client: Sun Refining and Marketing Service: Contaminant removal system Amount: NA Client: Government of Thailand Service: Natural gas pipeline expansion Amount: NA Client: Royal Dutch Shell Co. Service: Petrochemical plant construction Amount: NA Client: Nissan Motor Manufacturing Corp. Service: Automobile factory addition Amount: NA Client: Alcan Aluminum Ltd. of Montreal Service: Aluminum sheet-rolling plant modernization Amount: $120 million Client: Amoco Corp. Service: Natural gas processing plant construction Amount: $80 million Client: Intercontinental Energy Corp. 2 Service: Carbon dioxide production facility Amount: $37 million Client: Mannesmann Anlagenbau Service: Oil pipeline expansion Amount: NA Client: DuPont Canada Service: Hydrogen peroxide manufacturing plant Amount: $100 million Client: Procter & Gamble Inc. Service: Capital improvement and renovation Amount: NA Client: Stennis Space Center Service: Rocket engine component test facility Amount: $17 million 1 Estimated value
2 Two separate contracts
Source: Fluor Corp.
